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A strategic alliance between SOCAR and Migros originates from a meaningful background of economic relationships between Azerbaijan and Switzerland, so uncovering these insights can shed light on the essence of a strategic alliance as such. Economic relationships between these countries have a long history, and it is obviously related to oil resources of Azerbaijan. It should be noted there are many other implications that actually influenced the development of economic relationships in the chosen direction. Besides, these developments are not limited to a single industry or an economy sector, as both countries find a far greater potential in each other.
Economic Relationships Prior to SOCAR Entrance
As a matter of fact, economic relationships between Azerbaijan and Switzerland had started before the entrance of SOCAR into the Swiss market. Switzerland is obviously one of the main trading partners for Azerbaijan since its independence. The matter is that Switzerland is particularly interested in the development of transportation and fuel transition to the Far East, and Azerbaijan is the most optimal candidate for performing of such a revolutionary role (The Federal Council, 2017b). At the same time, the import of a variety of Swiss products is of paramount importance for Azerbaijan owing to a great number of reasons (The Federal Council, 2017b). In such a way, mutual benefits are the main reason for bilateral economic partnership between Switzerland and Azerbaijan that has actually created a meaningful basis for a subsequent entrance of SOCAR.
To speak about trade in detail, it is necessary to note that Azerbaijan offered transition of different types of fuels, especially crude petroleum products. As for Switzerland, its exports to Azerbaijan comprise jewelry products, machinery, watches, and pharmaceuticals. It is becoming increasingly apparent that such a trade is based mainly on the leading products and resources of both countries, so there is a strong economic efficiency for Azerbaijan as well as Switzerland (The Federal Council, 2017b). Apart from that, Azerbaijan was identified as an important entity in transiting fuels to the European Union, so early partnerships were established in this regard. This aspect is of paramount importance for the bilateral relationship between these two countries, as the transition of fuels to Europe has sound geopolitical reasons. To be more specific, Azerbaijan initiated the building of the Trans Adriatic Pipeline that is expected to provide Switzerland and the majority of European countries with cheaper and accessible crude oil in order to minimize their dependence on Russian imports (The Federal Council, 2017b). Moreover, Azerbaijan is able to resolve a number of its economic challenges in such a way, as its massive export of crude petroleum products evidently increased its economic efficiency. The matter is that Azerbaijan was in economic dependence on Russian gas and shortage of other products and services, so that economic potential delivered with crude oil exports enabled Azerbaijan to address all its gaps in economy and international trade.
In general, economic relationships between Azerbaijan and Switzerland prior to a massive expansion of SOCAR on the Swiss market can be characterized by the following statements:
- Advancement of economic environments for both countries throughout trade exchange of key resources and products (The Federal Council, 2017b);
- Modernization of the financial sector in Azerbaijan, as long as a number of Swiss companies opened their branches, and a wave of direct investment came from Switzerland (The Federal Council, 2017b);
- As a consequence, the aforementioned achievements improved business environments in both countries, as they are supplied with vital resources, products, and expertise (The Federal Council, 2017b);
- By the same token, the enhancement of public services can be observed because economic gaps of both countries were addressed;
- Azerbaijan received sufficient funding for vocational education and training, as well as investment in rural development.
Concerning this period of economic relationships between Azerbaijan and Switzerland, it is imperative to note that overall Swiss export to Azerbaijan was equal to 236, 538.50$ in 2011 (World Integrated Trade Solution, 2017a). The largest volumes of export comprised stone and glass, machinery and electronics, and miscellaneous (See Figure 1). As for Azerbaijan exports to Switzerland in 2011, their overall volume was 80, 083.93$ (World Integrated Trade Solution, 2017b). It is becoming abundantly clear that almost the entire volume of exports was obtained with fuels (See Figure 2). It is hard to ignore the fact that Azerbaijan and Switzerland had engaged in cooperation early before SOCAR entrance. In such a way, Azerbaijan and Switzerland found reasonable strategic partnership with each other, and this factor played a significant role in further development of economic relationships between these two countries.
Economic Relationships during SOCAR Market Presence
SOCAR entered the Swiss market in 2012, and it has managed to acquire a number of Swiss fuel and refinery companies since this year. A vast economic potential of SOCAR is quite apparent, as merging with Swiss companies can be justified by the fact that SOCAR is able to provide raw materials at a competitive price: transition, storage, refinery, and distribution have become more feasible with SOCAR strong presence at the Swiss market (SOCAR, 2015). Switzerland started the acquisition of relative fuel independence, as it offered a wide range of incentives for Azerbaijan in return. These achievements have obviously boosted economic growth in Azerbaijan that was encountering a variety of problems in this respect. To be more specific, foreign direct investment of Azerbaijan was equal to 6, 566, 788$ in 2012 (Buchanan, Le, & Rishi, 2012). This aspect, however, varied from the moment of SOCAR entrance to the present days, but SOCAR's successful expansion on the Swiss market intensified Azerbaijan's economic growth, meanwhile Switzerland became able to update its internal needs for the related industries. Actually, SOCAR's merger with local companies ensured sustainable development of domestic economy because SOCAR took the responsibility for all procedures required for crude petroleum export (SOCAR, 2015). At this point, it is worth mentioning that a need for a constant supply of cheap fuel in Switzerland was a central driving force for the further success of SOCAR, so all incentives were entirely justified.
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To be more specific, SOCAR Switzerland obtains 100% of equity, thereby supporting Azerbaijan's economy with substantial financial inflows (SOCAR, 2012). Such persistence can be explained by the fact that Switzerland just needs a regular supply and facilities for crude oil products. SOCAR is offering its products at quite competitive prices and takes charge of all technical and organizational duties, so possession of 100% equity is apparent in this respect (SOCAR, 2012). This incentive does not affect Swiss economy to a critical extent but provides enough raw material and other resources to resolve the issue of fuel. At the same time, Azerbaijan receives a profound development of its fuel industry and a wide range of benefits for other sectors, especially those that were absent or stagnated after the planned economy practices of the Soviet Union. In the same vein, SOCAR Switzerland has managed to acquire 100% of material revenue, so that such conditions can be recognized as favorable for both countries (SOCAR, 2012). It is no surprise that Switzerland does not have any interest in gaining direct profits from SOCAR performance at the market, as long as fuel independence is much more concerned (The Federal Council, 2017a). As it has been already mentioned, bilateral partnership with Azerbaijan has enabled Switzerland as well as numerous European countries eventually to find new alternatives to Russian fuel supplies, which are particularly expensive and hardly accessible in terms of economic sanctions adopted in 2014. As a result, the SOCAR market entrance and proactive performance cause a positive impact on Swiss economy in a number of instances.
Cooperation between these countries during the establishment of SOCAR market presence can be described when the following statistics are referred to. In spite of the fact that overall Swiss export was 192, 006.71$ in 2014, which is obviously lower than in 2011, but this tendency must be regarded as maturity of Azerbaijan markets with the exportable products: stone and glass, machinery and electronics, miscellaneous, chemicals, and food products (World Integrated Trade Solution, 2017c) (See Figure 3). Azerbaijan export to Switzerland in 2014, though, did not change considerably, as long as overall export was equal to 78,061. 77$ constituted with fuels and small percentage of vegetables and metals (World Integrated Trade Solution, 2017d) (See Figure 4). Under these circumstances, Azerbaijan managed to satisfy its market needs, meanwhile Switzerland kept receiving sufficient and regular supplies of crude oil products during the establishment of SOCAR's presence at the market.
After such an efficacious cooperation between Azerbaijan and Switzerland, bilateral relationships are likely to evolve, as both countries have quite ambitious intentions about their partnership in the future. First of all, the expansion of the fuel transition and refinery network across Switzerland and other countries is one of the most significant objectives for the future (Azernews, 2017). Needless to say, the establishment of accountable and sustainable supply chain delivers an evident value to domestic economy of Switzerland and elevates economic standards of Azerbaijan on a new level (Azernews, 2017). The government of Azerbaijan is quite aware of the fact that non-oil products should also find their markets, so transition of fuels can create an extensive trade agenda in this regard. Likewise, both countries see their future partnership in opening wider regional projects in the Far East and North Europe, so that the exchange of imports can be a basis for internationally initiated projects in fuel, machinery, transportation, and other industries (Azernews, 2017). SOCAR, however, seems to still play a vital role in this scenario, so Switzerland's new incentives are quite acceptable for Azerbaijan. A possibility of such a course of action is actually evident, since SOCAR has announced the beginning of its meaningful entrance to the western and southern markets of Europe. Henceforth, availability of the aforementioned prospects will only encourage the Azerbaijan authorities to advance their cooperation with their Swiss partners.
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It is also informative to note that trade turnover between these two countries has reached 93, 856$ million, so this evidence can be regarded as the fact that bilateral cooperation will proceed in terms of the same framework that has been established initially, meanwhile new domains of collaboration will be simultaneously developed (Aynur, 2016). At this point, it is imperative to pay attention to the fact that Azerbaijan actually intends to integrate its for-export industries into European macroeconomic competition, once the idea of trading non-fuel products and services has already been outlined. This intention is not justified with a certain strategic consideration of the Azerbaijan government, as well as with several factors that come at play in this respect. To return to the subject of trade turnovers, it is important to note that non-oil trade turnover for 2015 has grown by 38%, and it is evidently a positive evidence for the scenario described above (Aynur, 2016). Significance of SOCAR, however, may become less persistent in the light of such a tendency, but it is hard to deny that the oil industry of Azerbaijan has actually provided the country with a multiple international opportunities, so that this strength will be not underestimated after the decades of cooperation. There are numerous external factors that may produce an unexpected impact on economic relationships between Azerbaijan and Switzerland, particularly with regard to a strong presence of SOCAR at the Swiss market.
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Ultimately, cooperation between these countries and the meaningful involvement of SOCAR in this strategic partnership result in a great number of benefits that open high-profile opportunities for Azerbaijan and Switzerland. Owing to this cooperation, 65 Swiss companies are operating in Azerbaijan, and overall direct investment is equal to $220 million (Aynur, 2016). Moreover, SOCAR has managed to purchase 148 fuel stations in Switzerland, thereby obtaining 8% of the wholesale oil market, 7% in retail, and 25% of LPG (Aynur, 2016). SOCAR has initiated several projects in the railway and transportation industry, so mutual benefits are quite explicit for each country in this case. This tendency can be recognized as a sign for a much greater collaboration and expansion of SOCAR on the basis of Swiss incentives. All in all, the entire history of partnership between Azerbaijan and Switzerland on the basis of oil trade and SOCAR entrance epitomizes a strategic alliance on the international scale. The value of fuel is still high in terms of modern macroeconomics, so incentives suggested by the Swiss markets are equal to the opportunities provided with SOCAR. Switzerland is particularly interested in economic prosperity of Azerbaijan until it can offer fuel with such a complex of competitive prices and relevant facilities for its transition, refinery, and storage. Thus, Azerbaijan recognizes a need for expansion of these relationships, which is why non-fuel trade turnover is placed a particular emphasis.