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Organisational Context of Essar

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„Organisational Context of Essar“
“We in the business community have a responsibility to contribute to a better understanding of the urgency of averting a crippling and self-inflicted recession,” writes Lloyd Blankfein, chairman and CEO of Goldman Sachs, in The Wall Street Journal this week.

Organisations interact with the world around them. They get influenced by and they influence their surroundings. Over the years those interdependences became stronger; Starbuck states, ‘not only have corporations created social bonds that span national boundaries, but hundreds of corporations are big enough to have memberships in the United Nations.’ He further encourages organisation theory to contribute to human welfare by acknowledging that organisations lie at the heart of major conflicts that are shaping the course of the 21 century and thus providing assistance to organisation in realising the importance of their relations to others and the importance of functioning effectively as part of society.
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Starbuck (2003) identifies three grand areas of social conflict in which organisations are participating: - The conflict between corporations and nations, - the conflict between top managers and other stakeholders, and - the conflict between the short run and the long run. Mitigating them should be one of the main purposes of organisation theorists. Therefore it is imminent to identify the different dimensions of organisations and to describe the current and future external factors, which could affect an organisation.

One popular approach for scanning the environment of an organisation is P(political) E(economic) S(social) T(technology) L(legal) E(ecological) analysis; an environmental scanning tool – similar but more detailed than Porter’s 5 forces 5

to identify political,

economic, social, legal and ecological factors that have an impact on an organisation. Its simple structure facilitates reducing the complexity of dealing with trends in technology, globalisation, technology and other factors. The following paper will focus on analysing Essar’s environment using PESTLE factors. At first it will give a short overview of Essar’s history and operations. Afterwards the PESTLE factors will be explained.

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Blankfein, L. (2012) Starbuck, W.H (2003): p.444 3 Starbuck, W.H (2003): p.448 4 Buchanan, David A./ Huczynsk, Andrzej A. (2010): p.43 5 Eayrs, W.E./Ernst, D./Prexl, S. (2011) 6 Buchanan, David A./ Huczynsk, Andrzej A. (2010): p.43

Essar is an Indian multinational conglomerate headquartered in Mumbai, Maharashtra, India. It is a diversified business corporation with a balanced asset portfolio in the manufacturing and services sectors of steel, oil and gas, power,

communications, shipping ports and logistics, and construction. Essar continues to expand its global footprint, focusing on markets in Asia, Africa, Europe, the Americas and Australia. Essar began as a construction company in 1969 and diversified into manufacturing, services and retail. It is a mostly family owned, listed company run by Shashi Ruia, Chairman and Ravi Ruia, Vice Chairman. Essar began its first operation with the construction of an outer breakwater in Chennai. In the 1980s, the company ventured into the field of oil exploration and development, drilling onshore and offshore oil and gas wells for Indian public sector oil exploration companies. In the 1990s, Essar began its steelmaking business by setting up India’s first sponge iron plant in Hazira, a coastal town in Gujarat, India.

With the gradual liberalisation of the Indian economy, Essar seized every opportunity that came its way. It diversified its shipping fleet, started oil and gas exploration and production, laid the foundation of its oil refinery at Vadinar, Gujarat, and set up a power plant near the steel complex in Hazira. The construction business helped Essar build most of its business assets. Essar also entered the GSM telephonic business. The first 12 years of the 21st century for the Essar Group has been all about consolidating and growing the businesses, with mergers and acquisitions, new revenue streams and strategic geographical expansion. The following PESTLE factors are affecting the organisation POLITICAL Political factors that affect Essar are government policies, ideology, several interest groups, trade union policies and environmental activists. India currently has an unstable government. When the government is weak and unstable, there are two issues: First is that a weak government is normally unwilling to pass new laws and reforms, because they don't have enough votes or cannot rely on supporters and because of the worries over corruption (later more) etc. Particularly since the 2G scam (will be explained later) bureaucrats do not want to sign off on new things in case they are accused of corruption in the future. That means that important reforms, that would do things,

Essar a (2012) 7 8

like allow more investment, or clear new projects, which would help the economy in general and companies, like Essar specifically, get stalled. Second, there is a continual worry over how the government might either get changed, or be forced to change its approach, due to its weakness. So companies like Essar are reluctant to invest in big new projects and spend big money on capital expenditure in case the whole situation changes six months later if the government changes and then they are left in trouble. Corruption in India is a major issue and adversely affects its economy - more than 62% of Indians have first-hand experience of paying bribes or influence peddling to get jobs done in public offices successfully. The causes of corruption in India include excessive regulations, complicated taxes and licensing systems, numerous government departments each with opaque bureaucracy and discretionary powers, and the lack of transparent laws and processes.
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In December 2008, 120 of India's 523 parliament members were facing criminal charges.

Many of the biggest scandals since 2010 have involved very high levels of government, such as in the 2G spectrum scam, the 2010 Commonwealth Games scam and, coal mining scam, to mention a few. Essar was part of the 2G-spectrum scam, where Essar promoters Ravi Ruia and Anshuman Ruia, Loop Telecom promoters Kiran Khaitan and her husband IP Khaitan are facing trial in the case on the charges of conspiracy to cheat the government. And could also be charged in the coal mining scam. The 2G-spectrum scam involved politicians and government officials illegally undercharging mobile telephony companies for frequency allocation licenses. The shortfall between the money collected and the money that the law mandated to be collected is estimated to be 176,645 crore (US$33.39 billion), as valued by the Comptroller and Auditor General of India based on 3G and BWA spectrum auction prices in 2010. ECONOMIC Economic growth patterns, competitor behaviour, supplier behaviour, raw material prices (Essar is trading in coal, oil and gas and steel) and currency exchange rates affect Essar. Influences of the economic growth and the Indian currency are presented and discussed in detail.


Corruption Perceptions Index - "Transparency International – the global coalition against corruption". Retrieved 2012-11-15 10 Bibek Debroy and Laveesh Bhandari (2012) 11 The Economist (2008) 12 Performance Audit Report on the Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications Ministry of Communications and Information Technology (2012)

Indian economic growth slumped to a decade low and is slowing down, especially in consumer areas. ‘Growth in India - where the reform agenda has been "largely derailed" - will fall to 4.7pc to 2018, and then to 3.9pc,’ writes Ambrose Evans-Pritchard in the Telegraph. to slow downs, the overall recession will have its affects. The Indian rupee is an ambiguous currency, not known for its stability. Due to weak macro economic indicators, the rupee deteriorated over the last year. The rupee has fallen from 45 level per dollar in May 2011 to 56 level at the end of May this year, depreciating by over 24 per cent due to a combination of deteriorating global risk sentiment and weak economic fundamentals. The twin deficits -- current account deficit and fiscal deficit -- are weighing on the demand for rupee. Essar, as an international company, mostly borrows in dollars for foreign investments. That means that when the rupee weakens, they lose a lot of money. SOCIAL Factors that can influence a company on a social level are demographic trends, social values, and skills availability. India currently has a lack of skilled employees. There are too many people to educate and not enough scholastic institutions.
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Although the main industries Essar operates in (steel, oil, gas, power, coal) are more resistant

Looking at the social environment Essar operates in religion is one important factor, which needs to be mentioned. Companies are often required to stick to religious traditions in their business or their investments. Unions are normally very political in India - in Maharashtra, for example, the Shiv Sena controls many unions. TECHNOLOGICAL Like any other organisation, Essar is affected by technological changes. As it mainly is a producing company, new production methods and processes, engineering innovations, innovation in transport, and new material will influence how Essar is competing in the market. Essar also owns stakes in a large BPO company and a telecom company, so innovations in that sector will have its affects too. LEGAL As an internationally operating company, Essar has to act according to international law and international trade agreements. Labour laws are also to mention. India's laws are well out of date. The Industrial Disputes Act (1947), means that any company employing more than 100 people (has to get

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Ambrose Evans-Pritchard (2012) The RBI stays stable now (2012) Reuters (2007) Maghok (2012)

government permission to fire people. That is a big problem, and it means companies like to employ contract workers, or not enough people, just in case the economy goes bad and they can't fire the unnecessary people. It also leads to strikes and protests, because the employees know that they are safe from being fired. ECOLOGICAL Essar has investments in sectors that a targeted by environmentalist. Especially in the oil and gas, steel and coal business it is important that companies are protecting the countryside and the shoreline. Companies need to reduce toxic emissions, pollution, and spills. Therefore sustainable development is integral to Essar’s overarching business model. The approach to sustainability focuses on the economic, social, and environmental activities at all our operational locations around the world. Practical advice to the Essar’s management A weakness of the PESTLE analysis is, that it identifies a vast range of factors some may not be significant. As Essar’s management I would concentrate on the political and economic factors.

Buchanan, David A./ Huczynsk, Andrzej A. (2010): Organizational Behaviour. 7ed. Essex, England. Pearson Education Ltd. Eayrs, W.E./Ernst, D./Prexl, S. (2011): Corporate Fincane Training – Planung und Bewertung von Unternehmen. 2ed. Stuttgart. Schäffer-Poeschel Verlag. Starbuck, W.H. (2003): Shouldn’t Organization Theory Emerge from Adolescence? Organization, 10/3: 439 – 452. Essar a (2012), Genesis and evolution,, retrieved: 2012-11-14 Essar b (2012), Corporate profile, retrieved: 2012-11-14 Reuters (02.Febuary 2007), IBM sees growth in India but faces skill shortage,, retrieved: 2012-11-16 Diksha Madhok (10. September 2012), Cram schools boom widens India's class divide,, retrieved: 2012-11-16 Performance Audit Report on the Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications Ministry of Communications and Information Technology (06. Juli 2012 15:01:39),, retrieved: 2012-11-16 India Corruption Study – 2008, retrieved: 2012 -11-16 Corruption Perceptions Index (19:06:09 2010), retrieved: 2012-11-15 Bibek Debroy and Laveesh Bhandari (15. November 2012 19:07:27) Corruption in India | The World Financial Review:, retrieved: 2012-11-15 The Economist (11. December 2008), A special report on India: The democracy tax is rising: Indian politics is becoming ever more labyrinthine retrieved 2012-11-16 RBI says rupee stable now. (14. June 2012), retrieved: 2012-11-15 Lloyd Blankfein (13. November 2012) The Business Plan for American Revival., retrieved: 2012-11-15 Ambrose Evans-Pritchard (13. November 2012), US Conference Board fears Brics miracle over as world faces decade-long slump,, retrieved 201211-16

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