Management in China: domestic and international developments

On the basis of the case of Sinopec (Jia and Tomasic 2010, pp. 105-117), explain the main reforms undertaken by China´s National Oil Companies since the early 2000s and identify the remaining challenges for improving their corporate governance practices.
Shana Nussberger
Management in China: domestic and international developments
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Introduction
This paper aims at highlighting aspects concerning major reforms, which were carried out by National Oil Companies within China from early 2000s, based upon the Sinopec case. It also attempts to highlight remaining challenges towards the improvement of various practices concerning corporate governance within the Chinese companies which handle oil products. Due to difficulties which were experienced within the oil companies, there was need to come up with considerable changes through initiation of reforms which would endure that desired outcomes within company operations would appropriately be attained. In spite of the fact that suitable reforms were attained, it is clear that the oil companies within China face a variety of challenges which hinder smooth operations.
Explanation of the major reforms which were carried out by National Oil Companies within China from early 2000s, based upon the Sinopec case
Upon the basis of Sinopec case, it is clear that a variety of reforms were carried out by the various National Oil Companies within China from early 2000s with the aim of facilitating improved operations. The various reforms which were experienced may be brought to light as follows. For instance, the national companies dealing with oil products within China steered the attainment of enterprise and economic reforms. Within the China’s planned economy, various national ministries were initially involved in execution of public sector functions together with functions which were normally undertaken by private sector within nations which held market economies.
Secondly, there was company reorganization, a reform which was aimed at ensuring that better operations were attained. As a result of economic globalization together with conversion towards market system of the economy, the petroleum companies which were state-run went through comprehensive reorganization through Chinese government leadership. The oil companies were redistributed after which reorganization occurred into main groups which were vertically integrated, bringing about shifting the responsibilities they held from development and exploration to marketing and refining. The reorganization purpose may be brought to light as follows. For instance, it was aimed at facilitating separation of enterprise and government operations and also the breakdown of conventional downstream and upstream monopolies through multi-enterprise competition establishment. Secondly, the reorganization would prop up momentum in the petroleum industry of China through the introduction regarding created mechanisms and principles through organization of the competitive multi-enterprise system.
Through business reforms and reorganization, the conventionally held government functions by oil companies within China were changed, hence facilitating maintenance of autonomous management by each company. The reforms did away with the situation whereby business and government functions were mixed. After the reforms, direct involvement within management activities through the use of administrative directives and government orders became impossible. Through state policies and laws linked with oil industry, it is apparent that the government administration of oil industries had the capacity to guide and supervise oil industry together with the involved business undertakings. Due to the availability of the organizational structure which was simplified, the functions held by the administrative system of the oil industry became supervising and guiding production and management activities of the industry through laws.
Thirdly, the oil companies steered reforms which would facilitate separation of enterprise and government. This was aimed at steering improved efficiency regarding production and management organization. The reforms brought about great changes in the ways through which company operations were initially carried out. Prior to enterprise reforms, typical ministries held the responsibility of directly managing various operations held by the enterprises which it was believed to regulate.
Due to business reforms together with reorganization, the government systems which were conventionally held by oil companies within China were altered such that the companies would independently operate through autonomous management. Production and management systems concerning unified enterprises and governments within conventional oil sphere were done away with. The newly attained structure of the oil industry, direct involvement within activities of management through administrative directives and government orders were also done away with. In addition, through structural reforms by the government accompanied by improved efficiency and slimming down within oil administration structures which were industry-related, the government had the capacity to guide and supervise industry’s activities and establish technical standards, strategies, development policies and industry plans through state policies and laws. As a result, although during that period they were controlled through macro-policies, Sinopec and CNPC, which were oil companies within China, gained the capacity to independently participate within production and management activities in more efficient ways compared to their earlier performance. This indicates that the reforms positively influenced company operations.
The other reform which was carried out by the oil companies within China included an industry formation which was vertically integrated. This was aimed at steering the improvement of competitiveness together with scale economies. Within the early 2000s, through assets’ redistribution, the establishment of Sinopec and also CNPC was done as that of corporate groups which are vertically-integrated. This made a transformation from the previously experienced system which was horizontally divided and was further lower-upper related, and the oil industry of China welcomed an industrial structure which was new. It is highlighted that CNPC concentrated upon natural gas and oil development, simultaneously with undertaking various activities within downstream areas like marketing and refinery.
Following the reforms together with reorganization, it is clear that oil companies within China which are regarded as major have been making attempts to separate auxiliary businesses and main businesses. This is further regarded as separating sections which are non-profitable from those which are profitable hence establishing limited companies aimed at facilitating efficiency improvement within production and management. Within CNPC, about 480, 000 employees, who were part of its total of 1.5 million employees, ended up being moved to PetroChina and a redundancy of 55,000 employees was done as the company aimed at cutting down experienced costs of operation.
Within the year 2002, CNPC successfully strived towards operational strata simplification concerning multi-layered management and production regarding the upper sections it held, towards the development of production organization. In addition to reforms which brought about separation of auxiliary businesses and main businesses, CNPC moved business sections which were non-profitable like hospitals, police structures and schools to governments within their regions or localities within 2004. An example is when hospitals and schools in the administration bureau of Daqing oil of CNPC were transferred after which CNPC together with Daqing government within the locality held talks from 2004 hence reaching a quick agreement hence transfers were completed entirely within that year.
Within the refining operations held by CNPC, reforms were propped up after which intermediate layers of the department were joined together with posts of production (Jia & Tomasic, 2010). Moreover, reor...