This issue of our magazine focuses partly on opportunities around the world. Recognizing that trade in lubricants, like many other products, is becoming more and more global, we strayed outside our normal coverage areas to report about things that companies may encounter in other regions. Thus the inclusion of Nationals Turn Outward and Sinopec Upgrades Base Oils, which start on pages 42 and 50, respectively.
Everyone knows that Asia, especially China, is the biggest frontier in the industry these days – an enormous market with demand rising fast enough to offer unusually large opportunities for growth. Many companies from around the world have ventured into Asian markets in recent years, seeking to take advantage.
But inter-regional ventures still go in both directions. One example is the strategy that Indias Tide Water Oil is pursuing with its newly acquired Veedol brand. Tide Water, which is based in Kolkata, bought the brand from BP last October, saying then that it aimed to use it as a vehicle for lubricant sales in Europe, the Middle East, Latin America, Africa and Asia.
Reviving Veedol
Since then the company has moved ahead with that plan. During the summer Indian news outlets reported that Tide Water was arranging for lubricant production to begin in Germany, and in August Managing Director R.N. Ghosal told Lube Report that production will begin early next year, apparently at multiple plants.
Initially, products will be manufactured at toll blending facilities, Ghosal said. No new plant is being set up as of now.
Tide Water, which is part of the Andrew Yule Group, was formed in 1928 but until now has concentrated on the Indian market, where it is one of the leading suppliers. Officials view Veedol as an advantageous means of entering other countries. The brand is nearly a century old and has a rich history that includes being used as factory fill for Henry Fords Model T, the first mass-produced automobile.
Tide Waters acquisition of Veedol International Ltd., which is registered in Glasgow, U.K., included rights to use the brand wherever it is registered – in more than 100 countries. Tide Water officials say the brand has a strong following in a number of countries, including Germany. Tide Water has been selling Veedol lubes in India since the companys formation, and the brand has served it well there.
Many companies invest considerable resources to build brand recognition, so acquiring one that is already established saves Tide Water time and money. The fact that Tide Water already has experience with it probably helps as well.
So far so good, but what about the idea of moving into Europe? Tide Water is already in a large, developing market, and although Indias economy is sagging at the moment, the number of foreign companies flocking there attests to the attractiveness of its long-term prospects. In contrast, the European lube market was already shrinking even before the economic crisis that has settled on the region. Why wouldnt Tide Water continue concentrating on its home market or expand into other parts of Asia?
The Draw of Developed Markets
First of all, any time a company enters a new country, it represents an opportunity for volume growth. Second, the average quality level of lubes in Europe is significantly higher than in India, so they command higher prices. If Tide Water can compete in premium or even standard segments, it could enjoy substantially higher profit margins than it does in its home market. Moreover, the experience of trading in such products would better position the company to target other developed lube markets.
Ghosal declined to reveal details of its plans in Europe. He would not say whether the products toll-blended in Germany will be exported to other parts of Europe. It is clear that its international ambitions are not limited to Europe. The company has already established a Veedol operation in the United Arab Emirates and indicated that this will serve as a hub to reach other parts of the Middle East. Tide Water claims that early Middle Eastern response to its Veedol promotions has been overwhelming. It also said it has begun exporting Veedol products from India to Nepal and Bangladesh.
The company has also posted an expression of interest on its website inviting contacts from potential partners in Mexico. Tide Water officials said previously that Latin America would be the next region targeted after the Middle East and Europe. The web document states that Mexico will be a key piece of the Veedol strategy in Latin America. Mexico is one of the regions largest lube markets, and Tide Water said that Veedol lubes for ships and fishing boats previously achieved leadership positions there.
Tide Water still has work to do. BP said that it transitioned former Veedol customers to other BP brands before selling Veedol. The Indian company says it is committed to refreshing the brand.
Tide Waters ventures abroad are part of a general trend for Indian companies to devote more effort to foreign markets. One example is Tata, the Mumbai-based conglomerate that manufacture the Nano mini-car. Tata Motors now has dealerships throughout Europe, along with several countries in Africa and South Asia.
It certainly makes sense for lubricant companies in developed regions to try to tap into developing markets. At the same time, those companies need to be prepared for competition at home from suppliers in developing nations. Globalization of trade remains a two-way street.