Master thesis MSc. International Business & Management

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Master thesis

MSc. International Business & Management

Industry effects in state-owned enterprise internationalization:

‘A study on state-owned Russian oil and gas firms’

By D.J. Niekel

S3838986

d.j.niekel@student.rug.nl

University of Groningen Faculty of Economics and Business

June, 2020

14,902

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ABSTRACT

The purpose of this thesis is to explore which factors influence Russian oil and gas state-owned enterprises (O&G SOEs) to internationalize. While SOE internationalization, in general, has been studied frequently, the role of industry effects in this process has been largely ignored. This thesis seeks to contribute to filling this gap by focusing on SOEs from one country and industry, namely Russian O&G. The O&G industry are considered unique, in part because of their strategic nature. This gives reason to believe that O&G SOEs have other, additional factors influencing their internationalization. These unique influencing factors are more likely to be identified thru studying Russian O&G SOEs, since they are considered extreme cases. Thus, to fulfill its purpose, this thesis conducted a dual-case study on two large Russian O&G SOEs. Eight managers, four from each SOE, were interviewed about their experiences with O&G SOE internationalization. Additionally, nine annual reports (2010-2018) from both case companies were analyzed to complement, and strengthen, the interview data. From this data eight influencing factors were identified, of which three are already discussed in the extant literature. Denoting that this thesis has identified five new influencing factors, which are: importance to the governmental budget, long-term view of the controlling shareholder, inter-government tie strength, discrimination in the host country, and home inter-government foreign policy goals. These five factors differ, between negative and positive, in how they influence the internationalization of O&G SOEs. The findings of this thesis highlight that O&G SOEs indeed have unique factors influencing their internationalization. Therefore, this thesis can function as a springboard for future research on SOE internationalization. A topic which, due to the rapidly growing number of SOEs, has never been more important.

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LIST OF TABLES

Table 1: Share of world oil production (..) for both state-owned and publicly listed firms... 12

Table 2: Frequency analysis interviews……….. 29

Table 3: Frequency analysis annual reports [Case 1]………..30

Table 4: Frequency analysis annual reports [Case 2]……….. 31

Table 5: Cross-case analysis………... 33

Table 6: Factor macro-economic – illustrative quotations………... 35

Table 7: Factor government support – illustrative quotations………... 36

Table 8: Factor intra-country political conflict – illustrative quotations………. 37

Table 9: Factor importance to the governmental budget – illustrative quotations…………... 38

Table 10: Factor long-term view of the controlling shareholder – illustrative quotations..… 39

Table 11: Factor inter-government tie strength – illustrative quotations……... 40

Table 12: Factor discrimination in the host country – illustrative quotations…... 40

Table 13: Factor home government foreign policy goals – illustrative quotations...…. 41

LIST OF FIGURES

Figure 1: Natural gas production per country for the year 1900-2014………... 14

Figure 2: Conceptual model……… 49

LIST OF APPENDICES

Appendix I: Interview questions……… 62

Appendix II: Research summary send to interviewees……….. 65

Appendix III: Illustrative quotations interviews………. 66

Appendix IV: Illustrative quotations annual reports………... 75

Appendix V: Decrease in Russian oil and gas exports to Europe following sanctions……... 91

Appendix VI: Case description………... 92

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LIST OF ABBREVIATIONS

O&G SOE Oil & Gas State-Owned Enterprise O&G Oil & Gas

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ACKNOWLEDGEMENTS

It is with great pleasure that I present the final product of my educational career. I would like to take this moment to thank everyone who has helped me with the difficult process that is writing a thesis.

To start I would like to thank my supervisor and assessor, Dr. Lindahl from the Uppsala University, and Prof. Dr. Drogendijk from the University of Groningen. Whom, during this turbulent period, took the time to provide me with extensive and useful feedback. Particularly I’d like to thank Dr. Lindahl for his constructive criticism via email and Skype, and his willingness to brainstorm with me. This feedback helped me to see things in a different light, which enabled me to better conceptualize the large amounts of data used in this research.

I’d also like to thank the interviewees for taking time out of their busy schedule to converse with me and answer my questions. Furthermore, I want to thank the people which extended to me their network, which was of great help during the search for potential interviewees.

Likewise, I greatly appreciate my friends and fellow pupils for their support during this research process. Their distractions, and academic input were of great help to me as student, but also as a person. I’d especially like to thank my former Russian teacher Tamara Zhirova, for it were her enthusiastic lessons on the Russian language and culture that motivated me to write my thesis on a topic related to Russia. Moreover, I’d like to thank Anja Dijkhuizen and others at Shell for providing me with more insights on the energy industry at large.

Most importantly, I want to thank my parents and brother, for their unconditional support and love. Their presence and motivating words made writing this thesis much more pleasant, and doable.

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1. INTRODUCTION

The concept of internationalization stands point and center within the IB literature. When discussing internationalization, it is often understood as the steps taken by a company to capture market share outside of the home country. Moreover, Welch and Luostarinen (1988, p. 36) describe it as “the process through which a firm increases involvement in international operations”. Within the extant literature there is a strong focus on how this process of internationalization differs per industry (Oh, Kim, & Shin, 2019). Yet, these so called ‘industry effects’ are largely ignored by research on the internationalization of state-owned enterprises (SOEs) (e.g. Cahen, 2015; Estrin, Meyer, Nielsen, & Nielsen, 2016). This is problematic because the global market share of SOEs is growing rapidly (OECD, 2017), and by ignoring industry effects these firms aren’t given the same academic scrutiny as private firms. It thus stands to reason that the present literature can benefit from moving the discussion on SOE internationalization to become more industry specific. The Russian oil and gas (O&G) industries are a good starting point for such research, due to them being highly international, sizeable, and controlled by the government (Lavrov & Aleksanyan, 2017).

While some IB scholars, such as the Uppsala School, argue that firms tend to follow the same evolutionary process of internationalization (Johanson & Vahlne, 2009), research shows that the factors driving internationalization differ significantly per industry (Fernhaber, McDougall, & Oviatt, 2007). This is mainly because entry barriers are country-industry specific (Oh et al., 2019). In other words, a firm not only considers the host country’s regulations, laws, and psychic distance, but also the competitiveness and knowledge intensity of the industry there (Head, Mayer, & Ries, 2001; Oh et al., 2019). The industry in which a firm operates can thus present several opportunities and challenges for internationalization. To aid the decision making of firms, several industry specific factors affecting internationalization have already been document (e.g. Curran & Zignago, 2012; Javalgi, Griffith, & White, 2003).

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of specifically O&G SOEs. Such as O&G needing to be exploited where it is, causing location choice to be driven by geographic rather than strategic issues (Lai, O’Hara, & Wysoczanska, 2015). And that state-ownership in a strategic industry may clarify why a lack of resources is less of an issue, explaining faster and riskier international expansion (Cuervo-Cazurra, et al., 2014; Duanmu, 2014). Even so, it is still uncertain whether the internationalization of O&G SOEs is mainly driven by business or political goals. Furthermore, it is also unknown whether state-ownership gives rise to additional discriminatory behaviors in the host country, and how this would affect the internationalization process of O&G SOEs. Therefore, it is currently unknown which composition of factors drive O&G SOEs to expand abroad, owning to a lack of earlier studies.

As a result, several authors have advocated for further research on the internationalization of Russian O&G SOEs (Liuhto, 2002; Panibratov, 2016; Pierini, 2019). For the reason that the controversies surrounding the Russian state make the internationalization of these SOEs extreme cases (Collins & Botts, 2017; Gricius, 2018). Which according to Donaldson, Ching and Tan (2013) makes relevant factors more visible than would otherwise be the case, rendering them a good starting point for industry specific research. To understand the internationalization process of these Russian SOEs, the experiences of managers are studied. For the reason that managers are likely to have comprehensive knowledge on internationalization decision making at their firm (Suder, Birnik, Nielsen, & Riviere, 2017). Which factors, according to these managers, drive Russian O&G SOEs to internationalize? Do unidentified obstacles or advantages for internationalization exist that are unique to (Russian) O&G SOEs? In view of these unanswered questions, this thesis seeks to narrow the research gap of the influence of industry on SOE internationalization, by examining the O&G industry. More specifically, this thesis seeks to find the unique factors that drive the internationalization of Russian O&G SOEs. The extreme nature of these SOEs provides a good starting point for filling the identified research gap of how O&G industry effects influence SOE internationalization. The goal is to shift the discussion on SOE internationalization to become more industry specific by answering the following exploratory research question:

‘Which factors influence the internationalization of state-owned Russian oil and gas firms?’

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2019). As we known little on this subject an exploratory case study into SOEs from one specific industry and country, in this case Russian O&G, is warranted (Eisenhardt & Graebner, 2007; Babu, 2008). The exploratory case study is conducted by interviewing four managers at two case companies, which all have experience with internationalization decision making. A dual case study is appropriate as two cases represent a voluminous amount Russian O&G exports (see appendix VI for case descriptions). Additionally, a content analysis of the annual reports of both cases is done for the years 2010-2018. Such analyses can further strengthen the findings of the interviews with financial and organizational data (Mayring, 2000). These cases can help explain the strategic rationale for the internationalization of Russian O&G SOEs. This information, in turn, can function as a jumping board for studying the approach to internationalization of the rapidly growing number of non-Russian O&G SOEs (OECD, 2017).

Consequently, this thesis contributes to the IB literature in several ways. First, this thesis moves the focus on SOE internationalization to be more industry specific. Second, this thesis identifies factors influencing the international expansion of Russian O&G SOEs, creating a starting point for future research on O&G SOEs in other countries. Third, this study can provide useful insights for non-Russian energy companies that are seeking to benefit from Russia’s large O&G reserves. Lastly, policy makers in countries depended on Russian O&G may benefit from this thesis’s findings by better understanding the rational of their supplier.

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2. THEORETICAL BACKGROUND

In this chapter the relevant literature for this thesis is discussed. To start, a background on the O&G industry is given. Second, the various aspects of state-ownership are discussed. Last is a review of internationalization and how it relates to SOEs in general, as well as O&G SOEs.

2.1 Background on the oil and natural gas industry

The O&G industry is often the focus of discussion in business literature (e.g. Badiru & Osisanya, 2016; Panibratov, 2016). According to Parra (2004) this scholarly interest comes from the belief that O&G are strong indicators of global economic developments. Furthermore, the proclamation by the United States government that “oil and gas are the lifeblood of modern

civilization” has added to the remarkable interest in this industry (Hirsch, Bezdek, & Wendling,

2006, p. 1). To provide relevant background information on this topic a brief historical and literary review is done for both O&G.

2.1.1 Oil industry

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From 1950 onwards the world became increasingly globalized (Zinkina et al., 2019). This had a significant impact on the oil industry, as countries such as The Soviet Union (today The Russian Federation), Persia (today Iran) and Saudi Arabia became major players (Badiru & Osisanya, 2016; Parra, 2004). New companies emerged to profit from these foreign oil reserves (The Library of Congress, 2006), many of which still exists today (e.g. Royal Dutch Shell, Aramco, British Petrol). At the same time, the globalization of oil supply chains caused several political and economic issues. Such as the 1973 oil crisis, during which the Organization of Arab Petroleum Exporting Countries embargoed all nations it considered to be supportive of Israel during the Yom Kippur War (Issawi, 1978). This embargo led to the price of oil increasing by 400% over a one year period (Issawi, 1978).

The unpredictable nature of non-domestic oil supply chains has motivated many countries with internal oil reserves to move towards establishing national oil companies (Table 1), also described as SOEs (Mitchell & Mitchell, 2014). This change has an enormous impact on the modern oil industry as SOEs now control an ever-increasing part of known reserves and production capacity, leaving less and less for private enterprise (Mitchell & Mitchell, 2014). Recent publications (e.g. Cheon, 2019; Marcel, 2016) argue that this phenomenon will bring about disorder in the oil market, as values held dear by private businesses are likely to be cast aside and replaced by the values and objectives of the nation. This background reading shows that the oil industry, once the poster boy for ruthless capitalism as practiced by John D Rockefeller, is changing, as competition between companies is replaced by competition between governments (Mitchell & Mitchell, 2014).

Table 1 - Share of world oil production in 2011 for both state-owned and publicly listed firms. Data originates from the Petroleum Intelligence Weekly: Top 50, and Mitchell & Mitchell (2014).

This change, interestingly enough, occurred somewhat differently in what is now the Russian Federation. As between the years 1917-1992 the Soviet Union only allowed SOEs (e.g. Soiuznefteksport and Grozneft) to operate in its oil industry (Perović, 2017). Yet, once the Soviet Union collapsed the O&G industries were largely privatized through presidential decree

Company’s organizational structure

Share of world oil production (2011)

Share of world oil production (2006)

Exclusive SOEs 19% 17%

SOEs with contracts to the private sector 26% 22%

Listed companies with state control 13% 11%

Publicly listed companies 20% 25%

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No.1403 (Perović, 2017). However, things again changed under the leadership of president Vladimir Putin, as he moved the Russian State to take back control over the industry by renationalizing key players. In addition, access to most of Russia’s O&G reserves was reassigned to these new SOEs (Locatelli, 2006). On top of this, the state increased its control over export networks (pipelines), which severely limited the international strategic capabilities of the remaining private Russian O&G firms (Locatelli, 2006). These measures have placed the Russian State in a position where it can better compete with other oil producing nations.

2.1.1 Natural gas industry

Similar to oil, the large-scale economic potential of natural gas was only discovered in the late 19th century. This ground breaking innovation was done by the American Robert Bunsen, who

found that a constant flame can be created by mixing a certain combination of natural gas and air (Considine, Watson, Entler, & Sparks, 2009). This gas-powered flame proved to be a safe approach to both cooking and heating.

Due to its many uses, the demand and supply of natural gas has increased rapidly overtime, as shown in figure 2 (p. 14). The United States led the growth in production up until the year 1980, at which point the Soviet Union (Russia) significantly increased natural gas extraction (Etemad, Luciana, & US IEA Historical Statistics, 2015). The reason for this steep increase was the Soviet Union’s need for foreign reserve currencies, and one of the few ways it could obtain these was through exporting natural gas (Perović, 2017). Another interesting historical phenomenon occurred in 1991 following the collapse of the Soviet Union, as political and institutional disarray caused the Russian production capacity to plummet by one fourth (Etemad et al., 2015; Perović, 2017).

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2.2 State-owned enterprises

The concept of SOEs has been the focus of discussion multiple times in international business literature (e.g. Bass & Chakrabarty, 2014; Liang et al., 2015). According to Chang and The United Nations Department of Economic and Social Affairs (2007), a SOE is by definition a firm where managers and employees don’t have ownership. The reasoning for this is the principal-agent problem. According to this problem, a manager with shares is motivated to act opportunistically. Hence, SOEs cannot have employees with ownership, as this could cause personal enrichment to be put above the national interest (Chang & UNDESA, 2007). One of the reasons for scholarly and business interest in SOEs is the increasingly large number of these firms partaking in the world economy (Kwiatkowski & Augustynowicz, 2015), a trend which is unlikely to stop soon (OECD, 2017). In addition, it is assumed that SOEs affect globalization, innovativeness, and (geo)political decision making, and thereby the overall effectiveness of the global market (Kowalski et al., 2013).

To study SOEs it is important to first examine how this concept is understood. Many scholars and organizations have conceptualized state-ownership in different ways. Kowalski et al., (2013) straightforwardly define it as ‘a majority state-owned enterprise’. SOEs can also be

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explained through the economic and political perspectives. Following the economic perspective SOEs are conceptualized as government owned tools to resolve market imperfections (Cuervo-Cazurra et al., 2014), such as information asymmetry, natural monopolies and positive externalities (Levy, 1987; Lindsay, 1976). From the political perspective it is argued by Liang et al., (2015) and Li, Li, & Wang, (2019) that SOEs are political in nature and that their main objective is not necessarily to create economic rents, but instead to achieve the ideological and political objectives of the home government.

Within the political perspective the conceptualization of SOEs is further specified based on the ideology followed by controlling government (Cuervo-Cazurra et al., 2014). Communist governments define SOEs as a way to bring the means of production to the working class (Marx, 1909). While nationalistic governments define SOEs as a technique to ensure control of the commanding heights of the country, which are firms with critical backward and forward linkages (Rodkrik, 2007). Lastly, the social ideology focuses on controlling only organizations of societal importance such as hospitals and universities (Cuervo-Cazurra et al., 2014). The most used definition of SOEs, however, comes from The World Bank (1995, p. 26) which defines it as ‘any goods selling or service providing economic entity that is controlled or owned by a government’.

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Despite all the aforementioned definitions, no general conceptualization of SOEs is put forward in the literature. Yet, because this thesis conducts a case study of two firms with indistinct ownership structures, a somewhat broad definition is appropriate. Therefore, this thesis uses the following definition of SOEs:

Any goods selling or service providing economic entity that is controlled, owned, or competitively dependent upon financial or legislative support by a government.

2.3 Internationalization

Internationalization occurs when an economic exchange crosses national borders (Morgan & Katsikeas, 1997). Internationalization can be achieved through a large number of methods that range from low (e.g. licensing, direct exporting, franchising) to high (e.g. acquisition, greenfield venture) foreign market commitment (Zahra, Ireland, & Hitt, 2000). When deliberating internationalization this thesis makes use of the definition put forward by Welch and Luostarinen (1988, p. 36), that is:

‘The process of increasing involvement in international operations.’

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small and inexperienced firms (Steen & Liesch, 2007), a lack of consideration for non-business strategic arguments which makes it difficult to apply to non-private firms (Liang et al., 2015), and that the notion of industry effects is not contemplated (Oh et al., 2019)

Taking a different approach, Rugman and Verbeke (2004) extended the transaction cost economics theory to regard the internationalization pathway of MNEs as mostly regional. They argue that for the most part firm specific advantages and resources can only be leveraged within, or in close proximity to, the home region (Oh et al., 2019; Rugman & Verbeke, 2004). Other scholars have justified this line of thought by stating that having both national responsiveness and economies of scale is difficult when a company is operating in a sea of socio-cultural differences (Meyer, Mudambi, & Narula, 2011; Upadhyayula, 2010). Thus, dissimilar from the Uppsala theory, the regional multinational theory of Rugman and Verbeke (2004) implies that the internationalization path of a firm is not and endless evolutionary process but instead ends at a regional border.

Where the aforementioned theories focus on the path of internationalization, scholars such as Dunning (1988) concentrate on the incentives that drive individual firms to internationalize. This approach was conceptualized through the OLI framework (Dunning, 1988). OLI suggests that ownership (e.g. reputation for reliability), location (e.g. cheap labor) and institutional factors (e.g. R&D incentives) may produce advantages and disadvantages that motivate firms in their internationalization decision making (Niosi & Tschang, 2009). The focus of OLI is therefore to determine the ‘why, where and how’ of firm internationalization (Eden, 2003). While the core focus of the framework remained the same, MNEs and internationalization itself have changed drastically overtime (Pedersen, 2015). To cope with these changes the framework was revised in 1995 to consider cooperative ventures of all sorts and sizes (strategic alliances, etc.), in 2001 to consider strategy development, and again in 2003 to include institutional economics (Dunning, 2001, 2003; Narula, 2010). Overtime the OLI framework developed into a key tool to chart industry effects for internationalization, by bringing attention to aspects such as competitiveness, knowledge intensity, and legal incentives (Chiu, Lo, & Susy, 2015; Kling, Ghobadian, Hitt, Weitzel, & O’Regan, 2014).

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Another gap within the theory, as articulated by Pedersen (2015) is that it is unclear whether the three OLI factors are independent and necessary. As a result, scholars such as Eden (2003) and Narula (2010) propose to return to the classic OLI framework, and to combine it when necessary with alternative theories to explain new developments.

2.3.1 Internationalization of SOEs

As discussed, scholars argue that internationalization decision making is influenced by psychic distance, transaction costs, and ownership, location, institutional, and industry factors. These factors however, effect SOEs differently than they would a private firm. One argument for this phenomenon is that SOEs are more opaque, giving reason for the host country to be distrustful of political ties and agency problems (Li et al., 2019). This distrust can amplify the psychic distance between the SOE and the host country, as well as create obstacle’s in the institutional domain (Li et al., 2019). Thus, where a private firm can overtime reduce psychic distance by learning from and adapting to the local environment (Johanson & Vahlne, 2009), it is possible that a SOE is burdened with being inherently distrusted. The possibility of ‘ever-present’ discrimination is currently not considered by internationalization theory, even though it would significantly impact a firm’s ability to establish itself in a foreign market.

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An additional point of notice is that even though some internationalization frameworks (e.g. OLI) can be extended to account for SOE industry effects, it is seldom done. The academic reasoning being that for SOEs governmental objectives, instead of industry considerations, are the main factor influencing internationalization decision making (Cuervo-Cazurra et al., 2014; Duanmu, 2014; Ramasamy et al., 2012). However, recent research on the topic has established that industry effects actually play a considerable role in SOE internationalization, and should therefore be considered (Ren, Manning, & Vavilov, 2019; Rodrigues & Dieleman, 2018). For instance, SOEs in the mining industry internationalize to seek alternative resource pools (Ren et al., 2019), whereas semiconductor SOEs do so to obtain knowledge and develop the supply chain (Minin, Zhang, & Gammeltoft, 2012). In spite of these findings, SOE internationalization research is mostly centred on SOEs in general (e.g. Chang & UNDESA, 2007; Chari & Gupta, 2008; Alvaro Cuervo-Cazurra et al., 2014; Meyer & Thein, 2014), thereby ignoring the aforementioned ‘industry effects’ that are often considered when researching private firm internationalization (Fernhaber et al., 2007; Kling & Weitzel, 2011). By not considering these effects the generalizability and thus the managerial applicability of findings is severely hampered (McGahan & Porter, 1997). Subsequently, steps must be taken to move the focus of SOE internationalization to become more industry specific.

2.3.2 Internationalization of oil and gas SOEs.

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still many questions about O&G SOE internationalization. Such as, do unidentified obstacles or advantages for internationalization exist that are unique to (Russian) O&G SOEs? And which other additional factors drive O&G SOEs to expand to a certain country?

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3. METHODOLOGY

In this chapter, the methodology of this research is described by shedding light on the used research design and methods. This is done through the research onion model (Saunders, Lewis, & Thornhill, 2008). Sequentially, this chapter will make clear the research design, the research strategy, the research sample, the manner of data collection, the analysis of data, and finally the validity and reliability of the data. The intent of this chapter is to justify why a dual-case study, conducted through in-depth-interviews and a content analysis, is most suitable.

3.1 Research design

This thesis seeks to develop new theory on SOE internationalization through inductive research (Saunders et al., 2008). The inductive approach is fitting for exploratory studies that seek to build theory from cases in areas that lack research (Eisenhardt & Graebner, 2007), which is the case for this thesis. For that reason, four managers from both cases are interviewed, and a content analysis of annual reports was conducted. The obtained information is analyzed to identify which factors influence the internationalization of Russian O&G SOEs.

3.2 Research strategy

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3.2.1 Dual case study

This thesis makes use of a dual case study to answer the research question. Scholars regularly use case studies to investigate areas that lack existing theory, and to conduct theory building (Eisenhardt & Graebner, 2007). Case studies are also used to examine contemporary events when the behaviour cannot be manipulated (Rowley, 2002). Scholars maintain that a multiple-case study makes available more data, and therefore offers a stronger foundation for theory building (Rowley, 2002; Yin, 2009). However, a smaller number of cases is appropriate when the cases are considered special (Rowley, 2002). Thus, when it concerns internationalized Russian O&G SOE, two cases are sufficient to study (Sprenger & OECD, 2008). For the reason that both [case 1] and [case 2] are special due to the extreme levels of government pressure and support they receive (Collins & Botts, 2017). Accordingly, a dual case study is used to develop new theory, since there is a lack of pragmatic knowledge on the internationalization of (Russian) O&G SOEs. By using a qualitative rather than quantitative approach, the complex processes driving SOE internationalization are more likely to be identified (Eisenhardt & Graebner, 2007). Therefore, this approach enables the consideration of largely forgotten aspects of SOE internationalization, such as industry effects and discrimination (Duanmu, 2014; Liang et al., 2015; Oh et al., 2019).

3.3 Research sample

This thesis adds to the internationalization literature by concentrating on Russian O&G SOEs. To collect primary data on these firms, interviews are held and a content analysis of annual reports is conducted. To identify the factors influencing the internationalization of Russian O&G SOEs, four managers from both [case 1] and [case 2] were interviewed. All eight managers have had internationalization decision making experiences at their respective firm. For this dual case study, a sample size between six and twelve interviews was planned, after considering for time constraints, limited financial resources, and the difficulty of obtaining access to interviewees due to the secrecy surrounding Russian SOEs (Guest, Bunce, & Johnson, 2006; Liuhto, 2002). This relatively small sample size ought not to be a problem as all participants have sufficient expertise on the topic, enabling these few interviewees to still provide complete and accurate information (Guest et al., 2006).

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2010-2018. Such analyses are especially useful to answer this thesis’s research question. As a content analysis of annual reports can give clear insights into a firms strategy by identifying the development of programs, plans, organizational arrangements, and budgets overtime (Bowman, 1984). The period 2010-2018 was chosen, as during this period both cases significantly increased their involvement in international operations (Panibratov & Michailova, 2019). In line with the research strategy, inductive category development is used to carry out the content analysis (Mayring, 2000).

This thesis defines SOEs as “any goods selling or service providing economic entity that is controlled, owned, or competitively dependent upon financial or legislative support by a government”. Both of the selected cases meet this definition as [case 1] and [case 2] are for the majority owned (>50% of shares) and controlled by the Russian government. The case study consists of two SOEs that operate in the same industry and originate from the same home country, denoting that the cases can be compared to each other. Additionally, all interviewed managers were of sufficient rank and had a role in internationalization decision making. This renders the interviewees reliable information sources regarding the factors influencing the internationalization of Russian O&G SOEs.

3.4 Data collection

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to understand internationalization from the interviewee (Russian) perspective, the interview guide is organized in a semi-structured manner, involving open questions and potential follow-up questions. The interview guide is found in appendix I. Through this unstructured approach, the interviewees are motivated to open up and express themselves in their own way. The questions are formulated in such a way that the interviewee comes up with factors that are influencing the internationalization of Russian O&G SOEs.

The interviews lasted between 30 and 45 minutes, and are if allowed by the participant audibly recorded. By doing so, the interviewer can allocate all attention to what the interviewee is saying, and therefore ask more appropriate follow-up questions. Yet, these follow-up questions were formulated and asked in such a manner that steered the interview as little as possible, thereby reducing bias (Yin, 2009). The main challenge for these interviews, due to the secretive nature of Russian SOEs, was to get the participants to open up as much as possible. To achieve this, full anonymity was given to the interviewees by redacting from the transcripts all information that could lead to the interviewee being identified. Also, the interviews were started with a few “easy” questions, to make the interviewees comfortable and familiarized with the process (McGrath et al., 2019). Moreover, rapport was built with the interviewees by providing a draft summary (appendix II) of the thesis prior to the interview, as a way to inform them on what they can expect to talk about (McGrath et al., 2019).

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3.5 Data analysis

To analyze the interview data, the interviews were recorded, transcribed, coded, and categorized based on the similarity of responses. To extract relevant information from the data a multiple stage method is used (Powel & Renner, 2003). This method makes analysis manageable by tapering the size of the large amount of data. Following this method, the transcripts are first read through multiple times to establish familiarity with the data. Once familiarized, a preliminary coding framework is developed to identify themes or patterns within the data. To remain consistent the coding is done on a per case basis (Miles & Huberman, 1994). Then, patterns and connections within and between the cases are identified through the following summarizing techniques; reducing redundancy, and fact rejection (Powel & Renner, 2003; Wolff, 1982). Where reducing redundancy consists of finding repetitions within the interview data and reducing it to one instance of the pattern coded for repetition, with a record of the number of instances (Wolff, 1982). Whereas fact rejection excludes irrelevant and inconsequential parts of the interview (Wolff, 1982). The development of the coding framework was guided by the factors that appeared to influence the internationalization of O&G SOEs.

The aforementioned summarizing techniques were used to bring together the factors in the final coding framework. Additionally, a frequency analysis was done to identify which factors were most often acknowledged (Powel & Renner, 2003). For small samples, according to Krauth (2004), a factor can be said to occur frequently when it is identified in more than halve of the sample. As the sample size is eight and nine for the interviews and annual reports respectively, it follows that the factors with a frequency score of five or higher across all data-sets are analyzed further. Lastly, a cross-case analysis was done to identify the comparability between the two cases (Dillon, O’Brien, Moje, & Stewart, 1994). The objective of the data analysis is to extend theory by identifying common factors that influence SOE internationalization through coding. The coding framework and the interview transcripts are found in the additional appendix document.

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following this criterion, and the interview coding scheme, to deduce categories in a provisional manner (Mayring, 2000). Third, the aforementioned summarizing techniques are again used to taper the size of the data. Fourth, categories are revised after 40-60% of the material is covered to ensure enduring reliability (Mayring, 2000). Lastly, the results are interpreted, through a frequency analysis, and linked to the data obtained from the interviews.

3.6 Validity and reliability

Case studies are a useful tool for generating new theories. Nevertheless, the case study method has been criticized for lacking methodological rigor in terms of validity and reliability (March, Sproull, & Tamuz, 2003). This criticism stems from the difficulty of replication, researcher bias effecting observations, and case studies being tools in the early phases of research causing methodological errors to create ripple-effects throughout later stages (Eisenhardt & Graebner, 2007; Gibbert, Ruigrok, & Wicki, 2008). To ensure validity and reliability in a qualitative case study the following four components need to be considered; transferability, reliability,

construct validity and objectivity (Morrow, 2005).

Transferability refers to the degree that findings can be generalized to other contexts. SOEs in the O&G industry are rather homogenous (Mahdavi, 2014). This is characterised by most O&G SOEs being OPEC+ members to improve the likelihood of achieving their common goals. Russian O&G SOEs, due to their market share, are a pivotal part OPEC+. Because the two cases used in this thesis represent internationalized Russian O&G SOEs, it follows that the findings represent the point of view of Russian SOEs and by extension OPEC+. Therefore, it is likely that findings can be generalized to other contexts, most notably to O&G SOEs from other OPEC+ countries.

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Third is construct validity, which refers to the degree that a study investigates what it claims to investigate, and the extent to which inferences made from the data are appropriate (Gibbert et al., 2008). Thus, to achieve construct validity, a broad theoretical background is written. This makes it that inferences from the data can be more wide-ranging, instead of being limited to only a few theoretical arguments. This makes appropriate inferences more likely (MacKenzie, 2003). Moreover, two data sources, interviews and annual reports, are used to ensure that the identified findings are related to the studied phenomena. If the same finding occurs in a similar context in two different data sources, the possibility of confounding variables is greatly reduced (Plümper, Troeger, & Neumayer, 2011). These two approaches make construct validity much more likely (Gibbert et al., 2008).

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4. FINDINGS

This chapter depicts the main findings that appeared from the interviews, and the examination of annual reports. The collected data is to extensive to straightaway recognize the relevant factors influencing internationalization. For that reason, a multiple stage method (Taylor-Powel & Renner, 2003) is used to make the size of the obtained data more manageable. For the first stage, the factors influencing the internationalization of O&G SOEs are identified by thoroughly examining the interview transcripts, and the selected annual reports. In the next stages the various influencing factors are analyzed, and summarized via a cross-case analysis.

4.1 Classifying the factors

To ensure an accurate analysis of the obtained primary qualitative data all interviews are transcribed. From these transcripts a preliminary coding framework is develop by codifying the unprocessed written data line-by-line. Every potential factor mentioned by the interviewees which could influence the SOE internationalization process is coded. The interview transcripts, the preliminary coding framework and the coding procedure are shown in the additional appendix document. To complement the interview data, organizational data in the form of annual reports is also analysed. This analysis is done by creating a criterion of definition following existing theory and the obtained interview data. The annual report data that fits the criterion of definition is categorized, and, to ensure consistency, coded following the same coding framework used for the interviews. The criterion of definition and the coding procedure are shown in the additional appendix document.

4.2 Frequency analyses

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The frequency analysis shows that the factor ‘macroeconomic’ has a full frequency score in both the interviews and annual reports. Moreover, ‘financial’ and ‘non-financial government

support’, and ‘importance to the governmental budget’ have a high score of at least seven

across all the data sources. Next, with a score of at least six, are ‘long-term view of the

controlling shareholders’ and ‘inter-government tie strength’. Last, scoring at least five, are ‘political conflict between the home/host country’, ‘discrimination in the host country’, and ‘home government foreign policy goals’. However, a few influencing factors appear to have

components that overlap. For that reason, the factors ‘financial’ and ‘non-financial’ government support and merged into ‘government support’, ‘inter-government tie strength’ and ‘perceived reliability as supplier’ are merged into ‘inter-government tie strength’, and ‘political conflict between home/host country and ‘sanctions’ are merged into ‘intra country

political conflict’. The next section analyses the remaining factors via a cross-case analysis.

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4.3 Cross-case analysis

The cross-case analysis is a research method that makes the comparison of commonalities of cases from different settings easier (Khan & VanWynsberghe, 2008). The abovementioned eight frequently mentioned factors are used in this cross-case analysis. The results of this analysis are shown in table 5 (p. 33/34). This table displays the most important findings from each interview for each of the eight most frequently scored factors: Macro-economic, government support, intra country political conflict, importance to the governmental budget, long-term view of the controlling shareholders, inter-government tie strength, discrimination in the host country, and home government foreign policy goals. Appendix III shows the illustrative quotations of the identified factors per interviewed manager, and appendix IV shows the illustrative quotations for the annual reports.

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Factor M#1 M#2 M#3 M#4 M#5 M#6 M#7 M#8 Macro-economic (+/-) Demand; Price; Demand; small margins; price; expensive to transport; Price; market stability; Vulnerable market share; Demand; Supply; Growth; demand; price; Growth; demand; price; Small margins; price; geographic distance; demand; supply; Growth; demand; price; Government support (+) Help; supportive; Tax exemptions; legislative support; easier border crossings;

Loan; Grants; tax incentives; diplomatic weight; guarantee; Loan; loss compensation Venezuela; network; legislative; permitting; Loan; loss compensation; legislative support; permitting; Loan; network; help with initial steps; Loan; tax exemptions; diplomatic weight; Intra country political conflict (-) Fear; unreliable supplier; tension; negative pressure; less export potential; Geopolitical ambitions; sanctions; threat; Conflict with West not East; Fear; dangerous; geopolitical ambitions; obstacle; costs; Sanctions; Conflict with West not East. Sanctions; take over marketing Venezuela; No access trading platforms; sanctions; costs; diversify; Sanctions; negative impact; fear; Tension; sanctions; unpredictable Importance to the governmental budget (+) Large taxpayer; remove middleman; Large taxpayer; development of economy; Large taxpayer; jobs; future tax income; most profits from exports Large taxpayer; national budget; keep customer base; Large taxpayer; national budget; business is politics; Achilles heel; Most profits from exports

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Inter-government tie strength (+) Trust; security of supply; state guarantee; political involvement; Good relationships; trust; need partners; Reliability; security of supply; political sensitivity; trust; good relationships; Business first; openness; good relationships; trust; Trust; president present; reliability; security of supply; Reliable; deteriorating Western relationships; trust; Russian reputation; reliability; duty; good relationships; Discrimination in the host country (-) Resistance; environmental; threat to democracy; Nord Stream II; Image; football sponsorship; resistance; Image; resistance; perspective; Western countries; image state-ownership; political tool; unfair perception; Distrustful; motives; image; state-ownership; Protest; social investments; image; Home government foreign policy goals (+/-) Financial independence; Pressure Ukraine; Sphere of influence. Diplomatic maneuverability; dependence European customers; flexibility. Different objectives among partners; clashing interests; Former Soviet Countries; Sphere of Influence; Russian dependence; unprofitable; Russian dependence; financials; Forced internationalization; unprofitable Sphere of influence; Russian dependence; forced internationalization; unprofitable; Risk; non-monetary value; unprofitable;

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Macro-economic

The cross-case analysis shows that all eight managers mention that macro-economic elements have a significant influence on SOE internationalization. As mentioned by the managers, this influencing factor can affect the internationalization process both positively and negatively. The demand for the product in the host country has a large effect on the internationalization process according to numerous managers. When the demand is relatively low, this often has a negative influence on the process. The managers explained that transportation of O&G products is expensive and that margins in the industry are low. Subsequently large volumes must be sold to compensate for these industry characteristics. Furthermore, price stability in the host country was also mentioned as an important macro-economic element. The explanation being that significant investments in infrastructure must be made in order to export O&G to a foreign country. These investments, manager three clarifies, are only worthwhile if the market is expected to have a stable price level over a certain time-period. The manager states that Germany had such a stable price level, whereas the U.K did not. As a result [Case 1] did not extend the Nord Stream to the U.K market. On the contrary, countries with a large population base and a rapidly industrializing economy, such as China, make a good internationalization target according to the interviews. One of the arguments being that it is easier to obtain market share while an economy is growing, then once it is saturated. As a result, numerous managers stated that it is important to look at developing countries in the internationalization process. Thus, the macro-economic conditions in the host country are important for successful O&G SOE internationalization. The demand and price level, and future growth expectations determine the extent of resource allocation in a host country. Table 6 (p. 35) shows some illustrative quotes from managers at Russian O&G SOEs.

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Government support

All eight managers mention that government support, both financial and non-financial, is crucial to their firms’ internationalization process. The interviewees explain that financial support, such as tax exemptions, facilitates expansion into countries that in the short term are less profitable but are expected to overtime develop into lucrative markets. Moreover, manager six argues that financial state-support is a must because Russian O&G SOEs face more international pressures than private firms, and this must be compensated for to stay internationally competitive. Because of these pressures as well as other elements, multiple managers also mention that non-financial government support, such as diplomatic protection, is important. Having diplomatic support, the interviewees explain, significantly reduces the risk of opportunistic behavior by foreign partners, as well as political risks such as appropriation of the SOE’s assets by the host country. Even though financial and non-financial support have been mentioned and coded as separate factors, they can be merged into one factor because both illustrate a form of support given by the home government. The quotes shown in table 7 (p. 36) highlight the importance of the factor government support in SOE internationalization.

Table 7 - Influencing factor government support – illustrative quotations (source: author).

Intra-country political conflict

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denying home country SOEs access to the infrastructure. Such an action by a transit (host) country would severely limit the SOE’s export potential to not only the host country, but all other markets connected to that infrastructure. Moreover, the interviews and annual reports highlight that a political conflict between Russia and the U.S. and EU resulted in the latter countries placing sanctions on Russian SOEs, including those in the O&G industry. This had a large negative effect on the internationalization of these SOEs, as illustrated by the significant decrease in Russian oil and gas exports to Europe following sanctions (appendix V). While political conflict and sanctions are coded as distinct factors, it is appropriate to merge them into one factor because they have very similar characteristics. The strong negative relationship between intra-country political conflict and the international process of an O&G SOE is illustrated by the quotations in table 8 (p. 37).

Importance to the governmental budget

One more relevant factor is the importance of the SOE to the governmental budget, as stated by seven managers and most annual reports. When a SOE is an indispensable taxpayer, which O&G SOEs often are, it is in the government’s interest to ensure that these SOEs can generate sufficient taxable future revenues. Consequently, the managers argue, that such governments turn their O&G industries into monopolies or oligopolies, to ensure higher prices and maximum returns. Moreover, a lack of domestic competition enables the SOEs to allocate more attention and resources to internationalization. The importance of O&G gas SOEs to a country’s national

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budget also cause the controlling government to push for geographic diversification so as to safeguard tax income. By influencing their O&G SOEs to internationalize more aggressively, governments seek to achieve steadier and more predictable cashflows. The managers thus indicate that a driving factor of O&G SOE internationalization is not only to generate more taxable revenues, but also to increase the stability of cashflows going into the national budget. Table 9 (p. 38) shows several quotations from managers and annual reports that highlight the positive relationship between the importance of a SOE to the governmental budget and SOE internationalization.

Table 9: influencing factor importance to the governmental budget – illustrative quotations (source: author)

Long-term view of the controlling shareholders

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Table 10: influencing factor long-term view of the controlling shareholder – illustrative quotations (source: author).

Inter-government tie strength

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Table 11: influencing factor inter-government tie strength – illustrative quotations (source: author).

Discrimination in the host country

Another notable influencing factor is discrimination in the host country, mentioned by six managers. While negative attitudes are already strong towards O&G firms in general, as the public sees these firms as producing large amounts of negative externalities. The interviewees mention that being a state-owned O&G firm worsens the existing perceptions and causes additional ones to arise, such as being seen as a political tool. O&G SOEs thus need to undertake extra actions to better their image and mitigate discriminatory attitudes in the host environment. Examples of such activities, as stated by the interviewees, are sponsoring local soccer teams as well as including foreign nationals in the board of directors. Thus, discriminatory behavior in the host country has a negative effect on the internationalization of O&G SOEs, but social activities and executive diversification can partly mitigate this. Table 12 (p. 40) shows quotations from managers on this topic.

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Home government foreign policy goals

All eight managers, and most annual reports, consider home government foreign policy goals to be a vital influencing factor. Similar to private firms, SOEs focus on creating value for their shareholders. Yet, according to several managers, the government as a shareholder does not always define value creation in monetary terms. Instead the government can consider the accomplishment of foreign policy goals through its SOE as value creation. This is especially the case for O&G SOEs as they operate in a strategic industry. Accordingly, the managers mention that their firms have internationalized for non-monetary value creation. In this sense home government foreign policy goals have a positive influence on SOE internationalization as they push the firm to expand abroad. However, the managers also brought up that pursuing such foreign policy goals, for instance in Venezuela, clashed with the interests of other countries and therefore had a negative effect on their overall internationalization potential. The views of the managers on the relationship between home government foreign policy goals and O&G SOE internationalization are shown in table 13 (p. 41).

Table 13: influencing factor home government foreign policy goals – illustrative quotations (source: author).

4.3.1 Concluding remarks on findings

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5. ANALYSIS

Throughout this chapter the analysis of the collected data is clarified. Multiple factors are recognized and examined. First, the recognized factors on the internationalization of O&G SOEs are analyzed through proposition development. Second, a conceptual model is developed from these propositions to more clearly showcase the relationship between the independent variables and the dependent variable.

5.1 The influencing factors

The factors that were identified to influence the internationalization of O&G SOEs are discussed below. These factors are importance to the governmental budget, long-term view of

the controlling shareholder, inter-government tie strength, discrimination in the host country,

and home government foreign policy goals. These factors have a special influence on O&G SOEs due to the unique nature of these firms. As a result, five propositions are posed.

5.1.1 Importance to the governmental budget

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the national budget; however, they do not want to be financially dependent on these countries. Therefore, the importance of O&G SOEs to the national budget makes geographic risk diversification a necessity, according to several managers. The diversification of risk is also a concern for SOEs in other industries, albeit for different reasons (Schneider, 2009). For example, the Chinese State Grid Corporation conducted product diversification (fossil and renewable energy) to improve the reliability of the national energy supply (Baker Tilly China, 2019).

While the role of the governmental budget in (O&G) SOE internationalization is not extensively discussed in the extant literature. Contemporary research has found that governments, in general, are gradually seeking to diversify their income streams (Jensen, 2018; Prichard, Salardi, & Segal, 2018). As stated by Narayan (2005), diversified income streams make it easier for governments to invest in the long-term development of key areas, such as schooling and healthcare, as budgetary risk is lower. Furthermore, governments with low-risk income streams have higher credit ratings, which reduces the cost of capital, thereby stimulating innovation and entrepreneurship in the national economy (Elkhoury, 2009). It thus stands to reason that when O&G SOEs contribute significantly to the governmental budget, geographical diversification of these firms increases the welfare of the home country. Thus, a positive relationship is identified between the importance of an (oil and gas) SOE to the governmental budget and its internationalization. These findings are similar to those of this thesis, that is to say that with an increasing tax burden comes a positive influence for O&G SOEs to internationalize. This gives reason to propose the following:

Proposition 1: The greater the importance to the governmental budget, the higher the stimulus for an oil and gas SOE to internationalize.

5.1.2 Long-term view of the controlling shareholder

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is expected to take six years. This denotes that long-distance O&G internationalization projects cannot be profitable in the short-term. Giving reason to believe that O&G SOEs whose controlling shareholder has a short-term view are encouraged to only internationalize to countries geographically close by. Correspondingly, it can be argued that having a controlling shareholder with a long-term view positively influences O&G SOE internationalization, because it provides the firm with a larger array of possible host countries. Moreover, the interviewees mention that the Russian O&G industry is oligopolistic by design to achieve the government’s desired price stability over the long-term. As a result of this long-term view, domestic competitive pressures are artificially kept low. This gives reason to believe that, having a government owner with a long-term view enables a SOE to have more resources available for internationalization, because, these resources are not needed to fend of domestic competition. The interviewees thus indicate that O&G SOE internationalization benefits from having a controlling shareholder with a more long-term view, as it enables farther expansion, as well as make available more resources for internationalization.

A few scholars have already studied the relationship between the time horizon of the controlling shareholder and firm internationalization, albeit not for O&G SOEs (Liu, Li, & Xue, 2011; Tsao & Chen, 2012). García-García, García-Canal, & Guillén (2017) deliberate how the desire for short-term returns influences internationalization. Their study emphasizes that focusing international expansion solely on achieving short-term goals makes the project unlikely to succeed. For the reasons that, over a short time period, strategies cannot easily be adapted, unexpected setbacks cannot be mitigated, and local relationships are either non-existent or poorly development (Liu et al., 2011). This thesis adds to the aforesaid that O&G SOEs whose controlling shareholder has a long-term view are not limited to the near abroad in their internationalization, and are likely to have more resources available for international expansion. In view of the aforementioned and the relation that has been found in this thesis, it gives reason to believe that the time-horizon of the controlling shareholder has an especially strong influence on the internationalization of O&G SOEs. Thus, it can be concluded that a controlling shareholder with a long-term view has a positive influence on the internationalization of O&G SOEs. This brings about the following proposition.

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5.1.3 Inter-government tie strength

Inter-government tie strength is a frequently mentioned influencing factor in both the interviews and annual reports. Inter-government tie strength indicates the level of trust, and the strength of the relationship, between the SOE’s home country and the country to which it wants to internationalize. At present the international business literature conceptualizes the strength of a relationship as being only between companies (Mitrega & Pfajfar, 2015; Turnbull, Ford, & Cunningham, 1996). This thesis, however, found that this is different for O&G SOEs. The likely source of this difference is the strategic nature of O&G products. The managers mention that, to minimize the strategic exposure of the nation, importers of O&G prefer to work with countries with which they have good relationships and trust to be reliable suppliers. This suggests that O&G SOEs built relationships not only through their own interactions with businesses in the host environment overtime, but also through interactions between home and host country actors. This gives reason to believe that an O&G SOE can more easily internationalize to a country which has a strong relationship with the home country, as this relationship is extended to the SOE. This is further supported by the interviewees emphasizing that it is beneficial for O&G SOEs to complement the existing foreign relations of the home government. By, for example, investing in foreign representative offices. In view of the aforementioned and the relation that has been found in this thesis, it gives reason to believe that inter-government tie strength has an influence on the internationalization of O&G SOEs. Thus, it can be concluded that a stronger inter-government tie strength positively influences the internationalization of O&G SOEs. Thus, it is proposed that:

Proposition 3: The stronger the inter-governmental tie strength between the home and host country, the higher the stimulus for an oil and gas SOE to internationalize.

5.1.4 Discrimination in the host country

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this by sponsoring local football teams, natural parks, and social events. While for other industries such activities are often enough to overtime be considered a local (Attig, Boubakri, El Ghoul, & Guedhami, 2016), the polluting nature of the O&G can be assumed to lessen the impact of these efforts. This gives reason to believe that O&G firms see discriminatory pressures diminish more slowly overtime, making internationalization tougher. Furthermore, the interviewees explain that being a (Russian) SOE adds to the existing discriminatory pressures. Because, locals extend any animosity towards the SOE’s home country to the SOE as well. Additionally, the opaque nature of SOEs makes it more difficult for locals to trust foreign SOEs (Li et al., 2019). This may suggest that there always exists a base level of discriminatory pressures towards SOEs, which cannot be mitigated. Therefore, this thesis adds to the extant literature that O&G firms, compared to other industries, are more slowly accepted as local, and that this is worsened for SOEs because they are unlikely to ever completely off-load discriminatory pressures (visualized in appendix VII). Thus, in view of the aforementioned and the relation that has been found in this thesis, it gives reason to believe that discrimination in the host country has an especially strong influence on the internationalization of O&G SOEs. Thus, it can be concluded that stronger discriminatory pressures in the host country negatively influence the internationalization of O&G SOEs. Therefore:

Proposition 4: The stronger the discriminatory pressures in the host country towards the home country, the lower the stimulus for an oil and gas SOE to internationalize.

5.1.5 Home government foreign policy goals

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generated (geo)political value for the home government by providing financial support to Venezuela, a strategic partner of the home country. While [Case 2] made the host environment’s energy needs dependent on the SOE’s technologies and capabilities. Thereby keeping the host country in home country’s sphere of influence. Therefore, home government foreign policy goals can be said to have a positive influence on the internationalization of O&G SOEs, because it provides other, non-monetary reasons for O&G SOEs to internationalize.

Despite this, the managers also mention that home country foreign policy goals can have a negative influence on the ability of an O&G SOE to internationalize. Particularly, they mention that O&G SOEs make for easy pressure points for non-home countries, due to them being of both strategic and economical importance to the home country. In the words of one manager,

‘oil and gas SOEs can be considered the achilleas heel of many a country’. An example of the

international community targeting this achilleas heel are the sanctions on Russian O&G SOEs following the Russian annexation of Crimea. This gives reason to believe that conflicting foreign policy goals between the home country and the larger international community have an especially strong negative influence on O&G SOE internationalization. Thus, this thesis adds to the extant literature that O&G SOEs are unique in their ability to generate international non-monetary value in the (geo)political domain. And that O&G SOEs are more susceptible to international political pressures than SOEs in other industries. In view of both the aforementioned relations, it gives reason to believe that home government foreign policy goals have both a strong positive and negative influence on the internationalization of O&G SOEs. This argumentation leads to the following propositions:

Proposition 5a: The higher the possibility of achieving home government foreign policy goals in the host country, the higher the stimulus for an oil and gas SOE to internationalize.