Petrobras is facing a lot of pressure from the Ecuadorian government to reduce its stake from the oil exploration industry in Ecuador (Smith, 2002). It is among the biggest oil companies in the world and if shaken, there would be a very significant effect on oil Industry in South America. The main problem that Petrobras should understand is that the difficulties they are experiencing in Ecuador have resulted from the change in the political environment in Latin American countries. The new Ecuadorian president, Rafael Correa, is seeking to implement policies that would place the government in control of the oil industry. This would mean that all the oil extracted would belong to the government and the company would act as a contracted company to only carry out the extraction. The profits obtained from selling petroleum would belong to the government.
The hurdle that Petrobras is facing in Ecuador is as a result of the involvement of the new president, Rafael Correa (Smith, 2002). It is a trend that most of the Latin American governments are going through as they try to liberate themselves from external involvement of other countries as well as companies. As they try to concentrate their wealth in their countries, they are building democracy and bridging the gap between the rich and the poor domestically. President Correa’s political ambitions lie in the liberation of the poor from their poverty thus reducing the gap between the poor and the rich. The political environment is systematic and Petrobras management team has to devise methods on how to mitigate the effects of this political environment since it has a mechanism of regulating itself once the implementation of the new policies take off. Latin America is in the verge of increasing its domestic revenue as well as improving their governance, which must affect the domestic economic aspects and eventually the foreign companies in these countries such as Petrobras.
During such situations, any company should seek a saving policy or policies (Rumelt, 2011). The saving policy that Petrobras should seek to implement is that of using its position and capital base to increase its range of activities. The company was founded and state-owned by Brazil and solely dealt with oil extraction and refinery. For a long time, it used a slogan, ‘the oil is ours’. During such times of crises when the company needs redemption, it can use a policy that would hold it and allow it to venture into energy production sector rather that solely depend on petroleum. This would allow it to exploit other fields that do not require the non-renewable fossil fuel which is causing international conflicts throughout the world. If Petrobras initiated such a policy to extract energy from renewable sources, it would not only reduce its accusations on negative environmental impacts (such as those in Ecuador) but also reduce its competition with other oil extracting companies.
Petrobras has a large capital base and prides itself to be among the largest companies in the oil exploration and distribution. However, with the recent political environment in South America since year 2000, there is a high risk that the company might be hit hard by the political wave. This could hurt the company’s reputation and capital base. Therefore, it should take quick measures to avoid the set back. This would be best done by diversifying their field of operation. Currently, the company works as an oil exploration and distribution company. It should use is high income and revenue to start programs that will enhance its indulgence in production of other forms of energy. If the company fails to conquer South America, it will be crippled and this would ultimately lead to its diminish. If it, on the other hand, took the action of developing alternative sources of energy from renewable bio-fuels, it would not only venture into a completely new field in South America, but would as well avoid the current geo-political squabbles in the region.