Global Governance as Business Strategy: The Case of Gazprom : The Case of Gazprom [1 ed.] 9783836639453, 9783836689458

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Diana Manuel'evna Mateo

Global Governance as Business Strategy

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The Case of Gazprom

Global Governance as Business Strategy: The Case of Gazprom : The Case of Gazprom, Diplomica Verlag, 2010. ProQuest Ebook Central,

Diplomica Verlag

Diana Manuel'evna Mateo Global Governance as Business Strategy: The Case of Gazprom ISBN: 978-3-8366-3945-3 Herstellung: Diplomica® Verlag GmbH, Hamburg, 2010

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Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte, insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen, bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des Urheberrechtes. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden und der Verlag, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. © Diplomica Verlag GmbH http://www.diplomica-verlag.de, Hamburg 2010

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Acknowledgment

With all my heart I want to thank Rudolf E. Wagner for his frequent encouragement and support on all levels. I dedicate this academic work to him, who unremittingly supported me during my years of study. He taught me the most important lectures in life and made this work possible. Further, I thank my good school year friend Marlon M. Großer, who listened to me whenever needed. I truly wish that we will never lose connection, even if separated

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my million of miles.

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Preface

"Capitalism is a powerful and strong tiger that can be goaded to revive an economy assuming that its powers are tamed by civil and political institutions. Globalisation has released the tiger from its cage to face a 'wild' capitalism, which, like a freed tiger, returns to follows its instinct of hunting and devouring all" Benjamin R. Barber

“Listen, there is no courage or any extra courage that I know of to find out the right thing to do. Now, it is not only necessary to do the right thing, but to do it in the right way and the only problem you have is what is the right thing to do and what is the right way to do it. That is the problem. But this economy of ours is not so simple that it obeys to the opinion of bias or the pronouncements of any particular individual, even to the President. This is an economy that is made up of 173 million people and it reflects their desires, they're ready to buy, they're to spend, it is a thing that is too complex and too big to be affected adversely or advantageously just by a few words or any particular - say a little this and that, or even a panacea so alleged.“ Dwight David Eisenhower

“What business strategy is all about; what distinguishes it from all other kinds of business planning - is, in a word, competitive advantage. Without competitors there would be no need for strategy, for the sole purpose of strategic planning is to enable the company to gain, as effectively as possible, a sustainable edge over its competitors.” Keniche Ohnae

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“Power consists in one's capacity to link his will with the purpose of others, to lead by reason and a gift of cooperation.” Woodrow Wilson (1856 - 1924), (Physicist and Nobel laureate)

“I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma: but perhaps there is a key. That key is Russian national interest.” Sir Winston Churchill (1874 - 1965), Radio speech, 1939

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Table of Contents 1. Introduction ...............................................................................................................1 1.1 Research Question ...............................................................................................4 1.2 Research Methods ................................................................................................5 1.3 Terms and Definitions ...........................................................................................7 1.3.1 Globalization ..................................................................................................7 1.3.2 Global Governance ........................................................................................9 1.3.3 Power ...........................................................................................................14 1.3.4 Strategy ........................................................................................................20 2. Theory Framework ..................................................................................................25 2.1 Global Actors in Global Governance’s Competitive Environment .......................25 2.1.1 The Role of Civil Society in Global Governance ..........................................25 2.1.2 The Role of International Organizations in Global Governance ...................27 2.1.3 The Role of the State in Global Governance................................................28 2.1.4 The Role of TNC in the Global Governance.................................................30 2.2. Porters 5 Forces Industry Analysis of TNCs ......................................................31 2.2.1 Rivalry ..........................................................................................................32 2.2.2 Threat of Substitutes ....................................................................................36 2.2.3 Threat of New Entrants ................................................................................37 2.2.4 Bargaining Power of Buyer and Supplier .....................................................37 2.3 The Government and International Organizations as Sixth Force ......................40

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2.4 Elaboration of TNCs´ BP Rising Strategies.........................................................46 2.4.1 Self Regulatory Institutions (SRIs) ...............................................................48 2.4.2 Privatization of the Public Sector..................................................................48 2.4.3 Quasi-Regulation .........................................................................................49 2.4.4 Public-Private Partnerships (PPPs)..............................................................49 2.5 Conclusion of Theory Framework .......................................................................51

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3. Case Study: Gazprom.............................................................................................55 3.1 History Background of Russians Policy ..............................................................55 3.2 Economy Background .........................................................................................57 3.3 Strategy framework .............................................................................................57 3.3.1 Gazprom and Russia....................................................................................58 3.3.2 Gazprom and NGO´s ...................................................................................58 3.3.3 Gazprom and Europe ...................................................................................60 4. Conclusion...............................................................................................................63 Bibliography ................................................................................................................65

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Appendix......................................................................................................................67

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Table of Figures

Figure 1: Global Competition Framework .......................................................................2 Figure 2: Dynamic Frame of Global Governance by Global Actors ..............................12 Figure 3: Bargaining Power and Global Power .............................................................14 Figure 4: Global Power and Global Governance ..........................................................14 Figure 5: Market dominating power and GP .................................................................16 Figure 6: Distinction of Global Power and Bargaining Power .......................................17 Figure 7: Power Dimensions .........................................................................................19 Figure 8: Porter and Hirschman Hybrid Strategy Approach..........................................22 Figure 9: Growth in Volume of International Organizations 1909-1997 ........................26 Figure 10: Global Player vs. Country GDP ...................................................................31 Figure 11: Global Actors through the Lens of Porter’s Forces Model ...........................32 Figure 12 : Concentrate Ratios UK , 2004 ....................................................................35 Figure 13: “New” Relationship between, Buyer and Supplier, and the Industry............39 Figure 14: Adding the sixth force to Porter´s five forces of competition model .............41 Figure 15: Strategy Classification .................................................................................47 Figure 16: Three Pillars (Dimensions) of BP.................................................................52

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Figure 17: EU exit Stratagy ..........................................................................................62

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1. Introduction Ongoing globalization leads to the metamorphosis of social and economic structures and changes the scope of national governmental and non-governmental institutions. Not at least, it changes the aspect of national mentality. The creation of the European Union in 1957 is only one example for the fusion of economic and political domains. In fact, financial and capital markets liberalize, the number of global player rise, and the establishment of international non-governmental organizations increased from 1956 to 1997 by 1,600 % from 985 to 15,965 (Hauchler et al. 1999 : 370). On the whole, the opportunities for business´ to take influence on the global level are higher and probably more necessary than ever before in history. Economic interrelations and dependencies, international scarcity of non-renewable energy resources and the global climate disaster lead to the necessity of introducing international institutions that act not only in national interest, but serve for the global stabilization of the world economy and its sustainability. A new aspect or logic consequence of globalization arises: Global Governance (in the following abbreviated as GG).

GG is one major concomitant phenomenon in the ideology in the disparity in national interests of sovereign states. This difference in the interests of individual items compared to the interests of the entire society exists as long as human beings. Literature calls it the “moral hazard phenomenon” (Arrow 1963). There might be common, as well as divergent interests on an efficient solution of various problems, for example in the areas of shelter for refugees and asylum seeker, the problem arising from weapons of mass destruction and the regulations of CO2 emissions.

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With ongoing globalization there arises a complex multidimensional competition framework. Not only global commercial companies, but also national entities start to compete in terms of production factors, fiscal and political environment and legal frameworks with each another.

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Figure 1: Global Competition Framework (Source: Klodt. 1999: 199, edited by the author)

Figure 1 illustrates the global competition framework by showing up the interrelation among country A and country B. The countries are illustrated including first, their official political entity (government) and secondly, to the Trans-National Companies (in the following abbreviated with TNCs) operating within the country. The third party illustrated is “the employment”. National government, TNCs and the employment of civil society are interrelated with each another within one country in two directions.

Firstly, the TNCs affect the employment and therefore as a result, the government. •

The higher the action of TNCs within the country, the higher is the employment rate of the civil society (the lower the unemployment).

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•

The lower the unemployment rate, the more satisfied the civil society is, and therefore the more powerful the government becomes (because of higher chances to be re-elected).

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Secondly, the government has impact on the benefits and competitive advantage of TNCs. •

The better the education policy, the more valuable becomes the human capital.

•

The better the human capital, the more efficient and thus the higher the productivity of TNCs becomes.1

On a whole, national government can create benefit for TNCs and the other way around.2

Figure 1 also illustrates the competitive relationship among country A and country B. Both countries compete in terms of providing attractiveness to the TNCs. Attractiveness can be reached by the creation of valuable factors (such as skilled labour et al.). However, this skilled labour also needs to be attracted. As the model introduces a second country, skilled labour can easily move to a place with better factors for the society (better living conditions, better security system, better employment chances, better environmental care, and much more). Though, governments do not only compete for TNCs, but in addition to that for civil society and as a result, finally for voters and power.

To sum up, TNCs compete with each other in terms of production. Governments compete with each other in terms of factors. Both, TNCs and the national government, depend from each another and can therefore form an alliance in order to gain in competitive advantage and Global Power (abbreviated in the following as

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GP).

1

Obviously, not only educational policy creates benefits for TNCs, but also fiscal and legal aspects. They are not mentioned in that model here; however they will be listed separately in the further sections. 2

The UNCTAD even publishes each year a list of the 25 most-favoured locations of the largest 100 Trans-National Companies in the world. This list for the year 2005 can be found in the appendix 4.

3

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From the aim driven point of view (as explained further in section 1.3.2), GG aims to face and to deal with global challenges in order to balance the markets, to maximize overall welfare and aspire an equal distribution of resources and wealth all over the world. At the same time, GG can be used as a strategic measure and a tool for regulating markets and gaining in competitive advantage and GP. This thesis is going to deal with GG as business strategy based on the neo-realistic approach. The increased presence of TNCs in local economies as a strategy to ensure market control has been labelled "glocalization" (Hildyard, Hines, and Lang: 1996). .

1.1 Research Question At least after WW II, global society started to realize the ongoing trend for economic trade-off, liberalization of markets and the principle of the invisible hand; not only on a national stage, but on the global layer. National boarders melt, since the action of trade, the economic power, now shifts from the national level to a global degree. International acting companies gain in power and influence with, for instance, direct investments, rising turnover, increased cash flows, and not at least with their bargaining power (in the following abbreviated with BP). The increase in BP is often linked to (global) political activities. Global player, such as TNCs, serve often as a tie between several nations and economies. Though, there are still national governments, and national interests that are not to bring in line with the interests of the global society as a whole. There sometimes might be also dissensions among governments and the TNCs operating in the same arena. The crucial factor then is the BP of the actor. It is not always the case, that government and TNC are equal in having BP. Often there arises an asymmetric dependency, which causes a drop of BP for one of the parties. That disparity and the Copyright © 2010. Diplomica Verlag. All rights reserved.

management of different parties’ interests in general, is what Global Governance is all about. During the last 50 years, companies used their BP in order to implement national lobbying as an instrument for gaining in Global Power (in the following abbreviated as GP).

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Now, as national levels are detached from global platforms and by the GG framework, there arises one important question: Is Global Governance a useful strategy tool for the business sector? In most literature, Global Governance is defined to be an aim driven, goal oriented approach in order to solve problems resulting by the globalization process. But there is only little research in order to find an explanation of how exactly GG is organized.

The first essential question to answer now is: What are the factors that influence GG? The second question is: How do these factors influence GG? Third question is: Is there a relation between GG and GP? Last question: Can GG be used as a business strategy in order to increase GP? If yes, how?

1.2 Research Methods The thesis´ objective is it to figure out the relationship of involvement into Global Governance and the business´ Global Power. It is pre-assumed that an increase in Global Power leads to an increase in a business market dominating power. Thereby it will be found out, what particular can be done to gain in Global Governance involvement. Several strategies are imaginable. This thesis will work out a new strategy approach by combining 1) Porter’s 5 Forces model with 2) Hirschman’s model of “voice and exit” strategies. Further the framework of Global Governance will be transferred to the

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traditional 5 forces model in order to detect the location of Trans-National Companies in their competitive environment. Further an additional sixth force is going to be introduced. After analyzing the competitive environment of Trans-National Companies and the impact of governmental institutions on the industry, several strategies

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for gaining in Global Power will be developed, using the new hybrid strategy approach as a tool. In the section of definitions (1.3), the thesis and their basic components are going to be analyzed and explained. Within the theory framework (2.1-2.4), the thesis will be set up theoretically. The case study of Gazprom as TransNational Company will transfer the theoretical model to a practical example. Thus, Russian influence on the world market (for energy) rises, and the situation concerned Europe directly, the example chosen is very relevant and of actuality. In the end the findings will be evaluated. The unit of analysis used in the theory framework is based on the global level. That is rationale because Global Actors in general are going to form the basis of the framework. However, the topic itself implies choosing the global level as unit of analysis. The case study will concentrate on a specific firm. Here it will be switched to the firma level as unit of analysis. That makes sense, because there are only little volumes of industries that do globalize. On the other hand on the global level there is already everything globalized. Only the smallest unit of analysis fits here, because on the firm level there can be made a decision if to go global or not. Further the unit of the other player is scaled in the same small

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way.

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1.3 Terms and Definitions In order to analyze the relationship between GG, GP and the resulting strategy approaches, all relevant terms need to be defined first in detail. Firstly, globalization is the precondition and the origin of the GG phenomenon. That is why Globalization is going to be ranked here at first. It will be provided a classification of the forms of globalization. Finally, the most suitable form is going to be determined in order to form the basis for this thesis´ analysis. Secondly, GG will be defined by naming and delineating the both commonly used approaches in order to pick the one that is going to build the basis in this thesis. Thirdly, GP is the dependent variable that is observed to change in response to the independent variable (GG). Therefore there is a need to define GP carefully. GP is the general term for all GAs. The GP of TNCs is defined explicitly as market dominating power. BP is the ability to influence decision making of other actors in order to gain in GP. BP is the essential tool to reach GP through GG. BP consists out of 3 dimensions of power. Last but not least, (business) strategy results from the necessity of a tool to regulate the (positive) interrelation between GG and GP. It will be provided a hybrid strategy framework, mainly based on the approaches of Porter (1980) and Hirschman (1970).

1.3.1 Globalization Although globalization is a significant part of our days and a buzzword in business theory, practice and academic debates, the phenomenon itself is still controversial (Fuchs/Kratochwil 2002:15). One of the most auspicious approaches is the classification of Scholte (2000a:15-17) who argued that at least five broad classifications are discussed in literature. These five classes of globalization are

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going to be introduced to the reader

now. However, “Globalization as

deterritorialization” is the approach this paper is going to take as a basis for further analysis on the GG approach. “Globalization as internationalization” and “globalization as liberalization” are economy related approaches. “Globalization as universalization” and “globalization as westernization (or modernization)” as definitions are based on social and cultural issues.

“Globalization

as

deterritorialization”

refers

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to

the

argument

of

supraterritoriality and is referring to Scholte, considered to be the best fitting definition of globalization.

“Globalization

as

internationalization”

means

the

increase

of

international

interdependencies and cross-border relations between countries. “Globalization as liberalization” refers to a process of removing government-imposed restrictions on movements between countries in order to create an open, borderless world economy (Scholte 2000: 16). “Globalization as universalization” uses the term “global” in the sense of being “worldwide” and “globalization” is “the process of spreading various objects and experiences to people at all corners of the earth”. A classic example of this could be the spread of computing, television etc. “Globalization as westernization or modernization” especially in an “americanized” form is understood as a dynamic process. Thereby social structures of modernity (capitalism, rationalism, industrialism, bureaucratism, etc.) are spread over the world, normally destroying pre-existent cultures and local self-determination. The understanding of “globalization as westernization” has developed particularly in the context of neocolonialism and post-colonial imperialism.

The approach of “globalization as deterritorialization” (or as the spread of supraterritoriality) entails a reconfiguration of geography, so that social space is no longer wholly mapped in terms of territorial places, territorial distances and territorial borders. Giddens (1990: 64) defined globalization as “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa”. Held (1999: 16) defines globalization as a process (or set of processes) which drives Copyright © 2010. Diplomica Verlag. All rights reserved.

a transformation in the regional/national organization of social relations and transactions in terms of spatiotemporal dimensions (extensity, intensity, speed, impact and direction), generating transcontinental or inter-regional flows and networks of activity. According to Scholte, “globalization as deterritorialization” is the approach that offers the clearest and most specific definition of globalization. The notion of supraterritoriality (or trans-world or trans-border relations), he argues, provides a way into appreciating what is global about globalization.

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“The proliferation and spread of supraterritorial [...] connections brings an end to what could be called 'territorialism', that is a situation where social geography is entirely territorial. Although [...] territory still matters very much in our globalizing world, it no longer constitutes the whole of our geography.” (Scholte 2000: 46)

This paper is going to deal with the issue of GG as a result of globalization being a tool for business strategy in a world without boarders, but with strong bargaining power of national items. International business management shall be brought forward to the globalization of world economy and policy. Thus, the analysis will be mainly based on Scholte´s approach of “globalization as deterritorialization” and focus on Anthony Gidden´s definition of globalization as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and the other way around.

1.3.2 Global Governance The phenomenon of GG is based or even results from globalization. Ongoing globalization and economic interdependence lead to and requires a ruling entity. Several challenges cannot be taken only on a national level anymore. Appendage for developing a suitable theoretical framework started in the 1990s of the former century. Essential concepts of GG are created by different commissions of the United Nations as the “Brandt Report” of the North-South Commission in 1980 and the “Brundtland Report: Our Common Future” of the UN World Commission on Copyright © 2010. Diplomica Verlag. All rights reserved.

Environment and Development in 1987. The Club of Rome published in 1991 “The First Global Revolution” and asked for a synchronous, all-embracing initiative for solving all problems on all layers. 1995 the UN published “Our Global Neighbourhood” and summed up the final findings of the “Commission on Global Governance” (CGG), who researched on the phenomena of GG, related to end of cold war and the problems of governability. The

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CGG report was advanced in Germany mainly by the INEF (Institut für Entwicklung und Frieden)3. On worldwide scale, the World Economic Forum (WEF) and the World Social Forum (WSF) enhanced the CGG´s concept of GG. The CGG gave the following official definition on GG (author’s translation):

“Governance is the sum of various paths, where individuals, public as well as private institutions arrange their affairs. It is a continuous process, in which controversial or different interests are balanced and cooperative actions can be initiated. […] On the global layer, ones understood as regulatory policy the system of intergovernmental relations, but today also non-governmental organisations (NGOs), civil movement, multinational companies and global financial and capital markets need to be taken into consideration. With these groups and institutions interacts global mass media that gained highly in importance. […]” (Stiftung Entwicklung und Frieden 1995: 4ff)

In the course of time, there emerged two main approaches of describing GG, which are important for the delimitation of terms and definitions; firstly, the socio-scientific, and secondly, the younger neo-realistic approach. In literature there is also made a distinction in the relation of GG and globalization. The first approach sticks to the assumption that GG is a (positive) “answer” on the globalization process itself, and mainly used as political steering tool. The other approach explains GG as the “result/consequence” of globalization. It is likely that the socio-scientific approach covers the “answer”- based assumption, whereby the Copyright © 2010. Diplomica Verlag. All rights reserved.

neo-realistic approach stands for the “result/ consequence” – oriented definition.

3

Mainly Nuscheler (2000), Messner and Nuscheler (2000), Mürle (1998), Messner and

Nuscheler (1996).

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The socio-scientific approach on GG The socio-scientific approach explains GG with stressing the aim of problem solving resulted through globalization. The globalization process supports the growth of private goods, but might jeopardize at the same time the protection of global public goods. The instrument that shall provide a solving of that conflict relationship is, regarding to the socio-scientific approach, called Global Governance. The overall goal it is to ensure that globalization and the activities of national government, international institutions and economic actors potentially bring profit for global humanity. Messner (2000: 267-294), one of the frequently named scientists in the field of research on GG and director of the DIE (Deutsches Institut für Entwicklungspolitik) sticks to that socio-scientific approach. He defines global governance as the establishment of an institutional regulating system, and mechanism of international cooperation, which allows the continuous problem solving of global challenges and cross-border phenomena. For this paper, the socio-scientific approach is too much goal oriented. Here, it will be searched for the term of GG as a phenomenon and neutral variable, and not as a purpose-driven factor. Therefore, when talking about GG, it will be stuck to the neorealistic approach.

The neo-realistic approach of GG The neo-realistic approach uses the term of GG as synonym for “international policy”. This approach describes the situation and condition of international policy as a field, where national policies act and perform activities. The neo-realistic approach also includes that national policy in this context is composed of not only the national government. It further includes other on all layer such as Non-Governmental Organizations (NGOs) as social alliances or Trans-National Companies (in the following abbreviated as TNCs) representing global player from the business sector. Copyright © 2010. Diplomica Verlag. All rights reserved.

GG in this sense is no normative term anymore, which evaluates good or bad practices for achieving a goal (e.g. market stability and sustainability). It just analyses the situation on a neutral basis, in which different actors perform their activities on the global layer.

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The neo-realistic approach leads to the assumption that GG is a dynamic and elastic figure, which mutates its frame depending from the changes in influential power, interests, values and ideas of several actors. Fuchs (2005) categorized the main actors into four groups, namely: 1) National Government, 2) Civil Society (NGOs), 3) International Organizations, 4) TransNational Companies (TNCs).

Figure 2 illustrates the GG framework. The shape of GG is a result from the shape, the volume and the position of the Global Actors (abbreviated in the following as GAs) as driving factors of GG.

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Figure 2: Dynamic Frame of Global Governance by Global Actors (Source: Author Illustration)

Each of the four GAs take performance on its specific area on the GG layer. The national government stays in competition with other national government and tries to act in a way, to gain a competitive advantage. The civil society represents the concerns of certain interest groups to the global world. International Organizations are trans-national acting entities who set up standards among allied national

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governments. TNC are business entities, who primarily act on the behalf of commercial interests. When two or more GAs are involved into the same topic, there arise intersections: intersection of first grade (I1) and intersection of second grade (I2). The grade of intersection is measured in terms of involvement into GG. The strongest possible intersection (black coloured field) is what is defined as Global Governance itself. Thus, the shape of GG depends on the ability of GAs to coordinate and increase their window of action. The strength to shape GG and to locate own and other’s defined boarders is defined as Global Power (in the following abbreviated as GP). GP will be defined in detail in section 1.3.3. For example, the Russian ministry on environmental affairs sets up a restriction for Shell to extract oil in Russia. The rationale behind it is the impeachment of the usage of out-dated and toxic equipment that harms the natural environment in Russia and thus, break the Russian environmental care regulations. Until that point of time only the national government (Russian Federal Ministry on Environmental Affairs) and the TNCs (Shell) are involved (I1). Further, Shell alarmed the OECD and the WTO in order to claim on the right of antidiscrimination (I2). As a reaction, the Federal Ministry on Environmental Affairs asked Greenpeace to give its opinion on the harming issue of Shell’s activities in Russia. Now also International Organizations (WTO) and Non-Governmental Organizations (Greenpeace) are involved into the issue.

The intersection/involvement of all four GAs is defined as GG. GG can be a threat, if the other GAs have to great GP. On the other hand GG can be used as strategy (at least it is assumed to do), when there is a high involvement of ones own (through great GP). GP can either be increased by the harsh taking over of an other GA, or by the cooperative relationship to the other GAs. Thus, the fractional intersection of two Copyright © 2010. Diplomica Verlag. All rights reserved.

or three GAs can either be positive (pleasant) or negative (hostile). Dependent on the overall relation to the other GAs, the right strategy must be chosen. Stratagies are going to be defined in detail in section 1.3.4. The consequence is that GG cannot longer be seen as a technocratic tool for global problem solving anymore, but more over as a tool in the context of competition in political window of opportunity (Fuchs and Gaugele, 2005:19).

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1.3.3 Power Bargaining power (in the following abbreviated as BP) is the ability to influence the course of negotiation (intersection 1 and 2) with one or more parties (GAs). By doing so, GAs shape the boarders of intersection and thus, influence GG on the basis of own benefit. Strong BP usually derives from a sort of monopolistic position and asymmetric interdependency between parties. The higher the ability to influence the course of negotiation among all involved GAs, in other words, when reaching the GG “core”, the greater Global Power (further defined as GP) will be.

Figure 3 illustrates the relationship of BP and GP. Figure 4 shows the relationship of GP and the involvement into GG (grade and volume of intersection).

The greater a GA´s BP on other GAs, the greater is his bower to shift ones own position within GG. As a result, GP rises. Further, it is assumed that the higher the involvement into GG, the higher the GP (Figure 4). 4

Figure 3: Bargaining Power and Global

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Power

Figure 4: Global Governance

Power

and

Global

(Sources: Author Illustration)

4

First the scope is relatively high. In the end their affect the principle of diminishing returns the scope, thus, also GP is limited somehow.

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This relationship will also work in terms of equations:

a) GP = a + b * BP

(GP equals a constant “a” plus the slope “b” times BP)

b) GP = c + d * GG

(GP equals a constant “c” plus the slope “d” times GG involvement) GG involvement = grade on intersection

Æ Finally: a + b * BP = c + d * GG

A new equation arises from equalizing the a) and b)

Æ BP = e + d * GG / b

BP equals a constant “e” (c-a) plus the slope “d” times GG, devided by the slope factor b.

To sum up, GP depends on both, BP and level of involvement into GG. Involvement into GG rises hand in hand with the BP. Therefore it is essential to figure out strategies that strengthen the BP of an actor. Therefore it is proved, at least mathematically, that involvement into GG affects BP. Thus, GG can be used as strategy in gaining GP. This thesis is explicit dealing with business strategy. Business´ intend to maximize their profits. Profits can be maximized best by, for instance, having a dominating market position. The market position depends on a company’s market dominating power. For this thesis, it will be assumed that market dominating power and GP

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stand in a strong relationship to each another.5

5

First GP affects the market dominating power. The graph shows up slight trends of economies of scale in the first period. From a certain point in GG involvement there are trends for building a platform, since market dominating power also is limited.

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Figure 5: Market dominating power and GP (Source: Author Illustration)

Figure 5 points out the basic assumption that an increase of company’s GP leads automatically to an increase in its market dominating power; and thus to higher business profits. From now on it will be assumed that when talking about the GP of a TNC, it is not only meant the Global Power as defined above and also further in the thesis, but in addition to that as market dominating power. For reasons of simplicity the term GP will be applied to all GAs, without making a distinction if talking about governments, International Organizations, NGOs or TNCs.

Global Power is a highly requested tool in international affairs, provided by not only TNCs, but also by other GAs such as NGOs, and political entities. GP might derive from political (national and international) action, economic action, civil society and/or military power (military power will be defined as a part of political power). All these actors of power can cooperate, work separately from each another, or be in a framework of both symmetric or asymmetric interdependence and inter-relations.

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Porter (1980) introduced the 5F model as a way to assess the major market factors that affect industry profitability and market power. This model is a suitable tool for the analysis of various market forces that influence an industry in terms of competition and BP of the industry. When applying Porter’s model and using the term “power” at the same time, there must be done a carefully differentiation between GP and BP, first. Otherwise it will lead to great confusion.

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In general, GP will be defined as the “product” offered by the TNC (the industry). BP exists among buyer and industry, and supplier and industry. Porter’s 5Fs in the GG context are going to be defined as the Global Actors that form the GG frame. Buyers and suppliers in the GG framework are therefore abstracted and will be represented by the “national government” and “international organizations”. GP is defined as the BG among the Global Actors in terms of being a tool to increase ones own BP on global stage. When Trans-National Companies gain in GP, they automatically gain in market dominating power. This thesis will stick to the term “GP” throughout. However, when talking about TNCs´ GP it is meant the market dominating power. Thus, GG can be particular a business strategy. Figure 6 clarifies the relationship of BP and GP one in an illustrative way.

Figure 6: Distinction of Global Power and Bargaining Power (Source: Author illustration)

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The product required from actor 1 is the GP (pre-assumed that actor 1 already has an alliance with at least one of the other GAs) that serves for actor 2 as BP between the other actors on global layer (actor 2b, 2c, 3b and 4). Actor 1 provides actor 2 with that product (GP). In that case actor 1 is the industry and actor 2 is the buyer. Between buyer and industry there is a BP, deriving from the dependence of the buyer from the seller. If there is a great dependence, the sellers bargaining power is high. If the seller depends more on the buyer’s willingness to consume, because the

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buyer has low switching costs to substitute products, for instance, then the buyers BP is high. At the same time, in this example here, actor 2 delivers actor 1 also with GP as “product”; the buyer – seller constellation changes. In a whole, there is interdependence between the two actors. The important thing now is the BP, because the actor with the higher BP has a relatively high competitive advantage in the whole constellation and is able to be better of. Power arises from an asymmetrical interdependence. In order to stimulate BP (GP) by forming the symmetry of interdependence, various strategies can be implemented.

BG is the ability to influence decision making of other actors. BP can be divided into three dimensions, depending on the appearance and structure: first, second and third face of power. For this thesis it will be assumed, that the firsts face of power is the strongest one, thus, most aggressive. The third face of power is called “soft power”, thus based on social concerns. According to Fuchs (2005: 191f), “a threedimensional analysis of the [bargaining] power of an actor, then, would pay attention to its influence on policy output and input, […] and, importantly, the interaction between them. Moreover, such an analysis would allow a differentiated assessment of developments in the individual dimensions of an actor’s [bargaining] power.”

Figure 7 shows the three pillars (dimensions), PB is build on. Usually they differ in strength, however this model just illustrates that BP can be processed by three different instruments, namely: instrumental power, structuralist power, and discursive

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power. The three of them are going to be defined in the following.

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Figure 7: Power Dimensions (Source: Author illustration)

Instrumentalist power of BP Instrumentalist power approach or first face of power is the nearest form of assessing ones power. It is attached to the idea of a functional, nonlinear causality. "A has power over B to the extent that he can get B to do something that B would not otherwise do" (Dahl 1957: 201f). The stress here is on concrete and observable behaviour. Power is used here interchangeably and directly. The strength of instrumentalist approaches is that they provide a framework for assessing the direct influence of interests on political output. The structuralist power of BP The structuralist power or second face of power approach includes the precondition

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that power structures underlie behavioural options of other actors. This includes that the other actors have at least some degree of bargaining power, too and are able to choose out of several action programs. In contrast to instrumentalist approaches, structuralist approaches focus on the input side of policy and politics, arguing that it is not sufficient to look at the decisions made but that non-decisions require attention as well. For that rationale the power approach is based on the observation and active direction activity of several agenda

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issues and proposal topics. Baratz (1970) point out: “Power is exercised when A participates in the making of decisions that affect B. Power is also exercised when A devotes his energies to creating […] only those issues which are comparatively innocuous [from B] to A.” The discursive power of BP The discursive power approach or third face of power is based on a sociological perspective on power relations in society. It is often called to be the “soft power”. Power is not only a characteristic of individuals and groups but also of a social system as such. The third face of power exercises itself through norms, ideas, and societal institutions. This kind of power does not pursue interests, but creates them. That originates in the perception of the legitimacy of one’s aims by others. Nye (1991, 2002) explains why some countries in the international system, such as the Netherlands, the Scandinavian countries, or Canada have more influence than their military and economic power would allow. Moreover, he highlights the role information management, public relations, as well as education and cultural programs play in determining the distribution of power in the international system.

To sum up, GP depends on both, BP and the level of involvement into GG. Involvement into GG rises hand in hand with the BP. Therefore it is essential to figure out strategies that strengthen the BP.

1.3.4 Strategy Strategies are instruments for influencing the dependency between ones own and other forces (GAs). Strategies deriving from the analysis made in this paper will be based on Porter’s 5 forces model (in the following abbreviated with Porter’s 5F).

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Therefore strategy will be defined as horizontal and vertical integration among these forces. Further it will be provided a second strategy classification, mainly based on Hirschman’s (1970) approaches of “exit and voice” strategies. In the end, this section will deliver a hybrid strategy model made from the two mentioned above. Porter’s strategy approach includes horizontal and vertical strategies.

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Horizontal integration means to acquire business activities at the same level of the value chain. A competitive advantage may be reached by the usage of synergies that derive from activities dealing with similar products. When cooperating with competitors, the threat of new entrants or substitutes may be diminished to its minimum, when building up interdependent structures. An example is the offering of complementary products to ones general product. Horizontal integration may also be provided in order to combat the threat of substitutes by the offering of substitute products by ones own. The implementation of horizontal integration strategy leads to the benefits of economies of scale, economies of scope, strong defensive system against substitutes, reduction of competition within the industry, and last but not least the increase in BP towards buyers and suppliers.

Vertical integration strategy can be used to control the relations to buyers and suppliers and to boost BP directly. There are two sorts of vertical integration possible: forward integration and backward integration. Forward integration names the strategy of controlling the firm’s distribution channels, whereby backward integration means the control of the industries supplier. When implementing both, forward and backward integration, it is spoken from a full vertical integration. A full vertical integration provides great benefits by the reduction of BP of powerful suppliers and buyers. In addition it provides a higher degree of control over the whole value chain.

Hirschman developed a theoretical concept which elaborates on two essential options in organizational decline; either withdrawing from a relationship, or improving the relationship through communication.

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According to Hirschman’s approach, the “exit” strategy manifests itself when a disgruntled agent (such as a firm, worker, household or voter) leaves a given market and ceases operating within it. Obviously, this type of conduct is possible if barriers to entry and exit in the market are relatively low. In this case, it is less costly to cease activity in the given market and to transfer to another sphere than to continue and seek to change the existing rules of the game.

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The “voice” strategy, on the other hand, implies that the agent strives to influence the market to make changes to the rules to bring them in line with his own interests. Hirschman shows that the closer the agent is to the established system (i.e. the higher his loyalty is to it), and the lower the level of competition in the system, the more likely it is that the agent will choose the voice strategy. As a marginal case, Hirschman gives the example of the Soviet planned economy, where under an extremely limited scope of competition (which is the basis for an exit strategy), voice strategies became dominant, and were put into action in public appeals and complaints to higher authorities and the mass media about the poor quality of goods and services (Hirschman 1970, p. 34).

By combining two theoretical models, the Porter´s 5F and the Hirschman approach, it can be established the following hybrid model, summed up in figure 8.

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Figure 8: Porter and Hirschman Hybrid Strategy Approach (Source: Author illustration)

When tacking horizontal integration with voice strategy, there arises a new form of horizontal cooperation; namely the alliance of competitors. Exit strategy hybridized with the horizontal line leads to an isolation of competitors and substitutes.

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Proceeding analogously, there arises either vertical cooperation or vertical isolation with/from supplier and buyer. What strategy concept exactly to implement, in order to gain in BP and thus in GP,

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will be discussed very detailed further in section 2.4.

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2. Theory Framework

2.1 Global Actors in Global Governance’s Competitive Environment GG is characterized by the interaction of four Global Actors. GG is dissociates from the implication of governmental state authorities to be the only main driver. States are still essential actors; however there rise other actors with even greater impact, e.g. actors from civil society. In this context it is often spoken from the acquirement of Non-Governmental

Organizations

(in

the

following

abbreviated

as

NGOs)

legitimation to act as political actors. This phenomenon is named “development of private authority” and is discussed mainly by Cutler (1999). In the following, it will be given an overview of the four relevant actors in GG, namely (1) national government, (2) civil society (NGOs), (3) international organizations and (4) global player (TNCs). Further, they will be categorized according to Porter’s 5 forces approach. As this thesis is dealing with business strategies of TNCs , they will form the “industry” in Porter’s 5Fs. The competitive environment here is not about a certain good or service provided, but just about Global Power. So the forces are going to be created in an abstract way. However it will stick to the traditional Porter classification of (1) forces that provide “threats” and (2) those that exhibit BP and in the long run Global Power.

2.1.1 The Role of Civil Society in Global Governance The civil society is represented by Non-Governmental Organizations (NGOs), who act for different specific interest groups on the questions as e.g. environmental care, animal protection, labor unions, employer organizations, organizations on human

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rights, organizations on agriculture and forestry, et al. These NGOs represent interest groups and intend to influence decision making by including themselves not only on national level, but into the international context and the framework of Global Governance. In the glance of globalization, importance of the civil society as Non – Governmental Organization increased enormously during the last forty years (Figure 9).

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Figure 9: Growth in Volume of International Organizations 1909-1997 (Source: Hauchler et al. 1999 : 370)

Zürn et al. (2000) argued that NGOs became highly important actors on national, as well as on the global stage, and mark an essential driver for the GG itself. Messner and Nuscheler (1996) pointed out the social relevant point of the rising of a common

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global identity (“global civil society”). Reason for the rising significance of the civil society is the specific expertise and expert competency that NGOs get from the focus on specific topics. These special competencies are requested increasingly by other GA. On several fields they even depend on the advice of specialists. The IMF, for instance, has a separate section for working together with NGOs (they call them there Civil Society Organizations). According to the IMF, civil society includes organizations include: business forums,

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faith-based associations, labour unions, local community groups, non-governmental organizations (NGOs), philanthropic foundations, and think tanks. Usually excluded are not only the branches of government (government agencies and legislators) but also individual businesses, political parties, and the media. When meaning civil society institutions, this thesis will stick to term NGOs, including all above mentioned entities. These specialists are often used as tools and instruments from other actors. Other GAs intend to strengthen their specific positions by NGOs´ argumentation and thus, to gain in BP with other actors and to reach GP in the long run. E.g. in 2006 Russian ministry on environmental care asked Green Peace for advice in the question of environmental pollution. After discussions and debates with the WTO and the OECD they finally reached the prohibition for Shell and other Japaneese firms to carry oil in Sakhalin. When defining NGOs in terms of Porter’s 5F, they acts as substitutes and provide threats to the TNCs. NGOs actually do have GP even if their power is mainly based on the third face of power: discursive power.

2.1.2 The Role of International Organizations in Global Governance International Organizations (further abbreviated as IOs) have been seen as arenas and tools of implementing national governments´ interests and forming international politics for a long time. In the opinion of several experts on GG, this is no longer an appropriate point of view. IOs are increasingly regulated and monitored by their members (Diel 1997) and even by third parties as other GAs. Further, IOs serve as “norm entrepreneurs” (Finnemore/Sikkink 1998) who take influence on other actors by serving as role model and preventing norms such as the protection of human

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rights, setting of environmental standards or democratic ideals.

However, this is a very optimistic and “selfless” illustration of IOs´ interests and intentions. In contrast, there is a high number of critic evaluations of the interventional potential of IOs and national politics. Especially WTO and IMF are highly criticized to be influenced highly by national interests. In this context it is essential to add, that IOs are mainly “cue balls” of their members and therefore are

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not able to go for their own interests in international politics. Especially the powerful members create their own politics. 56% of voting right in the IMF is hold by only 14% of world population (USA and EU) (official homepage of the IMF). Therefore, it is unlikely to ensure an equal distribution of welfare and coverage of interests for all members of global society. That is also one point of criticism on the goal oriented, socio-scientific approach on GG. Finally yet importantly, there is a lack of sufficient compliance and/or sanction mechanism. As long as several (powerful) members of IOs are able to exclude themselves from prescribed measures, IOs will never reach independence. Moreover, they will and actually do, serve as direct control tool for national interests or groups of (national) interests and indirectly for other actors on the global stage, such as NGOs and TNCs. When defining IOs in terms of Porter’s 5 forces, they act as “suppliers” and as “buyers” at the same time. According to Porter’s model there is a BP deriving from suppliers and buyers and affecting the competitive environment of an industry. In the industry of TNCs, who “sell” GP, IOs provide TNCs with GP (in this case with dominating market power) by including them into decision making, and secondly, also demand GB from them. There is a strong dependency among IOs on the one hand and TNCs on the other hand. However, this dependency will be analyzed in detail in section 2.2.4.

2.1.3 The Role of the State in Global Governance Once the actor with by far the most significant influential power in international relations, the state now shares BP and GP with three other influential actors. In the opinion of many experts on GG, the state is the actor, with the greatest shift of power, compared to private actors on the one hand, and supra- as well as sub Copyright © 2010. Diplomica Verlag. All rights reserved.

national actors on the other hand (Held 1999/Scholte 2000a/ Rosenau 1999). However, there is still the open question on the degree and the direction of the shift. Assumptions range from a drastic decrease in power of government up to a possible strengthening in influence through the globalization process. Arguments for the decrease of a state’s power with ongoing globalization are based on a lack of internal democracy and assertiveness in the global world. This lack can

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be observed especially in economic and political areas as e.g. Africa, where ongoing globalization leads to an increase of exploitation of scare resources. Globalization gives incentives to trade not only public, but augmented the trade of public goods. Often not the population, but a group of individuals benefit from the globalization process; on national, as well as on international level. Here the moral hazard phenomenon is the factor that might destroy governmental power (Schlichte/Wilke 2000). However, that fact can also be turned around in the opposite direction and used as pro-argument for a governments rising power. Even though we only take the “developed and democratic” countries into account, the essential role of national government is limited, due to the increasing power of the other actors, especially from the private economic sector. Assumptions of a possible strengthening in influence argues with the rise of investments in infrastructure and education (public goods), which implies a greater state involvement and increases the power of the state in decision-making power. The impact of this argument indeed depends on the volume of state owned industry. One related argument is also that the government decides whether to adopt globalization or not. The state can easily block globalization by protectionist measures and keep its power on national level only, however loosing benefits from free trade and global cooperation as e.g. South Korea and Cuba do (then the whole discussion becomes irrelevant anyhow). Here, it will be assumed that the state adapts to globalization and allows the entrance of other GAs. Then, the state can join the global community and keep, or even increase power by embracing the influence from the other actors on the field of GG, as, for instance, Russia does. Using that method of increasing own power by cooperation with the other actors, the state can gain in GP over NGOs, IOs and TNCs. When implementing the national government into Porter’s 5F model, it has direct BP on the core industry itself. The national government as GA affects the industry, similar to the above mentioned IOs, by its BP as “supplier” as well as as “buyer”. This Copyright © 2010. Diplomica Verlag. All rights reserved.

situation will be explained together with the position of IOs in section2.2.4.

In addition, the remarkable factor now is that the government of a state and IOs do not only play a double role in the competitive environment as buyer and supplier at the same time, but also boost the economic competitiveness as a whole. The national and international policy can create competitive advantages or disadvantages

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for groups of TNCs companies, and influence the whole power framework, by using its own specific instruments: trade policy, fiscal policy, R&D policy, regional policy, anti trust measures et al. Governments and IOs affect not only the industry, but also to other forces (new entrants & substitutes, and buyer & suppler) and therefore the entire global competitive layer. Based on the fact that national governments and IOs as GAs play an special role in GG, they will be implemented as “supplier and buyer” and auxiliary as additional sixth force into Porter’s model frame. The additional sixth force will be introduced in detail in section 2.3. First it will be given a competitive environment analysis for TNCs in chanpter 2.2.

2.1.4 The Role of TNC in the Global Governance

Companies and enterprises are considered to be the greatest winner from the globalization process and the decrease in power of national governments. Global acting companies did not only gain in power towards governmental institutions and civil organizations, but also towards small and medium-sized business. As indicator for rising power are often taken the turnover figures,

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which by far exceed GDP of smaller economies (Figure 10).

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Figure 10: Global Player vs. Country GDP (Source: International Monetary Fund and Fortune Datastore)

However, only these measures are insufficient to detect the real impact of TNCs in GG. It is necessary to include the BP of global acting companies on the other actors, as well as the BP and the threats deriving from other GA, in order to locate the exact position on global competition layer (Fuchs 2005). That basically is the rationale for combining the theory of GA in GG with the competitive environment analysis of Porter’s forces model.

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2.2. Porters 5 Forces Industry Analysis of TNCs

Figure 11 sums up the transformation of GAs to the Porter’s model. It illustrates the factors that influence the competitive environment in GG in terms of Global Power of TNCs. In the following it will be provided an analysis of the relevant forces and the competitive environment of TNCs on the GG layer in terms of GP. That analysis

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serves the purpose to detect the best fitting strategy for TNCs in order to increase the industry’s BP.

Figure 11: Global Actors through the Lens of Porter’s Forces Model (Source: Author Illustration)

2.2.1 Rivalry Strong competition among rival firms decreases profits and makes the industry less attractive. However, competition is not always perfect and firms are not only price takers, but strive for a competitive advantage over their rivals, too. The intensity of rivalry is influenced by a set industry characteristics. The traditional aspects are the volume of competitors, the market growth, the aspect of the entrance cost and exit

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costs, the switching costs and the level of product differentiation.

Rivalry will be increased by a larger number of firms, because more firms must compete for the same purpose. Rivalry even intensifies, if the firms have similar market volume and impact.

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When looking at the TNCs as firms, who compete for GP, there is a large number of such. In comparison, there are a lot of global player coming from different countries, representing different intentions, but only less alternatives to influence a global decision making process, or a national decision making process, that affects the world globally (demand). In fact, there are in total sum 44,000 TNCs in the world, with 280,000 subsidiaries and an annual turnover of US$ 7,000 billion. Two-thirds of world trade results from TNC production networks. The share of world GDP controlled by TNCs has grown from 17 percent in the mid-60s to 24 percent in 1984 and almost 33 percent in 1995 (UNCTAD). 51 of the world's largest economies are in fact TNCs. Continuous mergers and take-overs have created a situation in which almost every sector of the global economy is controlled by a handful of TNCs. On a whole the total volume of TNCs is rather high; however there is only little Global Power available. Due to that aspect, rivalry is high.6 If there is a growing market, firms are able to increase revenues simply because of the economic growth itself. A slow market growth causes firms to combat for market share and rivalry grows. Here we are talking about the market of GP in GG. The market size is only hard to measure. However it will be assumed that ongoing globalization is the factor that results in a growth in the market for assessing GP in GG. According to that argument, rivalry will be decreased within the industry of TNCs. When the majority of costs are fixed, the firm must produce near capacity to attain the lowest unit costs. Since the firm must sell a larger quantity of the product in order to benefit from economies of scale, high levels of production lead to a fight for market share and results in increased rivalry. In this case the “product” TNCs produce is too abstract, to link it anyhow to fix or variable costs. What TNCs “sell” is not their actual product (e.g. General Motors sells cars), but the influence they have in economy. As a result, it can be said that the more BP a TNC already has, the more influence it has, the lower costs every additional unit added. So the theory of economies of scale Copyright © 2010. Diplomica Verlag. All rights reserved.

can be covered. However, there are no other fixed costs than the fixed costs of running the business anyhow. To sum up, it can be said that the fixed costs in the

6

Further information on the world's top 100 non-financial TNCs, ranked by foreign assets in 2005 and 2004 can be found in the appendix.

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TNC´s industry are indifferent. However, there can be detected an economies of scale effect. Thus,

rivalry in the existing market becomes higher.

When a customer can freely switch from one product to another there is a greater struggle to capture customers. Low switching costs increase rivalry. The customer in our case is the national government (or International Organization) as GA who uses the BP of a TNC as product in order to benefit from it in terms of increasing its own GP. Switching costs may arrive when asking which TNC in detail to support. There might be done distinctions from TNCs operation industry (such as energy sector, security sector or media business). This notion leads to the argument of diversification of the product, which will be explained further. In addition here plays the linkage of the TNC an essential role; If the TNC is somehow linked to activities with other GAs. Thought, switching costs in general are assumed to be high, not at least of the lack in trust, experience, information and transparency. Therefore rivalry rises. Low levels of product differentiation leads to higher levels of rivalry. The product itself is defined to be the GB. That influence can be differentiated first in the sense of the actual product offered. Textile producer may have an other channel of influence than companies in the energy sector. It can be detected that most of the TNCs are operating in the industry of petroleum exploiter, processor and distributor (see appendix 1 and 2). What exact relationship there exists is not part of this thesis, however it will be assumed that there must be “better preferred” industriey. The second and probably related influence measure tool is the 3 dimensions of power approach. Each industry and each TNC concentrates on a different mixture of the power dimensions in providing power. On a whole there is a high level of product differentiation, and therefore a higher level of rivalry. High exit barriers place a high cost on abandoning the product. The firm is forced to compete. High exit barriers cause a firm to remain in an industry, even when the

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venture is not profitable. A common exit barrier is asset specificity. When a TNC wants to exit the industry, the barriers are low. Far from it! Other competitors or GAs would pay a high price in order to take over the business. That argument leads to a slightly decrease in rivalry. To sum up, rivalry in the TNC industry is relatively high, due to the large number of competitors, scale effects, and high level of product differentiation.

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There also exists an approach to make rivalry measurable by indicators of industry concentration. One instrument is the Concentration Ratio (further abbreviated as CR). The CR indicates the percent of market share held by the largest (4 - 50) firms within the industry. A high CR means less competition, whereby a low CR indicates a high competitive pressure. The industry is concentrated, when a high volume of market share is held by the (4 50) largest firms; then the CR is high. With only a few firms holding a large market share, the competitive landscape is less competitive because it is closer to an oligopoly or to a monopoly. If the industry is characterized by many rivals from whom none of them has a significant market share, we see a low concentration ratio. Fragmented markets are more likely to be highly competitive. Figure 12 lists CRs from several industries in the UK in 2004, as a simple example. Industries rated with a low CR are less profitable, due to higher competition. Industries with a high CR are more attractive, because there is less competition and rivalry within the industry.

Figure 12 : Concentrate Ratios UK , 2004 (Source: National Statistics Economic Trends 2004:42-44)

This thesis is dealing with the industry of TNC and their GP. There does not exist any

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CR for that industry, yet.7 The table above also does not show up any clear relation between CR and domestic industry sectors. However, there are assumptions that international inter-firm trade has a strong impact on domestic CRs anyhow.

7

However it could be calculated using the data attached to appendix 1-2.

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However the above analysis of rivalry leads to the result of a relatively high industry rivalry and therefore the estimation of a low CR. That assumption of course requires a more detailed prove, however it would go far beyond the scope of that thesis and shall therefore serve as an interesting topic for further researches in the future.

2.2.2 Threat of Substitutes In Porter's model, substitute products refer to products in other industries. The threat of substitutes is higher, the stronger the supply of substitute goods affects the price elasticity. If the supply of substitute goods leads to a great change in demand and price of the substituted good, because customer can switch easily to the other good, the threat from substitutes becomes very high. The threat becomes even higher, when switching costs of “consumer” are low, buyer inclination to substitutes are high and the price-performance trade-off of substitutes is positive. Substitutes in the industry of TNCs are NGOs as the civil society. NGOs offer the same product (Global Power) as TNCs do. They do provide power and influence, however through an other power channel. While TNC tend to delegate power by instrumental or/and structural tools, NGOs use the discursive channel to reach influence (more about power dimensions in sections 1.3.3 and 2.5). NGOs gain in importance as well as in volume and thus become a real threat to the industry. The switching costs of the consumer (governments and IOs) are not high. At least, not as high as when switching within the TNC industry. Switching within the TNCs´ segment is much more costly, because it is linked to higher uncertainty and risk. Switching among NGOs is also linked to uncertainty; however the risk deriving from uncertainty is much lower, because NGOs can be controlled and delegated much easier than TNCs. On the other hand, NGOs may have not as much power as TNCs do. Therefore price-performance relation may remain the same, but there is definitely Copyright © 2010. Diplomica Verlag. All rights reserved.

a trade-off a customer has to take into account when choosing the one or the other product provider. However, when NGOs become able to act more powerful, the threat might grow. It is imagible that TNCs may be fully substituted as influencing tool. For example, at the poit of time when issues concerning environment, human rights, moral and sustainability become more important for the nominal majority of the world

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population, than turnover figures, economic growth and materialistic welfare, then NGOs will have a stronger impact as substitute for providing GP for governance and IOs. NGOs are for sure a threat to the GP industry of TNCs, however the threat itself and the growth potential in future still need to be calculated carefully.

2.2.3 Threat of New Entrants The possibility that new firms enter the industry is a threat to the market and affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality there are entry barriers, either natural or created by the industry to protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. Here, new entrants are big companies that act on national level only and plan to expand on global layer by entering new markets, outsource facilities and production factors, and thereby gain in global recognition and importance. Barriers to entry are industry specific. Barriers reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry. From a strategic perspective, barriers can be created or exploited to enhance a firm's competitive advantage. In section 2.3 there will be explained how the sixth force (national government and IOs) can affect the new entrants directly. However, entry barriers are assumed to be high, because costs of establishing a TNC are high and the profitability rather low.

2.2.4 Bargaining Power of Buyer and Supplier In Porter’s 5F model, there is made a differentiation of BP of buyers and BP of

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suppliers. Suppliers provide the industry with input such as raw material et al. Suppliers BP is linked to supplier concentration and volume, differentiation of inputs and their impact on cost or differentiation, switching costs of other firms in the industry, presence of substitute inputs, and the threat of forward integration. Here suppliers are IOs and governments. They provide TNCs with power through financial and legal support.

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Their bargaining power is relatively high because their concentration compared to the amount of TNCs is low and there are no real substitutes available who provide TNCs strong BP on international stage. Buyers are the consumers who demand the product (GP). In general, when buyer BP is strong, the relationship to the industry is called a monopsony - a market in which there are many suppliers, but only few (or even one ) buyer. Under such market conditions, the buyer sets the price and his BP is dramatically high. Buyer BP depends on the buyer volume, buyer information, price sensitivity, threats of backward integration, substitutes available and buyers´ incentives of consumption. In the case of TNCs, buyers are also governments and IOs. Their BP is very strong because their volume on national level is limited to 1. On the global stage, there might be more national governments, however there are much more TNCs. In addition there are also real substitutes available (NGOs) that satisfy the buyer. Finally, buyer’s level of information is high, because TNCs are forced to give detailed information on their activities when offering cooperation. Further, governmental institutions have the possibility to seek for hidden information on their own. Both, buyer and supplier have a strong BP on the industry, since they affect it directly; the one by supplying, the other by demanding. Here, it will be made no distinction between supplier and buyer, just because they both supply and demand GP from/to TNCs; or in other terms: supplier and buyer are the same entities here. International Organizations and national governments serve as buyer as well as suppliers at the same time. The “good produced” here is the GP provided by TNCs through Global Governance to governments or IOs. Suppliers, in this case are International Organizations, who provide TNCs with power, when supporting them with legal regulatory and participation on global layer. Suppliers are also national governments, who supply TNCs with involvement into domestic policy and power on national layer.

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Consumers are demanding tools and instruments for gaining in GP. In general, national governments and international organizations are the consumer of GP provided by TNCs (or their substitutes).

Figure 13 illustrates the relationship between TNCs on the one hand and buyer and supplier on the other hand.

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Figure 13: “New” Relationship between, Buyer and Supplier, and the Industry (Source: Author Illustration)

As formulated above, supplier and buyer are the same actors here, namely: International Organizations and National Governments. In the first part of figure 13 there is the product chain illustrated. Suppliers provide the industry with raw material. The industry adds value to the input and sells it finally to the buyer. The right hand illustration the figure shows now the abbreviated version of the left hand relationship in an equation. Thus, it can be formulated a “new” relationship. TNCs on the one side and International Organizations & National Governments on the other side provide each other with GP. Thus the governments and IOs, and TNCs do strongly depend on each other.

In conclusion, rivalry among the industry is relatively high. The threat from new entrants is low; however the threat from NGOs as substitutes lurks to increase. Bargaining Power of supplier and buyer is dramatically high. However there exists also a strong interdependency of TNCs, and IOs and governments. To what extend the dependency is symmetric or asymmetric depends on the BG of each actor. The BP, and thus the GP can be influenced by the implementation of strategies

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further analysed in section 2.4.

In addition government and IOs serve not only as buyer and supplier at the same time, but also boost the economic competitiveness as a whole. The national and international policy can create competitive advantages or disadvantages for all other forces by using its own specific political instruments and therefore have impact on the entire global competitive layer.

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Based on that fact, national governments and IOs must be first implemented as additional sixth force into Porter’s model frame, before defining the best fitting strategy approach.

2.3 The Government and International Organizations as Sixth Force

This section will emphasize the centrality of the actions of governments and International Organizations as a separate and independent force that shapes the competitive landscape, both directly through their impact on the firm and its competitors (rivalry), as well as indirectly through their impact on suppliers, buyers, substitutes and entrants. Understanding the institutional source of a given action and its aggregate industry impact is a necessary ingredient to meaningful choices regarding the elements of strategies, which will be elucidated further in section 2.4. Porter introduced the 5F model as a way to assess the major market factors that affect industry’s profitability. 5F analysis is a very useful way of analysing the various market forces that influence an industry. However, 5F can also be used to assess variability in the forces that lead to differential impacts on particular firms within an industry. As already pointed out, national governments and International organizations, play an essential role in the industry of TNCs. However, they have a double function they yet were only mentioned as the buyer and supplier of the industry. Now, their further impact on the industry is going to be detected. Many scholars argued that in strategic contexts the impact of government actions can dominate other competitive forces Oster (1994). Others have explicitly introduced government as a “sixth force” to Porters 5Fs. When considering a

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(political) strategy, however, ignoring the causal government action cannot work. Vining (2005:154) set up a model that summarizes the major public policy spheres through which government can act as an independent force in the competitive environment.

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Figure 14: Adding the sixth force to Porter´s five forces of competition model (Source: Aidan R. Vining et al. / slightly changed by the author)

Figure 14 is mainly based on Vinings model; however government as sixed force is here advanced by “Governments and International Organizations” (in the following abbreviated as GIOs). The role of GIOs here as an independent additional force focuses on being policy framers rather than buyers, suppliers or competitors, which are already analytically captured in the standard 5F model. Policy is interpreted broadly including all government regulations which affect the performance and profitability of TNCs. This broad policy focus, therefore, includes arenas such as taxation policy, trade policy and industrial policy.

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In the following it will be given a detailed review on the impacts of GIOs as policy maker on each of the 5 forces — rivalry, entry, substitutes, suppliers and buyers. It will be shown that GIOs as the sixth force can affect heavily profitability of the TNC and therefore should be implemented into strategic decision making process.

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TNCs and GIOs From a political strategy perspective, it is critical to distinguish between government actions that create profits for all firms in the industry from those, which support only some firms, and thereby discriminate others. Industry-specific tax policy, for instance, usually falls into the former category. However, such tax policies are common especially in industries that extract or process natural resources. Governments want to benefit from the scarcity effects through various forms of output taxes or, increasingly, by imposing competitive bidding for access to the resource (Conrad and Hool, 1980; McMillan, 1994). These policies typically pose a significant threat to industry profitability indeed. Specific actions of GIOs can directly affect either firm revenues or costs. On the revenue side, the simplest way to raise industry revenues is to give them money. The European government, for instance, sets minimum prices on agricultural products. These price floors serve as security and direct state aid. Government can also affect the degree of rivalry by altering relative costs or revenues among firms, or by changing the number and size composition of firms. The major sources of impact include industry-specific regulation, industry-specific tax and industrial policy, trade policy, industry-specific ownership policies and anti-trust policy. Many TNCs are concerned with industry specific regulation because of the particular health and safety risks associated with industry production or consumption, or because of environmental impacts resulting from industry production. Industry-specific environmental, health and safety regulations are normally conceived as being cost-raising and, therefore, profit lowering (Hahn and Hird, 1991; Hopkins, 1996).

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Taxation policy does mainly overlap with industrial policies. Examples include direct subsidies to corporations as well as tax credits, tax exemptions, investment credits and depreciation. Tax expenditures are generally less visible than direct subsidies, but can be more important. In the USA, a large percentage of all tax expenditures go to businesses.

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The effect of anti-trust policies on rivalry is obvious. The collusion or abuse of a dominant position or horizontal mergers is under state control in order to strengthen the competitive position of smaller market share rivals. The evidence suggests that anti-trust policy is frequently profit raising for many small and middle sized firms because it protects them from having to face larger, more powerful rivals' extra industry (Stillman, 1983; Eckbo, 1983; Eckbo and Weir, 1985).

National Companies and GIOs GIOs often restrict industry entry or exit. In general, restrictions allow TNCs to gain in BP due to lower competition. Industries with

natural

monopoly

or

network

characteristics,

such

as

power,

telecommunications, and transportation often underlie direct entry restrictions (Crandell, 1992). Exit barriers are created through subsidies that prevent bankruptcy and asset liquidation. Entry may also be restricted through barriers to international trade and investment. Restricting imports through tariffs, quotas or non-tariff barriers can be essentially equivalent to restricting firm entry. Tariffs are profit rising for the industry, at least in the short run (Hufbauer and Elliott, 1994). Especially the World Trade Organization is a powerful policy framer on the field of industry entry. WTO rules and WTO admission policies are now a major focus of domestic lobbying in most countries. Other methods of restricting industry entry include trade policies that limit foreignowned companies to entry. Thus, industrial policies can restrict a certain amount of firm share concentration or the level of foreign ownership. In many countries, industrial policy discourages entry by foreign firms. Direct restrictions on foreign

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direct investment obviously limit foreign entrants. In addition there is one other main reason to set up protectionist measures. With the ongoing liberalization of capital markets, the level of foreign ownership and direct foreign investments become a very actual and at the same time crucial topic. Especially within the actual debate on foreign direct investments by sovereign wealth funds from China, India and Russia, there can be seen strong incentives to protect domestic industries. However, here not the economic factor plays the essential role,

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but moreover the strategic and politic reasons. In 2005 an almost successes takeover of the Peninsular and Oriental Steam Navigation Company (P&O) by the Dubai owned DP World company, would have lead not only to economic disadvantages, but would mean a critical situation for the whole US trade-logistic industry and thus, lead to strong dependence shifts. In 2007 the US finally reacted by a streamlining of the Foreign Investment and National Security Act (FINSA). Now the debate on regulating the financial market started in Europe. In October 2007 the Germany Economics and Finance Ministry has adopted a new External Trade Law which set up that foreign investments higher than 25%, require a 3 months extra review process The impact of such restrictions on domestic economy is not clear yet: while decreasing competition, they also reduce the lower-cost foreign capital. Equally effective in restricting entry may be indirect policies that raise the fixed costs of entry. Regulations that require the location of plants in specific regions of a country or maintain minimum levels of local employment may be such measures. Finally, environmental regulations can also have entry-deterring characteristics, for example, by requiring operating permits and by the raising the capital requirements of foreign entrants. Different forms of environmental regulation generate differential barriers. Recently, it is suggested that industry incumbents support emissions-trading systems because they are typically grandfathered, while entrants have to buy-in, if at all.

NGOs and GIOs From a competitive perspective, there is often a greater long-run threat to TNCs from substitute products such as NGOs than from new entrants. GIOs influence the competitiveness of substitute technologies and products usually through research Copyright © 2010. Diplomica Verlag. All rights reserved.

and development (R&D) policy, industrial policy, taxation policy, tariff policy and general regulatory policy (Walsh and Kirchhof, 2002). Most of the political tools are already used in the former paragraphs, therefore only R&D will be explained as GIOs´ tool to take influence on substitutes. R&D usually results in a change of technical preconditions and thus, increases the window of opportunities of substitutes. Here, the change in civil mentality and the propaganda of certain topics is analogous to investments into R&D.

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GIOs usually have strong impact on the media sector. The usage of the media as a tool to manipulate the common public opinion in the one way or the other is one measure to get impact on the substitutes in the industry of TNCs. In Russia the media sector is mainly state controlled, although it officially is privatized. The government as GIO, extrusions all substitutes of the TNC Gazprom, that provides GP. Aggressive government support of R&D can lead to the dissolution of an existing industry (Christensen, 1997). Low R&D support leads to entrance barriers due to the rising costs.

Suppliers & Buyers and GIOs Normally, GIOs can take influence on the BP of suppliers and buyers by the implementation of different aimed taxation policies, protection legislation, advertising regulations and price controls. As GIOs are defined as “government and International Organization” and buyer and supplier are also governments and International Organizations here, the two entities are again identical. Assuming that GIOs as sixth force are the same GIOs from the horizontal sphere in Porters model, the sixth force is going to include measures that strengthen its own BP towards TNCs. Only in the case, when making a difference among the GIOs, there could be made an elaborate analysis of the impacts of GIOs on the buyer and supplier GIOs. Here, it will be renounced to go to deep in detail. Thus, it does not serve the actual topic anymore. Just brief for completeness: GIOs can use measures on the industry of TNCs in order to either combat or support their own industry rivalry. In conclusion, GIOs in the TNCs´ industry can have great effect on the industry itself,

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as well as on new entrants and on substitutes. Thus, GIOs can affect the horizontal threats of a TNC; and are therefore highly attractive to be regulated anyhow.

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2.4 Elaboration of TNCs´ BP Rising Strategies

TNCs as industry have to deal with the BP deriving from their buyer and supplier. In the context of GG, TNCs have to deal with the BP deriving from the governments and the international organizations that represent both, buyer and supplier at the same time. Influencing the BP among this chain can be done by the implementation of vertical integration strategies such as forward or backward integration. In the special case, where buyers are also suppliers, one of the strategies is enough to lead to a full vertical integration. In addition the industry has to cope with threats deriving from new entrants and substitutes. NGOs are the substitutes and national acting companies are the new entrants into TNCs´ industry. In order to deal with these threats, the industry can make usage of the horizontal integration strategy, by cooperating with these actors. There are four action possible, TNCs can process in order to influence PB and GP. They can be classified in terms of being horizontal or vertical. Further they can be classified in terms of being cooperative or isolating.

In the following there will be introduced the four actions, namely: (1) creation of public-private partnerships (PPPs), (2) self-regulatory institutions (SRIs), (3) quasi regulation and (4) the organization or privatization activities. All alternatives of gaining in BP and influence on the global stage differ from one another in form and gear and mainly in the intensity of power dimension (see 1.3.3).

Figure 15 classifies the four strategies into its character; either being horizontal or

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vertical and cooperative or isolative.

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Figure 15: Strategy Classification (Source: Author Illustration)

As shown in figure 15, the establishment of SRIs and the tool of privatization are based on horizontal integration strategies that intend to influence the power of threats deriving from the industry. PPPs and quasi regulations are kinds of vertical integration stratagies that try to take influence on the BP of buyer and supplier. The method by establishing PPPs is based on close vertical cooperation with other actors such as the state or international organizations. The creation of SRIs tries also to build up a horizontal cooperation within the industry and its threats in order to gain in and sovereignty in decision-making in the long run. Cooperation here can be seen to be similar to Hirschman´s definition of “voice” strategy. Quasi regulation and privatization of the public realm try to reallocate bargaining power by building up asymmetric interdependencies to other actors, by isolation. The long term goal hereby is to gain the bigger share of BP and thus, gain in competitive Copyright © 2010. Diplomica Verlag. All rights reserved.

advantage. Isolation as classification is similar to Hirschman´s definition of “exit” strategy. In the following the four strategy types are going to be introduced.

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2.4.1 Self Regulatory Institutions (SRIs) .

Examples for SRIs of TNCs in the Global Governance context are self regulation in capital markets, global bank and insurance sectors, the World Wide Web, Code of Conducts, and voluntary agreements between industry sectors (Gibson 1999, Messner 2002). They range from loose and informal to formal and institutionalized arrangements, from binding and mandatory rules and regulations to voluntary and non-binding agreements. SRIs are developed by business actors for their own sake, for purposes of preventing governmental regulation, or on behest of government. Examples for global self regulatory mechanisms are the ISO 14000 environmental management standards that exist to help organizations to minimize their negative spill over effects on the environment. The ISO Environment Management System (EMS) is similar to the EU regulated Eco-Management and Audit Scheme (EMAS), whereby the EMS does not require accredited governmental certificates of conformity and no registry in ministerial stations. Most fundamental concerns relate to the frequently voluntary nature of arrangements and the lack of public influence on the contents of standards and procedures. However, TNCs as GAs benefit from SRIs by potential efficiency, the availability of the necessary expertise, likely support by the business community itself, and the potential legitimacy they may draw from “regulation by one’s peers.” SRIs are horizontal cooperations within the own industry and substitutes as NGOs.

2.4.2 Privatization of the Public Sector The (re-)commoditization of the public sphere is an example of the new political role of business frequently. This form of the political role of business differs from the quasi regulation in that not just the legitimate provider of regulation changes but also the legitimacy of rules and regulations as such. Copyright © 2010. Diplomica Verlag. All rights reserved.

Examples of such privatization trends can be found in infrastructure such as telecommunications, transport, and energy and water supplies. The most startling example in this context is probably the privatization of the security sector (e.g. US Backwater), one of the core areas traditionally considered the sole task of the state. After all, the monopoly over the legitimate use of force used to be seen as one of the defining characteristics of the state. A private security market, however, now exists

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worldwide. It is a result of the globalization process and leads on the first glance to a decrease of influence and power of the national government. The strategy of privatization is used for horizontal integration by wining new markets and decreasing therefore the threat of new entrants. Mainly is serves as isolation from the GAs on the horizontal layer.

2.4.3 Quasi-Regulation Quasi regulation is discussed frequently in the global governance literature with focus on companies that might influence other GAs in a direct and very powerful way, by simply isolating them from BP. Consultancies, rating agencies, and trans-national financial corporations play in evaluating the politics and policies of countries and in imposing the preferences of trans-national investors on societies an increasing role. But not only counties can be rated, also the TNCs themselves are influenced by quasi regulation, deriving from their own competitive environment. The most prominent example for quasi regulation are rating agencies, which determine the credit worthiness of countries and/or companies, and thereby the ability to attract capital. Capital might be a limiting factor in gaining in BP. The rationale for calling this type of activity quasi-regulation is that these rating agencies have the potential power to enforce a relatively stringent standard of acceptability and unacceptability of political objectives and measures on countries, and business activities. Quasi regulation is a tool in the strategy of vertical integration (however it also can affect the horizontal layer, too), whereby buyers and suppliers (national government and international organizations) are affected directly in a very strong way. Their BP is

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simply isolated, because of the asymmetry of dependency.

2.4.4 Public-Private Partnerships (PPPs) Public-Private Partnerships (PPPs) are arrangements typified by joint working between the public and private sector. Here, business actors officially cooperate with governmental actors in the pursuit of common policy objectives. PPPs are the second mentioned vertical strategy tool.

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In the broadest sense, PPPs can cover all types of collaboration across the interface between the public and private sectors to deliver policies, services and infrastructure. One of the well-known examples for a PPP is the Global Compact of the United Nations. “The Global Compact is a framework for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, the environment and anti-corruption. As the world's largest, global corporate citizenship initiative, the Global Compact is first and foremost concerned with exhibiting and building the social legitimacy of business and markets.”8 Here can be detected a co-operational relationship between the two GAs “international organization” and ”national government” and the GA “TNC” on the field of Global Governance. The TNC trades its knowledge, capital involvement, market position, autonomy, and GP towards a good image, popularity and the security of patronization and intergovernmental aid. The public organization in return, extends its sphere of action. In a whole, both actors gain in GP. Such a cooperation between TNC (the industry) and buyer and supplier is based on

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the strategy of full vertical integration.

8

Further information on the official webpage of the UN GC: http://www.unglobalcompact.org/AboutTheGC/index.html from 28.03.2008

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2.5 Conclusion of Theory Framework BP in Global Governance is the essential driver to gain in Global Power, and market dominating power. Thus, TNCs have an incentive to strengthen their BP. However, first the interrelations of TNCs and the other GAs were needed to clarify in order to determine BP. Therefore the theory framework was mainly based on Porter’s forces model. The four Global Actors as such has been categorized according to the 5 forces. Further it has been developed a hybrid strategy approach stressing vertical and horizontal strategies on the one hand and classifying them to be either cooperative or isolative, on the other hand. Further analysis has detected that some actors play a more important role in competitive environment than others. Government and IOs do play a double role in the forces approach, namely they both supply and demand GP to/from TNCs. In addition, governments and IOs serve as sixth force in Porter’s approach and affect the whole competitive environment by political regulation tools. Thus, the national government and the IOs are Actors, who can provide a strong support in gaining GP.

Now, when looking at the forms of business´ activities, interpreted as strategy for increasing BP (see 2.4) on the one hand side, and the dimensions of power (see 1.3.3.), on the other hand side, there can be detected a relationship among these two variables. The TNCs´ structural power of BP can be strengthened by the implementation of SRIs and quasi-regulations. TNC´s possession of discursive power mainly can be strengthened by strong cooperation with NGOs, though by implementing cooperative horizontal strategy of setting up self regulatory measures.

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Instrumental power can be stimulated by including the lobbying mechanisms including PPPs as a form of co-operation on vertical level. The privatization of public owned industries (in cooperation with the state) is one second lobbying tool. In the model of power dimensions this pillar is stressed because it is the strongest part of BP.

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All three power dimensions thereby should not be seen separately but in close interaction to each another. Each form of political activity draws on or even strengthens other dimensions of power. This ability to combine and choose between different strategies applies to the form of activity and dimension of power used. Lobbying, for instance, draws not only on instrumental power, but also on structural power as well. The achievement of business objectives is more likely to be successful if it is "backed up" by other power dimensions in order to diminish potential threats. Lobbying can be used to foster the development of structural and discursive power, for instance, in terms of lobbying against capital controls, for selfregulatory arrangements, and for the privatization of infrastructure and other service sectors. Figure 16 categorizes the strategies into the power dimensions. The three power

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dimensions are basically the pillars of BP.

Figure 16: Three Pillars (Dimensions) of BP (Source: Author Illustration)

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The first mentioned self-regulatory arrangements allow TNCs as GAs to influence policy input directly, by setting up own proposals and thus, making some outcomes more acceptable. Quasi regulations also determine the arena of policies window of opportunities. Rating agencies, consultancies et al. are able to withdraw or just to not provide capital to a country, civil group, or direct business competitor that adopts undesirable policies. Discursive “soft” power can be reached by strong cooperation with NGOs. TNCs can increase their GP by cooperating with the GA that stands for the civil society. By, for instance, adding environmental care measures in to business operations, sponsoring Non-Profit Organizations, or implementing “Social Responsibility” to the corporate identity, NGOs can be satisfied. Thus, results in greater BP towards this GA and leads to better changes to gain in GP. In addition, social standards and environmental protection concepts developed by TNC carry usually the business´ interests rather than the public desires and, in addition, may prevent further public regulation in this area. The instrumental power approach with is the strongest dimension in BP can be stimulated by, for instance, lobbying.9 Lobbying of course still is an extremely important political activity of business. On global level, lobbying activity by business reveals that the traditional notion competition (or corporatist cooperation) at the national level needs to be supplemented with a focus on the strong influence of lobbying by TNCs on national politics and the influence of lobbying by national companies and TNCs on supra-national politics. The instrumentalist approach rationales the power of TNCs on political activity in GG with the role of business lobbying in influencing international agreements by their strong bargaining power on GAs. A strong interdependency between TNC and GIOs leads automatically to the

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necessity of cooperation (or drastic isolation).

9

Other forms of political activity included by scholars in analyses of the first face of power include advocacy,monitoring of compliance of governments, or protest (Arts 2003).

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For TNCs in GG, it is highly recommended to adapt to the cooperative vertical business strategies as, for instance, PPPs. These PPPs do not need to be as “official” as the case of UN Global Compact. However, there must be a positive relation to GOIs measurable. The rational behind it is first that the instrumentalist power approach is the strongest pillar in the BP model and solely therefore desirable. Further, as it was found out in section 2.2.4 that buyers and supplier are GIOs. GIOs serve as sixth force on the entire competitive environment and therefore may influence the industries threats. By creation of a cooperative relationship, it is likely that the sixth force is going to take influence on the horizontal layer, in favour of the industry. Thus, two birds will be

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killed with only one stone.

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3. Case Study: Gazprom Under President Putin (2004-2008), the relationship between Russian business and the state swung between two extremes. From the situation in 1998 – 99 when both federal and regional authorities were under the control of oligarchic capital, and the relation between business and the state was characterised by the so-called privatisation of the state by 2003 – 04 Russia had made a rapid shift to the dominance of the state over big business. To understand the current relationship of the both GAs, it first will be given a brief historical overview of the Russian business industry as a whole since the break down of the communist’s regime. In the second part it will be given information on the Russian economy and gas market. In a last step, Russians current actions will be named and analysed in its strategic meaning.

3.1 History Background of Russians Policy The weakness of the state was a key characteristic of Russia during the 1990s. In this period, the state was unable to resist the pressure of various interest groups, to ensure proper tax collection, or provide business with a standard set of services for the protection of property and contractual rights. This determined specific ways of realising basic strategies of interaction between business and the state, which are mainly based on Hirschman’s “exit and voice” strategies. Along with the strategy of influeecing und establishing close integration with the state (cooperative vertical strategy) in order to maximize profits, many companies followed an other strategy of keeping at a distance from the state, that is, an exit strategy (isolative vertical strategy). The cooperative vertical strategy was mostly typical for enterprises that accumulated their seed capital as early as the 1980s and operated in banking, finance and exportoriented industries. The isolative vertical strategy was more typical for younger Copyright © 2010. Diplomica Verlag. All rights reserved.

companies that operated in trade and services, including the IT sector, transportation and tourism and had not great entry costs. Despite substantial differences in the appearance and evolution of the two mentioned strategies, economic actors of both kinds pointed out the need for a stronger state for objective reasons. In the first case, fiscal deficit and macroeconomic instability, involved the risks of strong social and political shocks

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which in turn could bring a substantial redistribution of power and property. 1998 the crisis was an example of such shocks. As a result, the most influential players were interested in the emergence of a powerful state that could provide protection from the outcome of such crises. Comparably, most players who stuck to the strategy of isolation needed guarantees that the general “rules of the game” would be followed and that protective services would be available to supervise it. Competition between various agents of such services to business clearly demonstrated that public administration could do this better than criminals, even at a minimal level. However, in the absence of a well-developed political democracy system, in a situation where the voting public is out of power to manage the chaos and uncertainty of the previous decade, the logic consequence is a consolidation of the state with typical tendencies towards suppression. Meanwhile, the business community assisted the implementation of this scenario, trying to raise informal barraging power towards the state behind society’s back and ignoring the need for social recognition of the ownership structure that had emerged in Russia in the 1990s. The inefficiency of this kind of strategy in the new environment was clearly demonstrated in the conflict with Yukos. As a result, it can be stated that by summer 2004 the state gained, under the rule of W. Putin absolute dominance over business. There was always a strong relationship between the national government and the economy in Russia. In the first period, the state dictated the industry. After the fall of communistic structures, the industry started to dictate the state, thus, having the bargaining power on its side. Now, there can be detected a third period arising. The Russian government gains in power over the industry. However, for this time Russia realized the need for adapting

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to Globalization (and capitalistic structures) and using the Global Governance as a tool to raise profits and Global Power. The close cooperation of government and industry, implemented into a high involvement in Global Governance will definitely lead to rise in Global Power for both, state and business.

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3.2 Economy Background The Russian Urals are rich in natural resources as coal, oil and natural gas. Russia contains 1/3 of all available gas resources in the world. Gazprom controls ¼ of world wide gas resources and 94% of Russian gas. And is thus, the biggest gas extractor in the world. 1992 Gazprom was founded by rich oligarchs that earned during the Jelzin era enough money and bought the former state owned company for cheap money. In 2005 the Russian government became main shareholder with at least 51% of market share. Now the gas industry in Russia generates 25% of GDP and 40% of state earning. Gazprom holds about one thousand subsidiaries (detailed list can be found in the appendix 5-6) in the oil sector, the atom sector, the logistic sector, the engineering sector and the media sector (Pörzgen 2008:31) Last but not least Gazprom is the owner of one bank and an airline company. The top management of Gazprom consists out of politicians, delegates, ministers, diplomats and government consultancies. Its market value is estimated to be $250 Bn. Alexej Miller, former Russian Minister of Energy, and today’s CEO of Gazprom set up the vision of becoming a global operating energy-holding, which offers not only gas, but in addition to that coal, oil, electricity and nuclear power to the international community. Miller estimated a stock exchange value of one trillion $. Thus, Gazprom would be the most expensive corporation in world. “Gazprom makes good progress, developing as a global vertically integrated energy company. Our primary activities secure robust solutions for the energy problems of the day (Gazprom homepage).”

3.3 Strategy framework Here it will be provided the final analysis using the Global Governance framework,

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introduced in section 1.2.2. The aim is to localize Gazpom in the Global Governance involvement and to determine the grade of intersectional relationships with the other GAs. First it will be indicated the relationship to the government, thus, most significant. Secondly, the relationship with NGOs will be determined. Finally, the relations to International Organizations will be lightened.

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3.3.1 Gazprom and Russia In winter 2005/2006 Russia started a heavy debate with the Ukraine. In 2006 Gazprom stopped the delivery of gas to the Ukraine. 80% of all Russian gas exports to Europe pass the Ukraine. Thus, the stop of delivery to Europe resulted in a high thread of European consumer and made clear the heavy dependency on Russian gas, indeed. Official reason for delivery stop was the argument, that the Ukraine did not reacted on a markup, announced by Gazprom in 2004. Medvedev argued that each commercial corporation would stop delivering when the customer does not pay. In November 2004 there were presidency elections in the Ukraine. Ukrainian citizens protested against the presidential elections result by “the orange revolution”. Finally Viktor Yushchenko became Ukrains president in 2005, in favour of the civil society. Shortly after that, the price for russian gas in the Ukraine increased from $50 per m³ rapidly to $95. End of 2007 the gas price reached $130. In October 2007 Victor Tschernomydrin, the Russian energy representative in the Ukraine stated that price of gas stays in relation with the composition of the Ukrainian Government. In December 2006 there was a second conflict—with Belarus. However, Gazprom bargained to raise the price of gas to $100/1,000 m³ and in addition to takeover 50% of all Belarus´ pipelines. Gazprom´s pipeline network by now is so big that it could easily round the entire world four times. In conclusion, these examples show how powerful Russia as a state becomes and the other way around, how great Gazprom´s bargaining power becomes when being supported from the state. The Russian Government and the TNC here become one

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single entity in the Global Governance framework.

3.3.2 Gazprom and NGO´s Gazprom realized the need to cooperate with the civil society and the NGO´s. However, there do also a lot of negative relations exist. However, the sum of all relations must be taken into consideration.

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One example for the implementation of society is the foundation of Nowy Urengoi. Gazprom founded an own town 2,500 km afar from Moscow, that serves the only purpose to extract and to deliver gas from West Siberia to the rest of the world. 80% of all extracted gas in Russia comes from that certain area. This town consists of 110,000 citizens. The town calles Nowy Urengoi and is one of the richest areas in Russia. Wages are three times higher than the Russian average. The citizens are provided with everything they need: schools, entertainment and shopping possibilities as well as with very good social security and health care systems. Here it can be seen that Gazprom implements social responsibility factors in order to gain NGOs sympathy—hand in hand with the Russian government. On a whole, Gazprom employs 300,000 Russian citizens. The case of Sakhalin shows up, in how far Gazprom uses relationships to NGO´s as environmental care institutions. Sakhalin is a Russian island, near the Japanese boarder and rich in oil and gas resources. During the Jelzin era licences to extract oil in Sakhalin were sold for cheap money to Japanese and Dutch (Shell) oil companies. In 2006 the head of Russian Ministry on environmental care, Oleg Mitvol, started to claim the foreign companies with recriminations of polluting the Russian natural environment and violating the Russian Act on Environmental Care in more than 100 points. After useless actions to attack the companies, Mitvol finally turned to Greenpeace, the WWF and to the media, in order to turn civil society’s attention to the issue. Shell and the Japanese companies got a restriction on continuing their activity in Sakhalin and finally were forced to sell their certificate for cheap money—to Gazprom. Last but not least, Gazprom is highly involved into R&D issues. The VNIIGAZ is a research centrum which employs about 13,000 scientists in the area of IT, three-

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dimensional illustration and geologies. CEO of the institute is Roman Samsonov. Together they developed in 2005 the Stockmann model that will lead to a gas extraction of 3.7 Bn m³ in the future. The VNIIGAZ and Roman Samsonov received for their findings an award from Gazprom. The VNIIGAZ research institute is to 100% owned by Gazprom.

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Here, one more relation to NGOs can be detected. Gazprom intends to strengthen its discursive power line by cooperating with horizontal partners. And strengthen its overall BP by simple backward integration into the supplier market.

3.3.3 Gazprom and Europe Here will the relationship of Gazprom to International Organizations be detected. The IO that are going to be taken here are important to name, because they basically operate with Gazprom on a frequent basis. Moreover, the EU and the OECD are the core IOs in Gazproms competitive environment—yet. The executive director of the OECD´s energy directory, Claude Mandil, is heavily concerned about the future delivery possibility of Gazprom. He argues that there are to little investments done into R&D, equipment needed, and other costs. Gazprom on the other hand argues that investments in 2007 has been $ 20 Bn. In 2008 it will be $ 22 Bn. And in 2009 Gazprom will invest $ 26 Bn. into new technologies and R&D. Also the European Union is critical towards Russian gas delivery contracts. Barroso pointed out that there firstly, shall be a split of producing and delivering industries. Secondly he pointed out that the EU must speak with a common voice, otherwise a fragmentation will lead to enormous losses in EU bargaining power. His approach to Putin was to sign delivery contracts on a solidarity basis. When one member of the 27 EU countries suffers from the long term contracts, all members will be able to quit the relationship to Gazprom, too. Putin does not reacted on that approach yet. One main problem of the EU integration is that Germany already agreed on the set up of a 1,200 km long pipeline from Russia, through the Eastern Sea, to Germany. “Problematic” actors as the Baltic States and Poland should simply be isolated. Gerhard Schröder, the former German President is now chef of the advisory board of

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the consortium that is concerned with the construction of that particular North stream pipeline. The essential point is the trust. Moreover, it is the asymmetric interdependency that concerns European institutions. They fear to great power deriving from Russia. On the other hand, they depend on the energy. Russia and Gazprom also depend on the European market. However, the dependency of Europe from Russian gas is obviously higher than the dependency of

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Russia from the European markets. In view of the planed cooperation with the Chinese market, Gazprom is orienting towards East Asia already. In addition, there is currently a direct confrontation going on, between Gazprom and the EU. Gazprom is planning a pipeline through the Black Sea to Turkey and finally to Europe, avoiding the touch with the Ukraine. The project is called Blue stream 2 and shall deliver gas from Turkmenistan, Uzbekistan and Azerbaijan to Europe. At the same time, the US and the EU plan together a pipeline project, from Azerbaijan and Georgia to Turkey. This project will be mainly financed by the WTO and build up together with British Patrol (BP). In November 2006 Russia started an embargo of Georgian imports to Russia. At this moment of time it is not clear yet, but it is likely that both pipelines are going to be build. Each of them costs estimated $ 5 Bn. However, it can be detected a (to) strong BP deriving from Gazprom. Therefore the IOs try to choose the “exit” strategy and leave the market, indeed they depend. Russia´s continuing of raising profits and GP is a threat to the western countries; especially because they do not trust each other in terms of humanity and fairness. Therefore the EU simply takes away its power from the GG framework and hopes

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that Russia cannot reach GP anymore.

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Figure 17 illustrates the situation described.

Figure 17: EU exit Stratagy (source: Author Illustration)

However, Gazprom already oriented to find a substitute for the IO as GA that limitates the access to high involvement into GG and thus, Global Power. In 2001 Russia joined the Shanghai Organization of Cooperation (SOC). This International Organization consists now of Russia, China, Kazakhstan, Kyrgyzstan, Tadzhikistan, and Uzbekistan. The General Secretary of the SOC is Bolat Nurgelijev. It was stated, that the SOC serves the purpose to isolate from the USA, build up a military block against the NATO and bundle energy resources. Further, Gazprom benefits from the high demand required from raising population in China. In April 2006 Russia’s president Putin closed a contract with China on a delivery of annual

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80 Bn. m³ gas starting in 2011. There already rose four other important countries that may intend to join the SOC in the long run: Mongolia, India, Pakistan and Iran.

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4. Conclusion This thesis´ analysis showed up the relationship between the involvement into Global Governance by the interaction with other Global Actors, and the degree of Global Power. Global Power hold by Trans-National Companies is equal to their market dominating power and as a result to their profitability. Involvement into Global Governance depends from the own Bargaining Power. Bargaining Power is spitted up into instrumental, structural and discursive power. Each power line can be strengthened by a certain strategy. The decision about the right strategy also depends on the threats deriving from the industry. There can be either threat from the vertical, or from the horizontal layer. In addition, strategy might be either corporative or isolative. When introducing the “sixth force” to the TNCs competitive environment, it becomes clear, that TNCs should stick to either the national government as force in order to combat as an alliance on the global layer, or International Organizations. In the best case, they can stick to both of them.

In the Gazprom case study, there becomes clear, that the cooperation of TNC and national government leads to an enormous increase in power. The Russian Government and the TNC here become one single entity in the Global Governance framework. Among Russia as state and Gazprom as TNC, there arises the maximum of cooperative alliance. However, on global stage Gazprom and Russia are limited by the threats of the EU and OECD. Therefore Russia and Gazprom are seeking for alternative International Organizations. The Shanghai Organization of Cooperation (SOC) might serve as

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substitute for the EU.

Future will show, if Russia and Gazprom will become Global Power leaders, when joining the SOC. However, then the Global Social Society might become the next limitation factor.

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Giddens, A. (1979). Central Problems in Social Theory: Action, structure and contradiction in social analysis. London: Macmillan Giddens, A. (1990). The Consequences of Modernity. Oxford: Blackwell / Polity Press. Hahn R. / Hird J. (1991). The costs and benefits of regulation: review and synthesis. Yale Journal of Regulation. Vol. 8. p 233-278. Held D./ McGrew A. G./ Goldblatt D. et al. (1999). Global Transformations: Politics, Economics and Culture. Stanford University: Press. Hildyard, N. / Hines B. / Lang F. (1996). Who Competes? Changing Landscapes of

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Scholte, J.A. (2000a). Globalization: A Critical Introduction. London: Palgrave. Stiftung Entwicklung und Frieden (1995). In Editors of the book. Fit for Global Governance? (43) Universität Berlin.

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Appendix

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Appendix 1: The top 10 non-financial TNCs from South-East Europe and the CISa, ranked by foreign assets, 2004 (Millions of dollars and number of employees)

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Appendix 2: The world's top 100 non-financial TNCs, ranked by foreign assets, 2005 (Millions of dollars and number of employees)

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Appendix 3: The top-100 TNCs with presence in the highest number of host countries in 2005

Appendix 4: the 25 most-favoured locations of the largest 100 TNCs in the worlds

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and from developing countries in 2005

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Appendix 5: Subsidiary companies / List of subsidiary companies / Subsidiaries with Gazprom 100% ownership

№

Company

Core business activities

1.

Gazprom dobycha Astrakhan (former Astrakhangazprom)

Hydrocarbon production and transportation

2.

Gazprom transgaz Ufa (former Bashtransgaz)

Gas transmission

3.

Burgaz

Oil, gas & gas condensate geological exploration; oil and gas wells construction, drilling

4.

Ecological and Analytical Center for the gas industry

Radiation monitoring and associated physical & chemical and chemical analysis activities

5.

Gazflot

Sea-borne transportation, offshore field development

6.

Gazkomplektimpex

Procurement

7.

Gaznadzor

Ensuring (together with Gazprom subsidiaries) security and safety of the Unified Gas Supply System technological facilities

8.

Gazobezopasnost

Supervision over observance of security & safety instructions in the gas industry, well operation technology

9.

Gazoenergeticheskaya Kompaniya

Investment activities, company management by discharging the functions of the proprietor, managing company

10. Gaz-Oil

Implementation and development of integrated measures in engineering and construction of gas pipelines, UGS facilities, gas distribution stations and NGV fuelling stations

11. Gazprom export

International trade

12. Gazprom Finance B.V.

Company incorporation; financing, consulting services

13. Gazprom Netherlands B.V.

Coordination and management of production assets located abroad on behalf of Gazprom Group

14. Gazprom Pererabotka

Processing of gas, condensate and oil; gas, condensate and derivatives supply to consumers

15. Gazprom Pererabotka-Surgut

Transmission, storage and processing of gas, condensate and oil

16. Gazprom Pererabotka-Urengoy

Processing of gas, condensate and oil; gas, condensate and derivatives supply to consumers

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17. Gazprom Podzemremont-North

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

18. Gazprom Podzemremont-North Nadym

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

19. Gazprom Podzemremont-North Noyabrsk

Major repairs, maintenance, reconstruction and conservation of wells

20. Gazprom Podzemremont-North Yamburg

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

21. Gazprom Podzemremont-South

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

22. Gazprom Podzemremont-SouthAstrakhan

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

23. Gazprom Podzemremont-SouthKrasnodar

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

24. Gazprom Podzemremont-SouthUkhta

Repair, retrofit, reconstruction, technical upgrade, abandonment and conservation services relating to all types of wells, reservoir recovery enhancement

25. Gazprom Sakhalin Holdings B.V.

Foreign economic activities, other company incorporation or incorporation assistance, acquisition of shares (interests, equities) in other companies including their financing set up and business supervision

26. Gazprom UGS

Natural gas storage operations

27. Gazprom UGS-Krasnodar

Natural gas storage operations

28. Gazprom UGS-Orenburg

Natural gas storage operations

29. Gazprom UGS-Perm

Natural gas storage operations

30. Gazprom UGS-Samara

Natural gas storage operations

31. Gazprom UGS-Saratov

Natural gas storage operations

32. Gazprom UGS – North-West

Natural gas storage operations

33. Gazprom UGS-Stavropol

Natural gas storage operations

34. Gazprom UGS-Tyumen

Natural gas storage operations

35. Gazprom UGS-Ufa

Natural gas storage operations

36. Gazprom UK Ltd.

Project financial management for separate hydrocarbon production sites

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37. Gazpromavia Aviation Company

Air-borne transportation

38. Gazpromenergo

Power plant construction projects in RF, CIS countries, Baltic States, beyond FSU; energy base development

39. Gazprominvestarena

Engineering, construction, debottlenecking, and technical upgrade of non-production facilities including housing, education, health care, social and cultural facilities

40. Gazprominvestholding

Investment and financial activities

41. Gazpromrazvitiye

Coming up with and developing new projects, optimizing investments, reducing risks and expenses in the RF and abroad

42. Gazpromstroyengineering

Construction and installation works, engineering activities

43. Gazpromtrans-Astrakhan

Transportation services

44. Gazprom transgaz-Kuban

Transmission of natural gas and condensate through gas mains

45. Gazpromtrans-Nadym

Transportation services

46. Gazpromtrans-Orenburg

Transportation services

47. Gazpromtrans-Surgut

Transportation services

48. Gazpromtrans-Tyumen

Transportation services

49. Gazpromtrans-Ukhta

Transportation services

50. Gazpromtrans-Urengoy

Transportation services

51. Gazpromtrans-Yamburg

Transportation services

52. Gazsvyaz

Operation of telecommunication systems, operative and technical management of the Gazprom technological communication network; all types of communications for Gazprom administration and its subsidiaries

53. Informgaz

IT development

54. Informgazinvest

Developing an industry integrated information management system within Gazprom

55. Irkutskgazprom

Hydrocarbon field exploration and development, gas distribution network construction and operation

56. IRTs Gazprom

Information, advertising, and analytical materials for the UGSS efficient control for the Gazprom Administration, Departments and subsidiaries

57. Gazprom transgaz Makhachkala (former Kaspiygazprom)

Hydrocarbon production and transportation

58. Kavkaztransgaz

Gas transmission

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59. Kubangazprom

Hydrocarbon production and transportation

60. Gazprom transgaz SaintPetersburg (former Lentransgaz)

Gas transmission

61. Mezhregiongaz

Natural gas, oil, gas condensate and derivatives marketing in the Russian Federation

62. Gazprom transgaz Moscow (former Mostransgaz)

Gas transmission

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63. Gazprom dobycha Nadym (former Hydrocarbon production Nadymgazprom) 64. Nadymstroygazdobycha

Construction and installation works, project-related activities, engineering services

65. NIIgazekonomica

Research & Development

66. Novy Urengoy Gas Chemicals Company

Hydrocarbon processing

67. Gazprom dobycha Noyabrsk (former Noyabrskgazdobycha)

Hydrocarbon production

68. Gazprom dobycha Orenburg (former Orenburggazprom)

Hydrocarbon production and transportation

69. Gazprom transgaz Tchaikovsky (former Permtransgaz)

Gas transmission

70. Podzemgazprom

Research & Development; design services

71. Podzemhydromineral Science & Production Center

Research & Development in the hydro mineral resources production and rational utilization area, recovery of valuable resources out of hydro mineral resources

72. Private Security Company Gazpromokhrana

Security activities

73. Purgazdobycha

Exploration, production, transportation and processing of oil, gas and condensate

74. Gazprom transgaz Samara (former Samaratransgaz)

Gas transmission

75. Servisgazprom

Gazprom buildings operation, procurement

76. Gazprom transgaz Ukhta (former Severgazprom)

Hydrocarbon production and transmission

77. Severneftegazprom

Yuzhno-Russkoye oil & gas condensate field development, geological survey

78. Sevmorneftegaz

Oil & gas field development

79. Gazprom transgaz Surgut (former Surgutgazprom)

Hydrocarbon production, processing and transportation

74

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80. Surgutstroygaz construction company

Construction

81. Szhizhenny gaz (Liquefied gas)

LNG deliveries and marketing, cylinder filling with LNG, cylinder repair & technical certification

82. Gazprom transgaz Kazan (former Tattransgaz)

Gas transmission

83. Temryukmortrans

Marine cabotage and international cargo shipments; offshore towing, rescue and supply operations

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84. Gazprom transgaz Tomsk (former Gas transmission Tomsktransgaz) 85. Top energy

Supply and marketing of natural gas, expansion of existing transit gas pipelines

86. TyumenNIIgiprogaz

R&D and project-related activities

87. Gazprom transgaz Yugorsk (former Tyumentransgaz)

Gas transmission

88. Gazprom transgaz Ekaterinburg (former Uraltransgaz)

Gas transmission

89. Gazprom dobycha Urengoy (former Urengoygazprom)

Hydrocarbon production

90. VNIIGAZ

Research and development

91. Gazprom transgaz Volgograd (former Volgogradtransgaz)

Gas transmission

92. Gazprom transgaz Nizhni Novgorod (former Volgotransgaz)

Gas transmission

93. Yamalgazinvest

Engineering and gas construction of gas industry facilities

94. Gazprom dobycha Yamburg (former Yamburggazdobycha)

Hydrocarbon production

95. Yugtransgaz

Gas transmission

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Appendix 6: Subsidiary companies / List of subsidiary companies / Subsidiaries with Gazprom above 50% ownership

№

Company

Core business activities

1.

ArmRosgazprom

Russian natural gas transit via the territory of the Republic of Armenia to third countries

2.

Brestgazoapparat

Household gas stove manufacture

3.

Centrenergogaz

Technical re-equipment of gas production facilities, repair, installation and adjustment work; development and implementation of special-purpose gas transportation programs; supply of gas pumping unit spare parts to gas industry companies

4.

Ditangaz

Development, installation and assembly of smoke fuelbased gas analyzers

5.

Druzhba

Hotel and therapeutic services

6.

Electrogaz

Manufacture of electric & technical devices and equipment; installation, upgrading, reconstruction, repair and adjustment of power supply facilities, installation of diesel and gas turbine power stations

7.

Fora Gazprom

Production of lumber, millwork, building materials and constructions

8.

Future Fatherland Fund

Support for innovation activity of young people

9.

Gazcom

Satellite communication system development

10. Gazenergoservis

Production and repair of gas equipment parts and joints, repair and diving services for underwater infrastructure maintenance

11. Gazmash

Manufacture of household fuel-powered equipment

12. Gazprom neft

Oil & gas field exploration, oil & gas production, transportation and processing, refining petrochemicals and other products

13. Gazpromgeofizika

Geophysical survey of wells, introduction of new technical developments for geophysical survey of wells

14. GazpromPurInvest

Purchase and sale of all types of movable and immovable property, commercial projects in the RF and abroad, intermediary and consulting services

15. Gazpromtrubinvest

Pipe production with acquisition priority given to the parent companies

16. Gazstroydetal

Production of oil and gas processing equipment and manufacture of non-standardized equipment and joint pieces

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17. Gaztelekom

Technical re-equipment and modernization of theGazprom departmental communication network through commercial use of spare telecommunication capacities

18. Gaztorgpromstroy

Agricultural and consumer products trade

19. Giprogaztsentr

Project support for Gazprom companies

20. Giprospetsgaz

Developing long-range gas facility construction programs, technological engineering

21. Kaunas CHP

Power generation and distribution

22. Krasnodargazstroy

High, middle and low pressure pipeline, oil pipeline, gas pipeline construction

23. Krasnoyarskgazprom

Gas, oil and derivatives production, treatment and transportation, geological exploration and drilling

24. Kuznetsk GPC

Exploration and production of coal bed methane and other hydrocarbons

25. Lazurnaya

Lazurnaya Hotel Complex engineering, financing and completing construction

26. Lengazspetsstroy (LGSS)

General contractor services; construction, upgrading and overhaul of oil & gas trunk lines

27. Nord Stream AG

Engineering and operation of the pipeline crossing the Baltic Sea

28. Orgenergogaz

Engineering and technical maintenance services for gas and condensate production and transmission facilities

29. PeterGaz B.V.

Engineering and construction of offshore installations including underwater pipelines

30. Promgaz

Stepping up a common sci-tech policy in the energy saving and gasification sector

31. SevKavNIPIgaz

Design and survey work for oil and gas facility construction

32. Spetsgazavtotrans

Performing a complex of earthwork to erect pertinent infrastructure on Arctic oil and gas fields, constructing motor ways, providing overhaul of gas mains, earthwork, river and motor transport support services, overhaul and technical maintenance of imported building equipment of Gazprom companies

33. Spetsgazremstroy

Construction, installation and repair of gas mains

34. Stimul

Oil recovery, treatment and refining in the Eastern block of the Orenburgskoye oil, gas and condensate field

35. Tsentrgaz

Gas main construction, gas industry facility upgrading and overhaul, population centre gasification

36. TsKBN

Design and construction activities for developing modular and complete equipment for oil & gas facilities

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37. VNIPIgazdobycha

Scientific and technical products in geological and gas production sector, construction and reconstruction of gas production facilities. Service provision for Gazprom companies and enterprises

38. Volgogaz

Project estimates; construction & installation, construction materials manufacture

39. Volgogradneftemash

Development and introduction of new oil & gas processing machines and equipment (chemical and oil machine building)

40. Vostokgazprom

Oil & gas field exploration and development, hydrocarbon and derivatives marketing

41. Zapsibgazprom

Comprehensive gas and oil field development

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Source: Gazprom (2008).Gazprom Factsheet, Business Strategy et al. Revied [01/04/2008] from http://www.gazprom.com/eng/articles/article21653.shtml

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About the Autor

Diana Manuel´evna Mateo was born in Riga, Latvia (former Latvian Soviet Republic) in 1986. Her father studied at The Peoples' Friendship University of Russia (former Patrice-Lumumba-University) Moscow. Her mother studied engineering and civil aviation at the Leninkomsomol Rotbanner Institute. After a three year-period living in the Dominican Republic, her family entered the Federal Republic of Germany in 1989. Diana Mateo grew up trilingual in Berlin (German, Russian and Spanish).

In 2008 Diana Mateo graduated as Bachelor of Arts in International Business from the Cologne Business School, Germany. During 2004 – 2008 she specialized on global questions and got involved into a variety of humanitarian and social projects. In 2003-04 Diana Mateo worked in close collaboration with the “Centrum Judaicum – Stiftung Neue Synagoge”, the “Federal Ministry of Education, Youth and Family Affairs”, and the “State Europe School of Berlin” on the organization and implementation of the arthistorical exhibition "AHAWAH, aus Kindern wurden Briefe - AHAWAH, children became letters". In 2006 she participated in the International Councelor Program of the “YMCA of the Triangle”. In North Carolina US she worked during a three month-period in an international

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environment on cultural development and social welfare. After graduation in 2008, I participated in an 8-month traineeship in the field of Investment Banking and Financial Trade at HSBC INKA in Duesselorf, Germany. In 2010 she continued her Master studies in International Relations / Global Political Economy in UK.

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