Amalie’s Lower-Budget China Strategy


Amalie Oil Co. knows it lacks financial resources to imitate the buy-some-market-share strategy that some oil companies have followed to enter China.

But the Tampa, Florida-based lubricant blender believes it can still succeed with a cheaper, lower-profile campaign. Last week it announced an agreement making it the exclusive motor oil provider for a growing Chinese energy company and laying groundwork to build a blending factory in the future.

Such a strategy may take longer to develop, Amalies president said, and may attract just a small share of the Chinese market. But even a small slice of a large pie, he noted, can be very filling.

Amalies joint venture is with GeoMaxima Holding Co. Ltd., a Hong Kong-based Chinese energy company. The agreement provides mutual exclusivity: GeoMaxima will be the sole distributor of Amalies Xcel-branded products in China and will sell only Amalie lubes at its service stations and quick lube centers.

Amalie President Harry Barkett Jr. said GeoMaxima is in the process of broadening into petroleum-related businesses and is just now developing its nationwide network of service stations and other outlets. Still, Amalie expects the partnership to sell 3,500 to 4,000 tons of lubricants during 2002.

Initially, the products would be supplied from Amalies 454,000-metric-ton-per-year Tampa blending plant, although Amalie plans to shift production to Los Angeles after expanding a smaller plant there. If the venture meets certain sales goals – not necessarily just in the first year – the companies would then enter negotiations to build a blending plant in Jinzhou, in the northeast province of Liaoning.

According to Barkett, Amalie has been doing spot deals in China for the past few years, partly in order to develop contacts and become more familiar with the market. He believes Amalie has found a good partner in GeoMaxima – a large, growing company that appears committed to its expansion strategy.

Chinas growing lubricants market has attracted increasing interest from foreign companies. With demand of 3.2 billion tons in 2000, it is now the worlds second-largest market and remains one of the few nations with large growth potential.

Several international oil firms have been selling lubricants there for years. ExxonMobil, Shell and BP all bought significant stakes in 2000 in the initial public stock offerings of Sinopec and Petrochina, Chinas nationally-owned oil companies. Driven mostly by fuels concerns, those investments bought access to thousands of service stations, where the foreign companies can sell lubes as well as gasoline and diesel.

Because of constraints, Barkett said, Amalie is following a different strategy. One difference is choosing a partner that has not yet developed a network of outlets. In addition, Amalie will leave advertising and promotion, as well as distribution and marketing, to GeoMaxima.

Obviously, a company like ours has to do things differently, he said. We cant go in and buy a market by spending a lot of money on advertising promotions. We have to find partners who we can work with and let them spend the money advertising and promoting. Its an approach that takes longer but it allows us to go into more markets.

Barkett said Amalie did not intentionally time its deal to coincide with Chinas admission to the World Trade Organization. He does expect, however, that his company will benefit from requirements that China lower tariffs on lubricants and other products, as well as an expected increase in the nations rate of industrialization.

In a sense, were kind of Johnny-come-latelies, he said, noting that some Western companies have already been in China for years. But in another sense, I think were right on time. The growth potential for the market in China is almost unlimited. Looking at the amount of new roads, the projections for growth in the number of new vehicles, the technological advances that are expected – we just see the potential there as tremendous.

At first blush, Amalies goals in that market may sound modest. Barkett said the joint venture aims to claim 1 percent.

But when youre talking about a market that big, he notes, one percent can be an awful lot.

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