With Southeast Asian countries attempting to open their doors more to regional trade, many lubricant suppliers are keen to expand into neighboring countries. But observers suggest that brand building and local partnerships are still key to a winning expansion strategy.
The ASEAN Economic Community programs removal of tariffs on trade between the 10-nation bloc may prompt lubricant players in the region to react quickly by expanding and penetrating into the other emerging markets in ASEAN, Ipsos Business Consulting noted in a report last year. Ipsos and others have also noted that progress toward free trade is not going as quickly as advertised because nations are erecting new barriers to protect domestic suppliers in lubricants and other industries.
Still, while AEC helps normalize the playing field across the bloc, lubricant players should not take a one-size-fits-all approach to the regions individual markets, said Ho Chee Hon, CEO of AP Oil, during a telephone interview. The countries have different currencies, legal systems, economic development rates and consumer behaviors, making the trade zone more fragmented than the EU.
To successfully expand overseas, both brand building and network development would be key to gain user awareness and subsequently, confidence for adoption, said Wijaya Ng, Ipsos head of consulting for Greater China.
Thailands state-owned PTT Lubricants launched a brand-building strategy in 2010 specifically for ASEAN, expanding its one-stop-shop service station concept to emerging markets such as Vietnam, Laos and Cambodia. All PTT service stations…adopt the same unique Thai image and a uniquely Thai-inspired customer service orientation, the company describes on its website.
PTT currently operates about 20 stations in Laos and plans to expand its service stations in Cambodia from 28 to 90 by 2020. PTT also has more than 100 stations in the Philippines, mainly on the countrys biggest island, Luzon. PTT plans to increase that number to 300 by 2021.
But PTT is not the only company trying to gain a foothold in the Philippines, where local player Petron Corp. still dominates, said Ng. A few years ago, Pertamina attempted to expand its market share in the Philippines by promoting its brand in the world of racing and extreme car and motorcycle sports - beloved in the country - through brand sponsorships and digital marketing channels.
Pertaminas strategy was to build up its brand among the younger customer base and capitalize on this over the long term, said Ng. Unfortunately, this strategy appears not to be panning out so well. Pertamina still considers Philippines a growth market, but will likely adjust its strategy to target other sectors over the next few years.
Meanwhile, other blenders develop their brand through niche sectors. For example, Singapores AP Oil blends marine lubricants in cooperation with an international oil major for field test trials required by some original equipment manufacturers. Its a new supply point for Asia for the oil company, Ho said. We have high technical standards, as there is zero tolerance for mistakes.
Singapores brand has also helped AP Oil sign partners in the region, Ho said. According to Brand Finances National Brand annual report, Singapore was the strongest country brand in 2016. For better or for worse, brand recognition weighs heavily on consumers when buying products. The same applies when companies consider their next expansion destination, said fDi Intelligence, a subsidiary of British news group The Financial Times that focuses on foreign direct investment.
And partnership is key, Ng said, especially if the entity expanding can leverage the local partners sales and distribution network. AP did just that when it opened a blending plant in Vietnam in 2008 through a joint venture with state oil company Saigon Petro Co.
Chinese lubricant suppliers Sinopec and PetroChina are targeting expansion of their brands - Great Wall and Kunlun, respectively - through factory-fill agreements with Chinese construction equipment manufacturers overseas, for instance. However, Ng added, there is a lack of investment in building up local sales and distribution networks to cover the aftermarket, resulting in low brand awareness.
For major lubricant players with deeper pockets, setting up local blending plants in growing markets allows them to save on tariffs and distribution costs. But it is not a panacea for all of the challenges of penetrating ASEAN nations, especially its archipelagos.The inland cost of distribution can be very high, Ho added, noting that it can cost more to move lubricants from one side of Indonesias Java island to the other than it would to export them all the way to Japan.
Sinopec has a blending plant in Singapore, which serves as its regional trading hub, Ng noted. Shell has a large, 120,000 metric tons per year blending plant at a centralized location in Jakarta, Indonesia. Shell previously sourced most of lubricants from its blending plants in China, India and Singapore, which required detailed demand forecast planning and longer lead times, said Ng. Its location in Marunda, a bonded industrial zone, provides tax incentives and is close to the port, making it easier for Shell to supply the ASEAN market.
Having a blending plant in Indonesia also means Shell can take advantage of Indonesiaslocal content requirement, which mandates that Indonesian manufacturers compose products with a certain percentage of local raw materials or ingredients. According to Ng, some companies, including state-owned enterprises, may make use of locally manufactured lubricants to enable them to have more room to use other imported raw materials.