For a number of years, Russian lubricant marketers have taken a beating at home. Automobile purchases have been growing fast, which is normally a positive trend for lubricant marketers. In this case, however, a rising portion of those vehicles are made by foreign manufacturers, and these usually require higher quality lubricants than Russian models. Foreign oil companies supply such lubricants, and their Russian counterparts traditionally have not, so naturally the outsiders share of the market is growing.
Russian companies have acknowledged the need to close the quality gap, and some have made it a point of national pride to fight back. Still, the bleeding has continued. One industry insider says foreign brands now claim 30 percent of the Russian lube market, and that their share will swell to 50 percent by 2015.
That rough treatment hasnt kept Russian marketers from trying to expand abroad. And some of them, at least, have not been afraid to venture into the backyards of those companies that have invaded Russia.
In March, Russian oil company Lukoil opened a blending plant in Ploiesti, Romania, built specifically as an entryway into the European Union. Romania is a member of the EU, so products manufactured there can be exported to other member countries without paying customs that would apply to lubricants made at Lukoil plants in Russia and elsewhere in the Commonwealth of Independent States.
The Ploiesti plant, which has capacity of 30,000 metric tons per year, also affords logistical advantages for selling in Europe, Lukoil says. The company already has networks of fuel stations in some EU countries, and officials say these will be a primary channel for lube sales.
Another Russian oil major, Gazprom, took a similar step two years ago when it purchased a Chevron blending plant in Bari, Italy. In addition to providing a platform for entering the EU market, that acquisition included access to formulating technology for products that Chevron was making there, so it gave Gazprom know-how for making higher quality lubes.
Lukoil underscored its commitment to lubricant technology in 2007 when it became the first Russian company to join ATIEL, the Technical Association of the European Lubricants Industry. The association represents lubricant marketers in assisting European automakers with the development of engine oil specifications. Other Russian marketers would be wise to consider joining the organization, too.
Russias oil majors have taken steps to make their lubricant operations more competitive. For example, several made their lubricant activities into free-standing subsidiaries in order to make them more autonomous and hopefully more agile in adapting to the market. Some are also working to become more market savvy, rebranding their products or developing new packaging.
They still have some distance to go to catch up with Western lubricant companies and with marketers from Japan and South Korea. One of the big problems they must overcome is the widely held perception within Russia that domestic lubes are inferior to foreign brands. Changing perceptions takes time.
Presumably Russian companies are also at a disadvantage as they try to expand into Central and Western Europe, simply because local and international products are already entrenched. Some might question, therefore, whether Russians are ready to compete in the EU. The actions taken by Lukoil and Gazprom are smart, however. Additional sales always help, and, if lube markets in the EU are more advanced than Russia then competing there should provide valuable experience.
Venturing into other neighborhoods may help Russian marketers to better protect their home turf. They may also become companies to be reckoned with in Europe.