Dynamic Productivity Differences Between State And Private Ownership In The International Oil Industry

ABSTRACT

The participation of countries in the international oil industry in the form of national oil companies started in 1914 and has continued to this date. Although their role in market systems has been seen in literature to be a major cause of inefficiency, active state participation does not seem to be waning. This is primarily because of state dependence on oil products, growth of major state-owned oil companies and the belief that state control over its resources is a major sign of national sovereignty. This study provides insights on decisions operations managers of such state firms can adopt to make their operations more efficient. This was achieved by assessing whether multinational operations can offset the inefficiencies state-owned oil firms face due to home-country political influences. This was done by comparing efficiency and productivity differences between state and private oil companies as well as state multinationals and private multinationals globally. It also compares various efficiency and productivity measurement techniques in performance measurement in the industry with the aim of providing operations managers with the appropriate techniques for performance benchmarking.

An unbalanced panel of 66 unique oil firms from the Petroleum Intelligence Weekly Database of Energy Intelligence was used for this study. Data on the 10 year period from 2001 to 2010 was assessed using relevant productivity measurement techniques in operations management and management science. From the findings, private firms are seen to out-perform state firms. Similarly, multinationals are seen to out-perform local firms. Multinational operation was also found to be a useful and relevant policy direction towards reducing productive inefficiencies of state-owned oil firms. However, multinational operations could not offset scale inefficiencies of state firms. Therefore, whereas state firms should be advised to incorporate multinational operations into future policies in order to reduce home-country inefficiencies, further efforts need to be directed towards reducing the size of operations since size is a major source of inefficiency.