Oil and gas exploration in the Arctic

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Oil & Gas Exploration in the Arctic

Master Thesis – Final Draft

Qualification: MSc. Business Studies – International Management Institution: University of Amsterdam – Amsterdam Business School Supervisor: Dr. Johan Lindeque

Second reader: Mr. Erik Dirksen M.Sc

Student: Wietske Zwart

Student ID: 10998179

Word Count: 19.871

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Abstract

Increasing global energy demand and decreasing access to easily accessible oil and gas reservoirs, makes MNEs in the oil and gas industry move to extreme locations. For this study, the Arctic is chosen as the focal region to evaluate the reasons for these developments. The resource dependency theory (RDT) and resource security theory (RST) are used to shape propositions and evaluate natural resource seeking strategies of MNEs, both state-owned and privately-owned, coming and operating in emerging and developed markets. Furthermore, non-governmental organizations’ (NGOs) effect on the different MNEs is analyzed and findings suggest that home country conditions influence natural resource seeking strategies and NGOs’ effect on these. It contributes to the literature by suggesting that the RST is applicable for all MNEs in the Arctic and not only SOEs, and that the RDT can complement it to explain relationships between the focal actors.

Keywords: state-owned enterprises, privately-owned enterprises, emerging markets, NGOs, resource security, oil and gas industry.

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Acknowledgements

After years of studying at a technical university, I went my own way by pursuing a degree in business administration. I picked my path, on which sometimes I was falling, blue-green colors flashing, and didn’t know what to say. Fortunately, the process wasn’t a heartless challenge, and although I acted peculiar sometimes, I can always count on support of my family. Their enthusiasm and joy makes them little demons at times, but they are most of all my gold dust women. The thesis could however never be done without the inspiring, intelligent and friendly guidance of my supervisor through the complexities of this thesis, and I am very grateful for it. I listened to him carefully, because luckily he didn’t keep his visions to himself. He helped me pick up the significant pieces and made me rock on like an ancient queen.

Thank you Johan. I hope you like Fleetwood Mac.

Statement of Originality

This document is written by Wietske Elise Zwart who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Index of Tables and Figures

Figure 1. Focal Case Sampling. ... 28

Figure 2. Focal MNEs with interest in the Arctic. ... 30

Figure 3. Data Sources used for this study. ... 31

Figure 4. Codes used in NVivo. ... 32

Figure 5. Within Case Analysis Gazprom and Shell in Russia. ... 34

Figure 6. Within Case Analysis Shell in Alaska. ... 39

Figure 7. Within Case Analysis Gazprom in Russia. ... 44

Figure 8. Within Case Analysis Statoil in Greenland ... 49

Figure 9. Within Case Analysis. Statoil and Rosneft in Russia ... 54

Figure 10. Within Case Analysis. Lukoil in Russia ... 59

Figure 11. Within Case Analysis Lukoil in Norway ... 63

Figure 12. Cross Case Analysis ... 67

Figure 13. Support of Working Propositions. ... 70

Figure 14. Distribution of natural resources in the Arctic. ... 77

Figure 15. The Arctic Circle. Source: CIA World Factbook ... 78

List of Abbreviations

CSA Country Specific Advantage

DM Developed Market

EM Emerging Market

FDI Foreign Direct Investment FSA Firm Specific Advantage

JV Joint Venture

MNE Multinational Enterprise

NGO Non-Governmental Organization POE Privately Owned Enterprise SOE State Owned Enterprise

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1. Introduction

Of the world’s 2000 largest companies, the Forbes Global 2000, 10% is majority state-owned (Kowalski, Buge, Sztajerowska, & Egeland, 2013) and state owned enterprises (SOEs) are reported to account for about 10% of global GDP (Bishop, Bremmer, Strobbia, Parno, & Utskot, 2011). After the breakup of the Soviet Union and growing privatization, SOEs had been expected to decrease in number (Shleifer, 1998; Bruton, Peng, Ahlstrom, Stan, & Xu, 2015), but SOEs have on the contrary increased their footprint internationally in presence and power (Bass & Chakrabarty, 2014; Bruton et al., 2015; Shleifer, 1998). Research on SOEs is however limited, although there significant need for it (Bruton et al., 2015; Cuervo-Cazurro, Inkpen, Musacchio & Ramaswamy, 2014; Kowalski et al., 2013).

Especially in the oil and gas industry, SOEs play a dominating role (Kowalski et al., 2013; Victor, Hults & Thurber, 2012). SOEs own 73% of oil reserves and 61% of oil production, and 68% of gas reserves and 73% of gas production (Victor et al., 2012, p.3). Privately owned enterprises (POEs) in the industry are argued to own other important resources, they are argued to be more technologically advanced, have more talented people in house (Budiman, Lin & Singham, 2009) and work more efficiently than SOEs (Bass & Chakrabarty, 2014). POEs however don’t have the advantage of unlimited financial capital of the state (Dewenter & Malatesta, 2001), and are consequently more dependent on others to internalize necessary resources (Pfeffer & Salancik, 2003). This state support for SOEs leads to objectives of securing their and their home country’s future position (Bass & Chakrabarty, 2014), while POEs focus more on short-term profitability (Bruton et al., 2015; Estrin et al., 2015). Natural resource seeking strategies of POEs and SOEs are therefore argued to differ (Meyer, Estrin, Bhaumik, & Peng, 2009).

These strategies differ per country, as POEs and SOEs are expected to face different home and host institutional influences (Meyer et al., 2009; Pinkse & Kolk, 2012), resulting form their (multiple) embeddedness in institutional frameworks (Peng, 2002; Pinkse & Kolk, 2008). Strategies can differ in developed markets (DM) versus emerging markets (EM), as institutions in those differ in strength (Dewenter & Malatesta, 2001; Meyer et al., 2009), which can determine the institutional legitimacy the multinational enterprises (MNEs) get and consequently how they operate in these host environments.

Legitimacy of oil and gas MNEs in natural resource seeking strategies in extreme locations can be explained by two theories, namely a resource dependence theory (RDT) (Pfeffer & Salancik, 2003) and resource security theory (RST) (Bass & Chakrabarty, 2014).

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Legitimacy is defined as the quality of being understood in accordance with norms and values regarding what is desirable and appropriate (Suchman, 1995). For this study a distinction is made between formal and informal legitimacy. Formal legitimacy is based on authority of regulative measures, for example the licenses for access to natural resources granted by governments. Informal legitimacy is based on normative legitimacy, which is based on social values (Yaziji, 2005), and on actual results of authority beyond formal conformity (Atack, 1999). Legitimacy is a conferred status and always controlled outside an organization (Pfeffer & Salancik, 2003), of which the informal part summarizes the general societal opinion about organizations, i.e. reputation (Atack, 1999). Non-governmental Organizations (NGOs) can play a critical role in representing societal interests and can harm informal legitimacy (Teegen, Doh, & Vachani, 2004; Yaziji, 2005).

As POEs strive for short-term profitability, they can’t afford to increase debts for the acquisition of resources which are held in reserve, waiting for the market to need exploitation. POEs need return on investment and to be powerful at present, and the RDT is therefore argued to be an explanation for their natural resource seeking strategies. Furthermore, because it would take too long to develop sustainable competitive resources (Hart, 1995), POEs are dependent on others with a willingness to share resources for short-term value creation (Pfeffer & Salancik, 2003). For SOEs on the other hand, it is argued by Bass & Chakrabarty (2014) that the RST serves as a more applicable explanation for resource seeking strategies, because of their long-term focus.

Whether the firm originates from a DM or EM, and the related ownership structure of the MNE (POE or SOE), are important factors to explain how and to what degree the RDT and RST are expected to provide most insight in natural resource seeking MNEs in the Arctic, in both DM and EM host environments. The degree to which these broad positions are evidenced in strategies of oil and gas MNEs in the Arctic has not been systematically assessed (Boardman & Vining, 1989; Moon & Lado, 2000) and this thesis seeks to provide this.

For natural resource seeking MNEs, NGOs are important actors in affecting strategies (Doh & Teegen, 2002; Teegen et al., 2004). NGOs have increasingly debated investment decisions of MNEs and governments, which deserved them incorporation in business-government models over investment plans (Doh & Teegen, 2002). NGOs do get more managerial attention (Doh & Teegen, 2002, p. 670), and literature while extensive (Luo, 2004; Moon & Lado, 2000), what this attention means for MNEs or governments, or NGOs’ influence on changing relationships between governments and MNEs, is not clear (Doh & Teegen, 2002; Luo, 2004; Vernon, 1971).

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How MNEs deal with influences of NGOs and governments, based on different backgrounds and related objectives, is argued to be different (Bruton et al., 2015). The degree to which these conditions are of importance is the scope of this thesis, and it aims to answer the following research question:

How do home and host country conditions affect the relevance of NGOs to resource seeking MNEs in extreme locations?

To answer the research question, a multiple case study is conducted on oil and gas MNEs in the Arctic. The Arctic Circle is highly relevant for this study, as it is estimated to contain approximately 22% of the world’s undiscovered oil and gas (USGS, 2008), and the decreasing access to easy oil (National Petroleum Council, 2010), intensifies competition and makes MNEs in the industry extend to more extreme environments (EIA, 2015; Flanders, Brown, Andre'Eva, & Larichev, 1998; Harrison, 2006). Moreover, Arctic states are DMs and EMs (The Arctic Council, 2015), and Arctic reserves attract MNEs (Bishop, Bremmer, Strobbia, Parno, & Utskot, 2011), both SOEs and POEs (Survey, 2008), from DMs and EMs (Harsem et al., 2011). Furthermore, exploitation (short-term) and exploration (long-term) activities are critical in the industry (Bass & Chakrabarty, 2014), making it useful to test the RDT and the RST. Exploration is defined as the search and discovery of a value in resources, where this was undetermined previously, and exploitation as production by using these resources, where the value of the resources has been determined (Vermeulen & Barkema, 2001). The region deals with extreme weather conditions, affecting both governments’ as well as NGOs’ attitude towards Arctic drilling (Harsem et al., 2011), which affect accountability and vulnerability of SOEs and POEs differently (Nelson, 2007).

The thesis contributes literature on SOEs, because existing research on SOEs has seen POEs and SOEs only in a dichotomy (Bruton et al., 2015; Shleifer, 1998), and this thesis also studies joint ventures (JVs) between POEs and SOEs, creating a continuum of state-ownership. It moreover adds to the knowledge on conditions which affect MNE’s response to NGOs.

The remainder continues as follows. First, MNEs are conceptualized based on state-ownership and home country characteristics, after which the strategies in host countries are discussed. Secondly, the theoretical framework describes Pfeffer & Salancik’s (2003) RDT and Bass & Chakrabarty’s (2014) RST, and their application to the conceptual dimensions, from which the working propositions are developed. It continues with the methodology, after which the results and implications are discussed. Finally, a conclusion is drawn and limitations and recommendations are presented.

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2. Literature review

Approximately 90% of the world’s oil and gas is owned by states (Tordo, Tracy & Arfaa, 2011) and because in the Arctic a diversity of MNEs operate, MNEs are conceptualized in SOEs and POEs, coming from and operating in EM and DM. It further discusses the importance of NGOs explains the influence of these organizations on resource seeking strategies of MNEs in the oil and gas industry.

2.1 Conceptualizing the Multinational Enterprise

MNEs are coordinated systems of cross-border value-creating activities (Buckley & Casson, 2009), carried out within the hierarchy of the firm, or through social ties or contractual relationships (Cantwell, Dunning, & Lundan, 2010). These value-creating activities are executed differently by MNEs based on their conceptual dimensions.

2.1.1 State-Ownership

Firms are considered state-owned if the state owns, directly or indirectly, over 50% of the shares (Bass & Chakrabarty, 2014; Kowalski et al., 2013). As mentioned, 10% of the Forbes Global 2000 meets this requirement (Kowalski et al., 2014), and the limited research on SOEs focuses on privatization (Dewenter & Malatesta, 2011; Shleifer, 1998) or on domestic markets, which is not of great importance for international business understanding (Bruton et al., 2015; Gaille, 2010; Wang et al., 2012).

Firms with state-ownership differ from POEs in objectives, access to resources and their corporate strategies (Bass & Chakrabarty, 2014; Estrin, Meyer, Nielsen, & Nielsen, 2015; Meyer et al., 2014; Shleifer, 1998; Wang, Hong, Kafouros, & Wright, 2012). Differences in ownership result in other Firms Specific Advantages (FSAs). SOEs for instance receive privileges from their home government by unlimited capital (Meyer et al., 2014; Pinkse & Kolk, 2012; Stan, Peng, & Bruton, 2014), while POEs are probably technologically more advanced, have more talented people in house (Budiman et al., 2009) and operate more efficiently (Bass & Chakrabarty, 2014). SOEs arguably receive state support to meet governments’ primary concern, which is to maximize economic efficiency and societal welfare (Tordo et al., 2011). SOEs gain thus maximum value when they pursue multiple social and political objectives, while POEs show more economic rationality and mainly seek for profit maximization (Bass & Chakrabarty, 2014; Dewenter & Malatesta, 2001; Stan et al., 2014).

There has been a shift in considering governments and businesses as antagonists, governments are increasingly promoting internationalization of SOEs. Cuervo-Cazurro et al.

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(2014) have discussed internationalization of SOEs, and because it is coming from different countries and industries, it is interesting to evaluate several cases for broadening international business understanding (Kowalski et al., 2013; Cuervo-Cazurro et al., 2014).

Specifically SOEs’ dominance in global markets is interesting, because it is argued that by using contracts it should not matter whether an activity is executed in-house or by POEs. And as POEs are argued to be better performers in the competitive market (Dewenter & Malatesta, 2001; Gaille, 2010; Stan et al., 2014), it would make sense to sign a contract with a POE (Schleifer, 1998). Even issues concerning social welfare can be addressed using contracts, and it is therefore not particularly necessary to resort to SOEs (Shleifer, 1998). However, interaction between state-ownership and technological resources is crucial for international expansion of the SOE (Wang et al., 2012), so adapting some of these resources from POEs might be a reason for governments to assure their SOEs get assigned these contracts.

One explanation for why SOEs still thrive today is that SOEs have grown to become a type of hybrid organization (Bruton et al., 2015). An important limitation on SOE literature is that existing research has viewed in a dichotomy; firms are either wholly owned by governments or not at all (Bruton et al., 2015; Shleifer, 1998). However, boundaries are shifting, creating firms where ownership and control are divided (Bruton et al., 2015), and where orientation has changed. From a domestic focus to an international orientation made these SOEs compete with POEs globally (Kowalski et al., 2013; Li, Cui & Lu, 2014). SOEs are thus very interesting for international business to better understand. Firms can thus be fully privately owned, fully state-owned, or a hybrid (Bruton et al., 2015). A hybrid, where ownership and control are separated, could in the scope of this research also mean a JV between two firms.

State-ownership is important as it can determine how much power the state has and how much pressure it exerts on MNEs, by determining allocation of resources and internationalization strategies (Wang et al., 2012). It in particular matters in resource-seeking strategies; state-ownership can influence strategic objectives and decisions of the managers. And as the oil and gas industry can be important for state income, governments can influence ability of MNEs to internationalize (Cuervo-Cazurro et al., 2014; Wang et al., 2012), and how and why resources are acquired abroad (Choudhury & Khanna, 2014; Wang et al., 2012). SOEs are moreover very common in EMs, in which they face home institutional complexities and instabilities to which the need to adjust their strategic actions (Estrin et al., 2015; Meyer et al., 2014; Stan et al., 2014).

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2.1.2 Home Country Characteristics

Another dimension, next to the degree of state-ownership, is the strength of home country institutions of MNE’s. Most SOEs originate from an EM (Luo & Tung, 2007) and most POEs from a DM. National institutions are argued to shape internationalization strategies of MNEs (Estrin et al., 2015) and since this study seeks to gain insight in the different strategies of MNEs, home country characteristics are part of the conceptualization.

National institutions are argued to shape the ability to receive home and host country institutional legitimacy (Dorward, Kydd, Morrison, & Poulton, 2005; Li et al., 2014). North (1990) defines institutions as ‘rules of the game’, both formal (i.e. rules and regulations) and informal (i.e. norms and cognitions), and are argued to affect economic growth (Dorward et al., 2005), and to directly influence strateies of firms (Meyer et al., 2009; Peng, Wang, & Jiang, 2008). Strategic choices are thus not solely determined by FSAs, but also reflect formal and informal constraints of the institutional framework in which MNEs are embedded (Peng et al., 2008). Especially in EM, institutions shape strategy and performace significantly (Wright, Filatotchev, Hoskisson, & Peng, 2005). The degree to which institutional strength influences internationalization affects SOEs and POEs differently (Estrin et al., 2015).

For SOEs this additional dimension is particularly necessary, since they must fulfill certain home country priorities for national development to legitimize their reasons for investing internationally (Estrin et al., 2015; Li et al., 2014; Luo, Xue & Han, 2010; Wang et al., 2012). Both informal and formal institutions are sources of uncertainty that confront MNEs (Estrin et al., 2015), which makes MNEs dependent on the home country institutions for the way MNEs deal with these uncertainties and get legitimacy in home and host environments (Cantwell et al., 2010, Estrin et al., 2015).

For this study home markets are divided in emerging markets (EM) and developed markets (DM). Although markets are not always the same as countries, most literature considers countries, so markets are considered per country. As a definition for EMs, the following is used; EMs are those markets that made recent major development, whose industries are undergoing structural changes and whose markets hold promise despite volatile and weak legal systems (Luo & Tung, 2007). The most well-known EMs are the BRIC (Brazil, Russia, India and China) countries (O'Neill, 2001). EM MNEs are MNEs that originate from such markets and are engaged in the exercise of effective control and value-adding activities in host environments (Luo & Tung, 2007). Literature has described EMs to have less stable institutional environments, lack reliable rules and regulations in opposite to the stronger institutional home environment of DMs (Kostova, Roth & Dacin, 2008; Meyer et al., 2009; Peng et al., 2008).

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DMs are the markets in high-income countries, in which the population has a high quality of life and standard of living. There is a high level of economic growth and security and strong and efficient institutions (World Bank, 2015).

EMs have grown as major players for development of the global economy and international business (Estrin et al. 2015; Marinov & Marinova, 2005). The BRICs are in the top ten of the world’s largest GDP (World Bank, 2015), and growth rates have surpassed those of DMs (Marinov & Marinova, 2005). However, because of the weaker institutional environment, inward foreign direct investment (FDI) isn’t very attractive for foreign firms (Hoskisson et al., 2000). Especially the lack of well-defined property rights, legal system and political instability seem a problem (Estrin et al., 2015).

Governments of EMs are trying to attract inward FDI and become more market-oriented to strengthen their institutions (Estrin, et al., 2015). They seek for new relationships to strengthen their position internationally (Hoskisson et al., 2000; Luo & Tung, 2007). EM MNEs can expand through inward internationalization (Luo & Tung, 2007) by acquiring a foreign firm or form a JV with such a firm. EM MNEs are argued to use these investments to acquire the necessary resources and capabilities, like organizational or technological skills, to compete more effectively internationally (Luo & Tung, 2007). Many competitive advantages for EM MNEs are based on business-government ties that determine the power of the EM MNEs, where ultimately EM SOEs can become monopolies in the home market (Hoskisson et al., 2000). This domestic power can also result from a general preference of doing business with DM MNEs, for trust and certainty, and that governments of EM MNEs don’t really have a choice other than support their MNEs to assure value creation (Hoskisson et al., 2000). A higher degree of state-ownership can consequently mean that political acceptability and market requirements need to be taken into account more, whereas POEs mainly can focus on the market (Estrin et al., 2015; Wang et al., 2012).

2.2 MNE Strategies in Host Locations

Uneven distribution of natural resources forces oil and gas firms to internationalize (Nelson, 2007; WTO, 2010), which makes them face host environment institutions. This distribution is clear from the resource accumulation in the Arctic (USGS, 2008), in which the natural resources are again unevenly distributed across the Arctic states (see Appendix I). The high amount of natural resources attracts exploration and exploitation activities (Bishop et al., 2012), and as its states are both EMs and DMs, these conceptualizations are discussed as host country characteristics.

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The natural resources in the Arctic are the CSAs that attract foreign investments of MNEs, although this attractiveness differs among the different Arctic states which own these resources. The degree to which MNEs can maximize value creation of these tangible CSAs, is dependent on how MNEs cope with the host institutional environment, i.e. intangible CSAs (Ghemawat, 2007). Especially since MNEs usually don’t operate in one, but several host environments, MNEs face different and possibly conflicting institutional environments (Kostova et al., 2008; Pinkse & Kolk, 2012). This embeddedness in home, host and possible supranational context, added by governmental (home and host) influence (Prakash, 2002), can cause challenges for MNEs on how to strategically handle this (Moon & Lado, 2000; Peng et al., 2008; Pinkse & Kolk, 2012).

The degree to which the host environment is an EM moderates the strategies of resource seeking MNEs (Meyer et al., 2009; North, 1990; Wright et al., 2005). Institutional differences are especially important for internationalization behavior of EM MNEs (Buckley et al., 2007), as it is argued that their outward internationalization is to compensate for the weak home institutional environment (Deng, 2004; Luo & Tung, 2007) and the degree to which EM MNEs succeed in this is argued to be affected by the level of state-ownership (Estrin et al., 2015; Wang et al., 2012). DM MNEs on the other hand are expected to invest overseas to exploit their competitive advantages (Dunning, 2000).

The Arctic Circle is encircled by eight countries, which are according to the United Nations Convention of the Law of the Sea legitimized to claim exclusive rights to natural resources on the seabed up to 200 miles offshore their coastline1_{(EIA, 2012). Because Russia’s} coast is the largest in the Arctic (see Appendix II), this EM is important for natural resource seeking MNEs. As other Arctic states are DMs, the distinction between EMs and DMs as host environments is necessary. And with the world’s demand for oil and gas, the industry pushes MNEs to seek institutional legitimacy in the remote parts of the world, in both EMs and DMs (Bishop et al.,2012; Flanders et al., 1998). The degree to which their home institutional strength affects this is discussed in the following.

2.2.1 Emerging Markets as Host Countries

Differences in institutional environment between home and host country, makes it harder for DM MNEs to deal with EM’s institutional voids caused by political instability, bad

1_{This is called the Exclusive Economic Zone (EEZ), and is a sea zone up to 200 nautical miles prescribed by UNCLOS over} which a state has sovereign rights regarding exploration and use of marine resources, including energy production from water and wind (UNCLOS, 1982)

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infrastructure, corruption, bribery and underdeveloped market mechanisms (Ghemawat & Khanna, 1998; Peng et al., 2008; Wright, et al., 2005). DM MNE’s international strategies are often founded on business models with value maximization at the top of the economic pyramid, whereas entering an EM demands for focusing on the bottom (Wright et al., 2005). However, when DM MNEs (eventually) know how to deal with weaker institutional environments, they may have gained strong capabilities which enables them to gain greater competitive advantages, not only in EMs, but also in DMs (Estrin et al., 2015; Wright et al., 2005). To cope with the institutional voids, JVs with EM MNEs allows to overcome inefficiencies and get access to necessary resources (Meyer et al., 2009). So, DM MNEs are willing to form a JV with EM MNEs in an EM, firstly for access to the required natural resources (Meyer et al., 2009) and secondly because the JV can serve as some sort of gap to fill the institutional voids (Wright et al., 2005). Furthermore, the JV in the EM can be seen as a real option for the DM MNE to expand its footprint (Kogut, 1991).

According to Wright et al. (2005) EM MNEs may have a competitive advantage when entering other EMs. They further argue that although international diversification is because of rationales for both exploitation and exploration, firms moving from one to another EM are likely to do so because of exploitation (versus exploration) reasons. This is because of the similarities in institutional settings; the ease to which resources are applicable immediately increases (Hoskisson et al., 2000; Peng et al., 2008; Wright et al., 2005).

2.2.2. Developed Market Host Countries

Stronger institutions in DMs assure better laws, rules and regulations and a legit and stable business climate. This creates trust and security for foreign firms (Meyer et al., 2009) and potentially attracts investments (Buckley et al. 2007).

Where EM MNEs can be advantaged when entering other EMs, they are argued to have a competitive disadvantage when entering DMs, because they lack knowledge and skills to meet strong institutional demands (Wright et al., 2005). Moreover, motivation for entering the markets differs; it is likely that a central motivation for EM MNEs when entering DMs is exploration. Exploration is not used to develop near term performance, but for potential absorptive capacity (Wright et al., 2005; Wang et al., 2012). A weak home institutional environment might push firms to stronger institutional environments for compensation (Deng, 2004). They seek to adopt skills which are not available in the home environment (Wang et al., 2012). Governments might support EM MNEs in this, as increasing strength of FSAs can ultimately benefit their home country (Kostova, Roth, & Dacin, 2008).

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DM MNEs entering other DMs arguably do so to exploit FSAs with host CSAs (Dunning, 1998; Wright et al., 2005). Coming from a same type of market, DM MNEs possibly can meet institutional requirements for transparence, ownership and board functioning (Wright et al., 2005). Governments are willing to allow foreign MNEs operate in their country, because it generates transfer of technology and best practices that stimulate economic growth (Garrett, 2000), and in the oil and gas industry this FDI is even more beneficial as petroleum taxes are a major source of income (Tordo et al., 2011)

2.3 Nongovernmental Organizations and MNE’s Resource Seeking Investments

Next to governments and MNEs, a third party of importance for this study are NGOs. They are argued to be part of the evolution of the institutional environment, where NGOs and MNEs can become partners in creating and legitimizing standards (Cantwell et al., 2010). NGOs can represent different organizational aspects and especially in the oil and gas industry these organizations are important and active stakeholders, mostly with regards to the environment and human rights of indigenous people (Aven, Vinnem & Wiencke, 2007; Atack, 1999). In the Arctic this is according to the Arctic NGO Forum (http://arcticngoforum.org/) specifically necessary, and NGOs point out the dangers and consequently need incorporation in the evaluation and discussion about the actors the MNEs face in this harsh environment (Hasle, Kjellen, & Haugerud, 2009).

Generally accepted features describing NGOs are that they are private, societal organizations, which undertake activities for common goals and rights of society at national, regional and global level, independently from government or business (Willetts, 2002; Martens, 2002). The World Bank defines NGOs as private organizations that pursue activities to relieve the suffering, promote interests of the poor, protect the environment, or undertake community development (World Bank, 2015). NGOs can be distinguished in advocacy and operational NGOs (World Bank, 1995; Teegen, Doh, & Vachani, 2004). Advocacy NGOs work on behalf of others, who lack the resources to promote their interest. Operational NGOs provide critical goods and services to those with unmet needs. Many NGOs are a hybrid form between the two (Teegen et al., 2004). Key types of engagements between MNEs and NGOs in the oil and gas industry are confrontation, communication, consultation and cooperation. Consultation is the process where different views and feedback are incorporated in decision-making through a dialogue while with communication this information flow is unilateral, cooperation is defined as the formal agreements to work in mutually supportive manner and confrontation are all antagonistic relationships (Nelson, 2007).

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NGOs can influence investment projects (Doh & Teegen, 2002; Mitchell, Agle & Wood, 1997; Nelson, 2007), especially because they have become more powerful and effective to cause changes in institutional environments (Nelson, 2007; Reimann, 2006, Teegen et al., 2004). NGO could be considered the civil society counterpart of MNEs and governments and need therefore incorporation within the business-government context (Doh & Teegen, 2003). As they contribute to the evolution of institutions (Cantwell et al., 2010; Doh & Teegen, 2002; Peng et al., 2008), and consequently partly shape institutional legitimacy, NGOs deserve managerial attention when natural resource seeking MNEs internationalize (Doh & Teegen, 2002; Mitchell et al., 1997; Nelson, 2007).

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3. Theoretical Framework

This chapter contains a description and analysis of the existing literature on natural resource seeking MNEs’ strategies and how these are affected by home and host country conditions. MNEs in the oil and gas industry are dependent on access to natural resources for value creation in exploration and exploitation activities, making the RDT a very applicable explanation. Furthermore, short term and long term objectives of POEs and SOEs are argued to differ, for which the RST is a useful explanation. Exploration is defined as the search and discovery of value in resources, where value of these resources was undetermined previously, and exploitation as the production using these resources, where the value of the resources already has been determined (Vermeulen & Barkema, 2001).Working propositions are developed based on the conceptual dimensions and these theories, to explain behavior of POEs and SOEs from DMs and EMs in the Arctic.

3.1 Resource Dependency Theory

The RDT by Pfeffer and Salancik (2003) explains that every organization is dependent on its external environment. Firms are dependent on the environment in which they are embedded, and need relationships with other actors within this environment for resources they require for survival and success (Pfeffer & Salancik, 2003, p. 3). The RDT accounts for power within and among organizations; in the oil and gas industry governments have the power to grant institutional legitimacy to MNEs, because they are owners of the concentration of necessary resources (Choudhury & Khanna, 2014; Davis & Cobb, 2009; Nienhuser, 2008). Managers will adjust organizational behavior to reduce this environmental uncertainty and dependence to get this formal legitimacy (Hillman, Withers, & Collins, 2009).

Uncertainty refers to the degree to which future states of the environments cannot be anticipated and accurately predicted. The environment is the central source of this uncertainty, but uncertainty on its own is not the problem; only when there is uncertainty and dependency on critical resources and firms want to reduce/avoid this uncertainty (Nienhuser, 2008). According to the RDT, organizations can only survive when their managers can successfully shape strategies to acquire and maintain the necessary resources (Pfeffer & Salancik, 2003). To obtain a sustainable competitive advantage, organizations must combine external resources (which can be CSAs like natural resources, but also intangible assets like skills and knowledge) with internal resources (i.e. FSAs) (Hart, 1995). Value creation can be achieved by finding and using the right combination of resources (Hillman et al., 2009).

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Resource dependency acts within an environment featured by 1) concentration of specific resources, 2) party with munificence, or willingness to share resources and 3) interconnectedness of organizations involved in supply and demand (Nienhuser, 2008). In the oil and gas industry, ownership of critical resources means either ownership of fields with natural resources and/or the knowledge and skills on how to explore and exploit the fields (Van Geuns, 2011). The governments owning valuable blocks can grant licenses, which allow firms to explore and exploit the fields. Which firms get granted those licenses can be explained by the RDT, as their FSAs are the resources that determine whether they are capable to create the supply and demand and can create value form the natural resources.

The importance, abundance and who owns the specific resources influence the resource dependence (Davis & Cobb, 2009). To reduce the resource dependence and consequently uncertainty, firms can use several tactics (Nienhuser, 2008; Den Hond, De Bakker, & Doh, 2015). One of those is cooptation, which is defined by Nienhüser (2008) as the ability of a corporation to bring interests of challenging groups in alignment with its own goals (Trumpy, 2008, p. 480). Cooptation can be seen as an example of communication as they’re both unilateral flows of information (Bauer & Schmitz, 2012; Nelson, 2007).

Cooptation is an interaction between NGOs and firms (Bauer & Schmitz, 2012), but NGOs also interact with governments by which they can change power structures, which in its turn influences MNEs indirectly (Batley, 2011). Cooptation or influence on governments frequently concerns establishment of corporate social responsibilities, which makes it very applicable for the oil and gas industry as the environment, industry concerns and human rights are the main drivers for NGO in this industry (Flanders, Brown, Andre'Eva, & Larichev, 1998; Harrison, 2006; Hasle, Kjellen, & Haugerud, 2009).

Pfeffer and Salancik (2003) also describe how resource dependency can be controlled and minimized by cooperation with suppliers of resources. An example for which the RDT is a great theoretical explanation is the JV (Pfeffer & Salancik, 2003; Nienhuser, 2008). The RDT has actually become a commonly used rationale to explain why firms engage in a JV, by trying to gain insight and exploring how JVs help to reduce dependence and uncertainty of firms (Hillman et al., 2009). Although firms are giving up part of their sovereignty, both firms can be mutually dependent on one another, which makes a JV a promising agreement (Pfeffer & Salancik, 2003). Because of the mutual dependence, power is somewhat in balance, although the one with the most important resources retains some strategic control (Yan & Gray, 1994). Furthermore, supranational legitimacy, or public reason, is also important in the oil and gas industry. Possible environmental issues caused by offshore oil and gas extraction, especially in

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the Arctic, are widely recognized as a problem (Asif & Muneer, 2007; Nelson, 2007; Patin, 1999). MNEs explore and exploit locally where the natural resources are, while they are dependent on legitimacy by both local governments but also supranational authorities like WTO and UN globally (Sadurski, 2015)

Although RDT is widely investigated by scholars, there is still space for widening understanding of dependencies and power, especially for integration with RDT and other theoretical perspectives on the nature of these alliances (Hillman et al., 2009).

3.1.1 RDT and the POE

The high concentration of natural resources in the Arctic makes MNEs in the oil and gas industry resource dependent on the Arctic states’ governments for institutional legitimacy. The RDT explanation of MNE’s natural resource-seeking strategies argues that POEs are more concerned short-term profitability and therefore show more economic rationality (Bass & Chakrabarty, 2014; Estrin et al., 2015). POEs consequently seek for resources, which can also be partners with required resources, to meet these profitability demands.

POEs seek for locations with natural resources, the concentration of the specific resources as meant by the RDT, and try to get licensed in those blocks. The government owning these blocks must be willing to grant formal legitimacy and give up some of these resources and finally, the degree of supply and demand to create connections between the POE and the government is determined by whether the POE has FSAs to offer in return. POEs are consequently dependent on this environment, but as they are argued to have more developed skills and knowledge than SOEs (Estrin et al., 2015), they have strong resources and capabilities in return. When operating in EMs, their technological expertise and efficiency of doing business are strong resources, which gives them power according to the RDT. Therefore, it is most likely that the POEs form a JV with an SOE of the EM host location, to reduce uncertainty of the weak institutional environment and dependence on resources (Hillman et al., 2009).

WP1(a): Resource seeking POEs seek institutional legitimacy through a JV with host country SOEs in EM Arctic territorial waters.

When POEs invest in DM, they don’t need any partners, as home and host country institutions are argued to be similar. POEs are not dependent on knowledge about weak institutional environments, solely on access to natural resources. And as POEs are argued to seek for profit maximization (Estrin et al., 2015), they are expected to seek for independent institutional

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legitimacy in DM host environments. POEs are expected to be more willing to accept some risks, as they are familiar with strong institutions, which enables them to exploit their competitive advantages. The focal DM host government is expected to grant this formal legitimacy, as petroleum taxes are a major source of income (Tordo et al., 2011).

WP 1(b): Resource seeking POEs are able to pursue institutional legitimacy independently in DM Arctic territorial waters, due to their familiarity with the institutional environment.

3.1.2 RDT and the SOE

In the literature, the RDT is used to explain SOEs’ relationships with politicians and their power over SOEs (Cuervo-Cazurro et al. 2014; Choudhury & Khanna, 2014). SOEs are resource dependent on home country institutions, which particularly affects SOEs’ FDI. To lower power of the government, SOEs are argued to internationalize (Cuervo-Cazurro et al., 2014), generate an international footprint (Choudhury & Khanna, 2014) and establish an independent cash flow. According to Vernon (1979), managers should try to enter partnerships with other MNEs to increase this independency and as most SOEs are from an EM (Stan et al., 2014), entering partnerships to generate cash flows will be most beneficial with DM partners. Concentration of the specific resources is the set of intangible assets of the DM MNE; those firms own technological skills, knowledge on efficient operations and have more talented staff in house (Wang et al., 2012), which are resources that EM SOEs lack. The DM MNE is willing to share some of these resources for access to natural resources in return (Van Geuns, 2011).

It could be argued that creating resource independence is more likely for a DM SOE than an EM SOE. Coming from a country with strong institutions, and consequently higher levels of corporate governance, will make DM SOEs less dependent on internally generalized funds (by the state), and more able to generate cash flows independently from a government. Improved governance will lower chances of self-serving, personal objectives of managers, and lower constraints by the state for internationalization, which ultimately leads to DM SOE’s strategies to be like those of POEs (Estrin et al., 2015). Coming from an environment with high economic growth, it is likely that the DM SOE has contributed to this and thus isn’t resource dependent on knowledge and skills of POEs for these resources in their Arctic operations. DM SOE thus mainly invest in resources which they mostly need, which are the natural resources.

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WP2(a): DM SOEs seek resource independence from their home government through a JV with a POE in host country Arctic territorial waters.

The degree to which EM SOEs can successfully become independent from their home government in the oil and gas industry is however doubtful. Governments play important roles in economic development and may strategically deploy SOEs to achieve political objectives and increase geopolitical power (Estrin et al., 2015). When SOEs operate in more countries, the governments assures ownership over a larger resource portfolio, which increasing its geopolitical power. SO even though governments might lose some control over their SOEs, the geopolitical power gained might be more important. SOEs are therefore expected to be supported to internationalize (Estrin et al., 2015; Meyer et al., 2009; Pfeffer & Salancik, 2003).

WP 2(b): EM SOEs are supported by their government seek to form a JV with a POE, in EM Arctic territorial waters.

WP 2(c): For DMs there is no benefit to sign a contract with an EM MNE over a DM MNE, so this JV is not expected to form in DM Arctic territorial waters.

3.1.3 RDT and the NGOs

As argued, NGOs have power over investment decisions of MNEs, and need to be incorporated in these relationships (Bauer & Schmitz, 2012; Doh & Teegen, 2002). Especially because NGOs are ranked as trustworthy institutions (except in Japan in Brazil), while trust in business and government has decreased (Nelson, 2007). NGOs are organizations that operate on behalf of societal concerns and are considered an example of embodiment of supranational legitimacy (Sadurski, 2015). The degree to which supranational legitimacy is line, or antagonistic with formal legitimacy granted by governments, differs for EM and DM (Sadurski, 2015; Seth & Yaprak, 2012). Even though there is a growing pressure on EMs to achieve supranational institutional legitimacy by adjusting institutions to DM ones, they respond differently to NGOs (Seth & Yaprak, 2012). While internationalizing, informal legitimacy can spillover to the supranational context, and as POEs are argued to be more resource dependent on others, this supranational legitimacy can be expected to be more important, causing them to respond differently to NGOs than SOEs (Estrin et al., 2015; Nelson, 2007).

Relationships between NGOs and MNEs can be collaborative (consultation and cooperation) and confrontational (Doh & Teegen, 2002; Den Hond, De Bakker, & Doh, 2015; Nelson, 2007). MNEs and NGOs can be interested in each other’s features, so collaboration can

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be beneficial (Millar, Choi, & Chen, 2004). Firms might engage with NGOs to respond to uncertainties of the environment, for legitimacy and reputation (Den Hond et al., 2015). How important reputation is, is clear from the oil spill at the platform Deepwater Horizon of BP in the Gulf of Mexico, which still affects BP’s reputation (Engelen, 2010). NGOs can thus partly shape the legitimacy (Nelson, 2007), by addressing environmental issues, accountability for possible oil spills and human rights in the oil and gas industry, which causes them to deserve managerial attention (Doh & Teegen, 2002; Mitchell et al., 1997). This gives NGOs power over firms, but NGOs also face growing scrutiny and pressure to better account for their activities and the use of donations (Bauer & Schmitz, 2012; Nelson, 2007). It is argued that MNEs and NGOs can work together to enhance each other’s performance (Nelson, 2007). Partnership can provide enhanced legitimacy for the MNE, and increased influence on the government-business-societal relationship for NGOs, which creates the connection as argued by the RDT (Bauer & Schmitz, 2012; Doh & Teegen, 2003; Pfeffer & Salancik, 2003).

If NGOs and MNEs cannot cooperate, NGOs may be more confrontational and use actions, boycotts and campaigns (Den Hond, De Bakker, & Doh, 2015; Nelson, 2007). Campaigns are argued to be a form of normative delegitimation. Accordingly, this is the process where normative legitimacy is diminished through challenges outside organizations. This means that formal legitimacy (rules, laws) granted to firms (by governments) can be diminished (Yaziji & Doh, 2009). Institutional legitimacy to explore and exploit natural resources is a form of formal legitimacy granted by governments, and normative legitimacy is a form of informal legitimacy (i.e. reputation) that embodies social values (Yaziji & Doh, 2009). This informal legitimacy isn’t bounded by national borders, as the formal legitimacy is (the EEZ), and as MNEs operate across borders it could spill over to supranational legitimacy (Pinkse & Kolk, 2012). This informal legitimacy could be considered a resource by NGOs. Ultimately, it could be expected that NGOs want the harm of informal legitimacy to spill over to supranational contexts, giving the NGOs more power in the MNE-government-NGO interface as described by Teegen et al. (2004). To prevent this, MNEs might engage with NGOs, when resources (the power to delegitimize) are considered significant. The degree of state-ownership is expected to influence this engagement (Nelson, 2007).

WP 3(a): Resource seeking POEs seek benevolence of NGOs more than SOEs do, as informal legitimacy of NGOs is more important for their reputation.

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NGOs want to shape corporate mindsets from within (Bauer & Schmitz, 2012), and as societal development is not a main objective of POEs, NGOs are expected to rather cooperate with POEs than SOEs as their influence is consequently bigger. Moreover, POEs are argued to have knowledge on efficiency, which can be their resource which can create an interconnectedness with informal legitimacy of NGOs (Nienhüser, 2008).

WP 3(b): NGOs want to increase their influence and tend to collaborate (through consultation or cooperation) with POEs for it, as POEs have knowledge on effective and efficient use of resources.

WP 3(c): NGOs try to influence SOEs’ legitimacy by acting confrontational towards SOEs, because formal legitimacy granted by its government makes the SOE less reliant on informal legitimacy by NGOs.

3.2 Resource Security Theory

While the RDT explains how firms have power over others, because ‘the powerful’ has the most valuable resources for successful operations (Pffefer & Salancik, 2003), it doesn’t explain why firms acquire resources (Bass & Chakrabarty, 2014). The RST is developed as an alternative to the RDT for SOEs, arguing state-ownership affects the investment objectives of SOEs (Bass & Chakrabarty, 2014).

Internalizing resources will secure power of the firm, because it decreases resource dependency (Hart, 1995; Pfeffer & Salancik, 2003). The RST goes beyond that; firms acquire resources not only to use directly (exploit) but also as a real option (Kogut, 1991), to keep in reserve for the future. Another suggestion by the RST is that SOEs are willing to pay more than POEs for resources for exploration than for exploitation, because governments want to secure their position, and are willing to pay a premium to assure this acquisition (Bass & Chakrabarty, 2014; Katusa, 2012).

When considering SOEs, investment in acquiring resources abroad can be beneficial not only for the MNE itself, but for the SOE’s country as a whole. This means there is a difference between SOEs and POEs in how they cope with these investment decisions (Bass & Chakrabarty, 2014). Where the RDT only explained the need of resources to be powerful at present, the RST explains the resource acquisition in a more forward-looking valuation (Bass & Chakrabarty, 2014; Pfeffer & Salancik, 2003). SOEs and POEs have different time frames for success and acquire resources for different reasons, either for exploitation (to satisfy more immediate profitability objectives), or for exploration (to be held in reserve). There is a constant

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pressure to stay ahead race for natural resources, and SOEs are argued to be willing to make great offers, leading to great bids, for security of future resources (Katusa, 2012).

Energy demand is still on the rise, and to meet the needed supply the race for natural resources is argued to shape global economies (Harsem et al., 2011), and SOEs are argued to be willing to pay a premium to secure future resource ownership (Bass & Chakrabarty, 2014; Katusa, 2012). Ownership over natural resources has major effects on policies about those and on international relationships (Katusa, 2012). In the oil and gas industry, SOEs must enhance the geopolitical position and power of their home countries (Bass & Chakrabarty, 2014; Gaille, 2010), and the possession of oil and gas reserves is a valuable tool to achieve this.

3.2.1 RST and the POE

For POEs entering DMs, they are argued to do so because of the exploitation of resources. POEs are interested in meeting short-term profitability, thus they acquire resources for exploitation (Bass & Chakrabarty, 2014). Because the industry’s competition is intensifying though, POEs are expected to also be interested in securing their business’ operations for the future. Meeting the growing energy demand will for a large part still be done by fossil fuels, and firms will therefore invest in more extreme locations (Flanders et al., 1998; Hasle et al., 2009). Although operations in the Arctic are currently not very common because of environmental, regulatory and geoscientific reasons (Harsem et al., 2011; Harrison, 2006), POEs might want to secure their position by acquiring the licenses for the fields. Bass & Chakrabarty (2014) argue that SOEs are willing to pay more for exploration than for exploitation, but in order to secure a position in the Arctic region, it could be expected that POEs are also interested in the acquisition of these resources (the licenses for exploration), more than in immediate exploitation. The acquisition of exploration licenses could be considered a real option, where the POE first secures a position in the Arctic to be able to exploit the CSAs with its FSAs when needed (Kogut, 1991).

WP 4: Resource seeking POEs acquire exploration licenses in the Arctic to be able to meet increasing (future) energy demands.

3.2.2 RST and the SOE

SOEs are more interested in acquiring resources for exploration because these resources allow securing the future of their home country (Bass & Chakrabarty, 2014). Securing the future is about securing future resource independence from other countries. Moreover, SOEs internationalize to help the home country politically (Estrin et al., 2015), as it gives access to

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resources to secure future economic gains and geopolitical power (Bishop et al., 2012). When there is a national need for it, governments can create value from their natural resources by exploitation, securing societal welfare and foreign exchange (Flanders et al., 1998; Wilson, 2012). These agreements and cooperation are argued to be because of resource security (Wilson, 2012).

Governments stimulate international operations of their SOEs, for securing the ability of resource exploitation as a safeguard for the future (Bass & Chakrabarty, 2014; Estrin et al., 2015). SOEs own most part of the global natural resources (Kowalski et al., 2013; Victor et al. 2012), so the need for internationalization isn’t high, SOEs in this industry however are expected to still invest abroad, in trying to become a strong geopolitical power (Zhuplev, 2008). SOEs are expected to be supported by their government for the acquisition of exploration licenses to achieve this power. Firstly because of reasons to increase the home government’s footprint (Peng et al., 2008; Wright et al., 2005) and secondly because value creation is on behalf of political and societal development (Estrin et al., 2015; Flanders et al., 1998).

WP 5(a): SOEs are political tools to increase geopolitical power and societal welfare and are supported by their home governments in their international acquisitions of licenses to achieve this.

For successful exploitation of these resources however, SOEs need the necessary expertise and are expected to need a partner to effectively do so, especially when these SOEs are from an EM (Harrison, 2006; Van Geuns, 2011). In their internationalization, SOEs form JV in a DM to assure oil and gas production (DM SOEs), or to gain expertise in Arctic offshore technologies (EM SOEs) (Van Geuns, 2011). When EM SOEs internationalize to EMs, they might do so to exploit their FSAs because of similarities in institutional environment (Wright et al., 2005). DM SOEs invest in a EM for the access to the natural resources.

To secure future exploitation of their natural resources, SOEs are expected to do so with a POE, to acquire some of the latter’s knowledge and expertise (Meyer et al., 2009). It could be argued that through the absorbed knowledge and skills by the JVs with POEs, SOEs ultimately want to be capable to create value from the entire upstream value chain independently. The acquired knowledge can be applied in exploitation of home country fields, and possibly host country fields. To get access to these knowledge and skills and a possibility of resource independence of others, SOEs could possibly prefer internationalization to a DM over an EM host environment. Especially since this is also beneficial for strengthening their home country

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institutions, governments also push SOEs to cooperate with DM MNEs (Hoskisson et al., 2000; Kostova, Roth, & Dacin, 2008).

This could refine Bass & Chakrabarty’s (2014) argument that SOEs pay more for exploration than for exploitation licensens, as it could be expected that this is even more the case in a DM than an EM host environment, because of the stronger institutions and higher availability of knowledge and skills to be adopted by the SOE. This preference could thus lead to a willingness of SOEs to pay a higher prices for licenses in a DM host environment. This is a refinement of Bass & Chakrabarty (2014), who argued that SOEs are willing to pay more for exploration than for exploitation resources

WP 5(b): SOEs are willing to pay more for exploration licenses in a DM host environment than in an EM host environment, because of the availability of knowledge and skills.

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4. Methodology

To understand corporate strategies of oil and gas MNEs in extreme locations like the Arctic, a qualitative study design is adopted. This chapter discusses the approach by describing the methodology and research design based on Eisenhardt (1989) and Yin (2003). It furthermore describes how the quality of the study is assured, the case selection and how the data is collected and analyzed.

4.1 Research Philosophy

Research philosophy relates to knowledge creation and nature of it. It determines the view on the world and will affect the research strategy. The ontology deals with the nature of reality and for this research an objectivist worldview is adopted, reflecting the assumption that there is only one independent external reality (Saunders & Lewis, 2009). To understand the subjectivity of phenomena, a post-positivist epistemology is used to evaluate the working propositions (Saunders & Lewis, 2009; Noor, 2008) and to learn from the complexity of the phenomena (Rynes & Gephart, 2004). By addressing viewpoints from both operators like POE Shell or SOE Gazprom, as well as oppositions from NGOs like Greenpeace on operations in the Arctic, and because the researched environments are external to the author, independency from the data and externality from the focal environment is assured (Saunders & Lewis, 2009). Furthermore, the objective world is not affected by the author’s beliefs and values (Rynes & Gephart, 2004). Although firms are social constructs, their courses of action are the observable data that lead to production of theory (Saunders & Lewis, 2009). Multiple cases are studied, to understand the phenomena form different perspectives to create knowledge in the most objective manner.

4.2 Multiple Case Study Design

The aim of the study is exploratory, by assessing the RDT and RST to explain interactions between actors in the Arctic an incremental contribution to the RST is made (Saunders & Lewis, 2009). The development is done systematically, as outlined by Eisenhardt (1989). A bottom-up approach is used, by making a specification of constructs before approaching the data (Shepherd & Sutcliffe, 2011). By collecting qualitative data and letting the data add to insights, an understanding is sought inductively to develop theory (Eisenhardt, 1989). A case study is most applicable because it provides descriptions about the complexity of activities of oil and gas companies in the Arctic in a real life context (Ridder, Hoon, & Baluch, 2014; Rynes & Gephart, 2004;). Furthermore, case studies are useful, because the relationships among MNEs and between MNEs and NGOs are hardly quantifiable (Yin, 2003), while allowing for a

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combination of the deductive and inductive approach (Eisenhardt, 1989; Yin, 2003). This creates an understanding of great-depth (Noor, 2008). Qualitative data are useful for understanding the ‘why’ and ‘how’ questions in the relationships (Yin, 2003) and as the research aims to understand how NGOs and MNEs interact these data give most insight. A multiple case research design is chosen, since it provides a strong base for theory building (Eisenhardt & Graebner, 2007; Noor, 2008). According to the objectivist view and post-positivist epistemology, it allows to create theory with low researcher bias (Eisenhardt, 1989).

Oil and gas companies in the Arctic are theoretically sampled (Eisenhardt & Graebner, 2007) as sector and location, as it is featured by the presence of SOEs and POEs that engage in JVs, while having both emerging and developed home and host markets. The RDT and RST are both refined, by finding complementarities and dissimilarities between the theories in exploring behaviors of the actors in their natural resource seeking strategies (Ridder et al., 2014). The multiple case study ensures a focus on understanding the dynamics between the actors in the Arctic, while allowing for flexibility in adding new thinking and theory extension (Eisenhardt, 1989).

Cases will be analyzed by adopting a within and across-cases approach (Yin, 2003). Within-case analysis is executed to familiarize with unique patterns. Cross-case analysis assures no premature conclusions are drawn and allows to go beyond initial impressions (Eisenhardt, 1989), finds patterns to generate theory (Yin, 2003) and assures internal validity; the cases are viewed from different angles and when for instance same types of effects of MNEs from the same home environment occur, a credible conclusion can be drawn about causal relationships (Riege, 2003). Seeking for similarities and tying the emergent theory to the RDT and RST improves internal validity, as phenomena are understood better and are more trustworthy conclusion can be drawn (Eisenhardt, 1989; Ridder et al., 2014). The working propositions are created using theory and data, as data can give new insights into the relationships between the SOEs, POEs and NGOs. By seeking an understanding of the dynamics behind these relationships, the method allows for incremental development of the RST (Eisenhardt, 1989; Ridder et al., 2014) and for extrapolation of findings to a broader theory (Riege, 2003). By a detailed description of the cases, the transferability is assured after which can be determined whether findings are applicable to broader settings. Furthermore, by explaining relationships by the RDT, this theory is refined (Ridder et al., 2014). The resultant theory is likely to be empirically valid, because it is intimately tied with evidence.

The research tries to find similarities and differences between POEs and SOEs from DMs and EMs and get findings by comparing the cases with each other and literature. This

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cross-case analysis will assure external validity as it determines when findings are analytically generalizable beyond case studies (Gibbert, Ruigrok, & Wicki, 2008; Riege, 2003; Yin, 2003). To assure construct validity in this study, multiple sources of evidence and proven measures are used (Eisenhardt, 1989). Firstly, working propositions are constructed by the RDT and RST (Yin, 2003). Although the multiple case study is the only method applied, construct validity is assured by studying material which is supplied by the different actors. Data generated by newspapers, industry magazines, firms and NGOs, show different perspectives on phenomena to assure validity (Riege, 2003).

Finally, to make the study reliable, transparency and replication are needed (Yin, 2003). When the study finds consistency about the multiple cases, these findings improve reliability and validity (Noor, 2008). A structured case study protocol is followed and all information is stored in a database. Further, transparency is assured by clear descriptions of the cases (Gibbert et al., 2008; Yin, 2003).

4.3 Case Selection

To study the processes of resource dependency and resource security in the natural resource seeking strategies, cases consist of MNEs based on their degree of and emerging or developed home market origin. The Arctic as focal region provides a good sample area as MNEs on all conceptual dimensions and NGOs are present, so it can contribute to theoretical development (Eisenhardt & Graebner, 2007). Focal cases are shown in figure 1.

Ownership Home Country

Host Country

Emerging Market Developed Market

Privately Owned

Developed Market

Shell and Gazprom in Sakhalin-2, Russia

Shell in Chukchi Sea, Alaska (US)

Emerging Market

Lukoil in East Taimyr, Russia. LUKoil in Barents Sea, Norway

State Owned

Developed Market

Statoil and Rosneft in Okhotsk Sea, Russia Statoil in Greenland Emerging Market Gazprom in Prirazlomnoye, Russia N.A.

Figure 1. Focal Case Sampling

Ideally, there would have been 8 cases to meet all dimensions. However, there is no case of an EM SOE in a host DM. This is expected, as EM SOE are not expected to have specific resources (skills and knowledge) outperforming those of POEs (Budiman et al., 2009), so there is no incentive for the DM government to grant institutional legitimacy to these SOEs over POEs. A detailed description of focal MNEs is shown in figure 2.

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The oil and gas industry is made up of three segments; upstream, midstream and downstream (Ramos, Veiga, & Wang, 2014). This study focuses on upstream, as is contains both exploration, in prospecting, and seismic drilling activities before development (to determine value), as well as exploitation, the actual development of the field (after value establishment). This is appropriate because the firms in this study, both POEs and SOEs, invest in the acquisition of the resources globally for exploration and exploitation (Tordo et al., 2011).

Companies in this industry can be divided in several categories; International Oil Companies (IOCs), National Oil Companies (NOCs), Oilfield Service Companies (OFSCs) and independents. IOCs are vertically integrated companies that operate the entire value chain; both upstream and downstream markets. These are POEs as discussed. NOCs are companies of which the home government holds the largest share, and take political and social responsibilities. These are SOEs discussed. The OFSCs provide services to the oil and gas companies and the independents are mostly small business only operating in upstream (Al-Fattah, 2013), this study only focuses on NOCs and IOCs (SOEs and POEs respectively).

Operations of oil and gas companies provide an empirical context that directly speaks to the theoretical foundation through the concepts of resource dependency and resource security. It fits the theoretical sampling, as processes of exploration and exploitation are the basis of the operations of the POEs and SOEs within the industry (Gaille, 2010). Moreover, the industry is very interesting for governments, because petroleum taxes are a major source of income (Tordo et al., 2011), making the world economy dependent on petroleum (Karev, 2013), Governments want to secure their position by owning these petroleum resources (Bass & Chakrabarty, 2014). The Arctic is chosen as the focal environment, because it is estimated to contain one of the world’s largest undiscovered oil and gas reserves. Firms are consequently dependent on the legitimacy to operate in this area to meet the global energy demand (Bishop et al., 2011; Harsem et al., 2011). This is exactly why it allows for an extension of the RST; because of the demand, the acquisition of exploration licenses can be explained by this theory not only for SOEs, but also for POEs (Ridder et al., 2014).

Investing in this area is however not without limitations; it is dependent on stable and high energy prices to ensure a return on investments (Harsem, Eide, & Heen, 2011); markets thus matter.