TRUONG DAI HOC MO TP.

HCM UNIVERSITEÙ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL

MBAVB4
_________________________________________________________________
________

CHU THI MINH HUE

BUSINESS STRATEGY
OF CASTROL BP PETCO CO., LTD.
UNTIL 2015

MASTER PROJECT
MASTER IN BUSINESS ADMINISTRATION
(PART-TIME)

Supervisor: Dr. Nguyen Minh Kieu

Ho Chi Minh City

(2011)
 i

ACKNOWLEGEMENT

It is said that “when drinking water, remember its source”. I owe so many
people for their kind support to my thesis and for all knowledges, experiences that
I have gained from the MBA course.

In the first place, I would like to record my gratitude to Prof. Dr. Nguyen Minh Kieu
for his supervision, advices and guidance from the very early stage of this thesis.
He has given me an unflinching encouragement and support in various ways. I am
indebted to him more than he knows.

The thesis would not be written without knowledge that I have gained from the
MBA course especially from strategy subject. I would like to take this opportunity to
say thank you to Prof. Georges Wanet who taught me valuable knowledge of
strategy subject and thank you to all other professors from MBA course. I also
would like to say thank you to Prof. Tuan, Mr. Serge, Ms. Tran, Ms. Ha and Ms.
Hien for their enthusiasm in giving us the best guidelines, support and
arrangement from the course beginning till the accomplishment time.

I gratefully acknowledge Mr. Ta Dinh Quang – Technical Manager of CBP, my

mentor, my colleague for his enthusiasm in providing me useful knowledge about
lubricant technology, sharing me his valuable experiences and giving me good
consultations for my thesis. Thank you all my other good colleagues at CBP and
friends who spent time being interviewed by me and providing me all necessary
information serving my thesis.

Last but not least, I would like to express my great gratefulness to my family and
my beloved relatives for their great encouragement and endless love so that I can
well complete the MBA course today.
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DECLARATION

This is to confirm that this thesis for MBA program is my original work. All data and
information come from my survey and study. I am confident to submit this thesis to
the professors of the MBA program. The work was done under the guidance of
Prof. Dr. Nguyen Minh Kieu, under the framework of the Master Program in
Business Management – The Joined Master Program between Ho Chi Minh City
Open University (Vietnam) and Solvay Brussels School (Belgium).

The work was completed in Nov 2011, in Ho Chi Minh City, Viet Nam.

(Student’s name and signature)

Chu Thi Minh Hue

Tutor’s confirmation:

In my capacity as supervisor of the candidate’s thesis, I certify that the above

statements are true to the best of my knowledge and this thesis is well completed
and satisfied with the requirements of MBA thesis.

(Tutor’s name and signature)

Prof. Dr. Nguyen Minh Kieu

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TABLE OF CONTENTS

Acknowledgement ...................................................................................................i
Declaration ..............................................................................................................ii
Table of contents.................................................................................................... iii
List of tables .......................................................................................................... vii
List of figures........................................................................................................ viii
List of abbreviations ................................................................................................x
Abstract .................................................................................................................. xi

Chapter 1: INTRODUCTION TO THE STUDY..................................................... 1

1.1 Rationale of the study ....................................................................................................1
1.2 Problem statement .......................................................................................... 2
1.3 Research objectives and questions ................................................................. 2
1.3.1 Research objectives ................................................................................ 2
1.3.2 Research questions................................................................................. 3
1.4 Scope and Limitations...................................................................................... 3
1.5 Research method............................................................................................. 3
1.6 Structure of the study....................................................................................... 4
1.7 Framework of the research study .................................................................... 5

Chapter 2: LITERATURE REVIEW ...................................................................... 7

2.1 Strategy definition and its components............................................................ 7
2.1.1 Strategy definition.................................................................................... 7
2.1.2 Strategy components .............................................................................. 9
2.2 The strategy hierarchy ................................................................................... 10
2.2.1 Corporate strategy................................................................................. 10
2.2.2 Business strategy .................................................................................. 10
2.2.3 Functional strategy ................................................................................ 11
2.3 Strategy planning process ............................................................................. 11
2.3.1 Mission and vision ................................................................................. 12
2.3.2 Environmental analysis ......................................................................... 13
 iv

2.3.3 Strategy formulation .............................................................................. 13

2.3.4 Strategy implementation........................................................................ 14
2.3.5 Strategy evaluation and control............................................................. 14
2.4 PEST framework............................................................................................ 15
2.5 Porter’s five forces model .............................................................................. 17
2.5.1 Rivalry among competing firms ............................................................. 18
2.5.2 Threat Of Substitutes ........................................................................... 20
2.5.3 Buyer Power .......................................................................................... 21
2.5.4 Supplier Power ..................................................................................... 22
2.5.5. Barriers to Entry / Threat of Entry ........................................................ 22
2.6 SWOT framework .......................................................................................... 25
2.6.1 SWOT Analysis Framework .................................................................. 25
2.6.1.1 Strengths .................................................................................... 25
2.6.1.2 Weaknesses............................................................................... 26
2.6.1.3 Opportunities .............................................................................. 26
2.6.1.4 Threats ....................................................................................... 27
2.6.2 The SWOT Matrix.................................................................................. 27
2.6.3 SWOT / TOWS Matrix .......................................................................... 27

Chapter 3: ANALYSIS OF EXTERNAL ENVIROMENT .................................... 29

3.1 Introduction on lubricant industry in Vietnam................................................. 29
3.1.1 Lubricant market overview .................................................................... 29
3.1.2 Supply and demand balance................................................................. 31
3.1.3 Recent trend .......................................................................................... 31
3.1.4 Transport segment ............................................................................... 34
3.1.5 Competitive environment ...................................................................... 36
3.2 Environment analysis (Macro analysis) ......................................................... 36
3.2.1 Political (including legal) factors ............................................................ 37
3.2.1.1 Political stability............................................................................. 37
3.2.1.2 Tax policies ................................................................................... 37
3.2.1.3 Environmental regulation ............................................................. 38
3.2.2 Economic factors ................................................................................... 39
 v

3.2.2.1 Economic growth ......................................................................... 39

3.2.2.2 Inflation.......................................................................................... 40
3.2.2.3 Exchange rate ............................................................................... 41
3.2.3 Social factors ......................................................................................... 43
3.2.3.1 Demography.................................................................................. 43
3.2.3.2 Health consciousness ................................................................... 43
3.2.4 Technology ............................................................................................ 43
3.2.5 Global trend ........................................................................................... 43
3.3 Industry competitiveness and competitor’s analysis ..................................... 44
3.3.1 Barrier to entry....................................................................................... 44
3.3.2 Power of buyer ...................................................................................... 45
3.3.3 Threat of substitutes .............................................................................. 45
3.3.4 Power of suppliers ................................................................................. 46
3.3.5 Rivalry & competitor analysis ................................................................ 47
3.4 Summary of context / external analysis......................................................... 55

Chapter 4: ANALYSIS OF CBP INTERNAL ENVIRONMENT .......................... 58

4.1 Company’s profile .......................................................................................... 58
4.1.1 Introduction of BP Global Group ........................................................... 58
4.1.2 Introduction of Castrol BP Petco Co., Ltd ............................................. 59
4.2 Organization structures.................................................................................. 61
4.2.1 Organization chart ................................................................................. 61
4.2.2 Organization management and HR policies.......................................... 62
4.3 Business operation ........................................................................................ 65
4.3.1 Market segmentation and customers .................................................... 65
4.3.2 Products ................................................................................................ 67
4.3.3 Distribution channels ............................................................................. 68
4.3.4 Business performance analysis............................................................. 68
4.3.4.1 Annual sales records .................................................................... 68
4.3.4.2 Castrol BP Petco capability and core competencies ............................. 71
4.4 Castrol BP Petco strengths and weakness ................................................... 75
4.5 SWOT analysis .............................................................................................. 77
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Chapter 5: PROPOSED BUSINESS STRATEGY OF CBP UNTIL 2015.......... 80

5.1 Castrol BP Petco’s vision and mission .......................................................... 80
5.2 Objectives of CBP strategy until 2015 ........................................................... 80
5.3 Strategy in actions ......................................................................................... 81
5.3.1 Business strategy alternatives initiatives base on SWOT analysis....... 81
5.3.1.1 S-O strategy .................................................................................. 81
5.3.1.2 S-T strategy................................................................................... 82
5.3.1.3 W-O strategy ................................................................................. 82
5.3.1.4 W-T strategy.................................................................................. 83
5.3.2 Business strategy choice....................................................................... 83
5.4 Strategy implementation ................................................................................ 85
5.5 Sales forecast by market space until 2015.................................................... 88

CONCLUSIONS AND RECOMMENDATION ..................................................... 90

References..............................................................................................................I
List of support and interview persons...............................................................III
Some interview questions................................................................................... V

LIST OF TABLES

Table name
Page

Table 2.1 PEST analysis factors ...........................................................16

Table 2.2 Buyer Power ...........................................................................21
Table 2.3 Supplier Power .......................................................................22
Table 2.4 Entry and Exit Barriers............................................................24
Table 2.5 SWOT Analysis Framework ...................................................25
Table 2.6 SWOT / TOWS Matrix ...........................................................27
Table 3.1 Selected major lubricant blending plants in Viet Nam ...........30
Table 3.2 Evolution of lubricant demand ...............................................33
Table 3.3 Demand for transport Oil – Vietnam ......................................34
 vii

Table 3.4 Demand for Non- transport Lubricants – Vietnam .................35

Table 3.5 Estimated lubricant Sales and Market Shares – Vietnam ......48
Table 3.6 Profiles of all lubricant operators in Viet Nam............................. 51
Table 4.1 Some main Castrol, BP products .................................................. 67
Table 5.1 SWOT analysis .......................................................................77
 viii

LIST OF FIGURES
Figure name
Page

Figure 1.1 Framework of the research study .............................................5

Figure 2.1 Critical dimensions of strategy .................................................8
Figure 2.2 The strategic planning process...............................................12
Figure 2.3 Porter’s Five Forces Model.....................................................17
Figure 3.1 Lubricant demand by category ...............................................32
Figure 3.2 Evolution of lubricant demand ................................................32
Figure 3.3 Motor Oil Intensity Factor........................................................34
Figure 3.4 Industrial Oil Intensity Factor ..................................................34
Figure 3.5 Transport segment Demand .......................................................35
Figure 3.6 Demand Growth – Transportation Oil vs Motor Fuels .................... 35
Figure 3.7 Demand for Non- transport Lubricants Vietnam ....................36
Figure 3.8 Real GDP Growth & per Capital................................................ 40
Figure 3.9 Unemployment & inflation .......................................................... 40
Figure 3.10 Exchange rate UD Dollars (D/$)................................................ 41
Figure 3.11 Main lubricant CBP suppliers .................................................... 46
Figure 3.12 Lubricant Market Shares in Vietnam (2009)............................. 47
Figure 3.13 Transport and Non-Transport segment market shares........... 49
Figure 4.1 BP global picture........................................................................... 58
Figure 4.2 Nha Be Plant picture .................................................................... 60
Figure 4.3 Organization chart of Castrol BP Petco.................................... 61
Figure 4.4 CBP Code of conduct ................................................................... 62
Figure 4.5 CBP leadership............................................................................. 63
Figure 4.6 CBP Employee’s benefits ............................................................ 64
Figure 4.7 MCO, PCO, CT Market segmentation and customers ............. 65
Figure 4.8 HD Market segmentation and customers ................................. 66
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Figure 4.9 OEM Market segmentation and customers .............................. 66

Figure 4.10 CBP products ................................................................................ 67
Figure 4.11 CBP Sales volume by brand 2006 – 1011 ............................... 69
Figure 4.12 CBP Sales volume by market space 2006 – 1011................... 70
Figure 4.13 CBP Sales volume by channel 2006 – 1011 ............................ 70
Figure 4.14 CBP Sales volume, Gross Turnover, Gross Margin 2006 - 201171
Figure 4.15 CBP Key success factors of CBP.................................................. 74
Figure 5.1 CBP forecast of sales volume by market space until 2015 ....89
 x

LIST OF ABBREVIATIONS

CBP Castrol BP Petco., Ltd

ASEAN Association of South East Asian Nations
WTO World Trade Organization
VIP Very Important Person
MES Minimum Efficient Scale
GDP Gross Domestic Product
TOWS Threats Opportunities Weaknesses Strengths
SWOT Strength – Weakness – Opportunities - Threats
PEST Political, Economic, Social, and Technological analysis
LEP Law on the Protection of the Environment
MOSTE Ministry of Science, Technology and the Environment
DPI Department of Planning and Investment
MCO Motorcycle Oil
PCO Passenger Car Oil
CT Consumer Truck
OEM Original Equipment Manufacturers
HD Heavy Duty
DIFM Do-It-For-Me
SAE Society of Automotive Engineers
B2B Business To Business
B2C Business To Consumer
MPI Ministry of Planning and Investment
ISO International Organization for Standardization
OHSAS Occupational Health And Safety Assessment System
KPI Key Performance Index
VPP Variable Pay Plans
OMS Operating Management System
WCSC World Class Sales Call
WCCM World Class Customer Management
Kt/y Kilo ton / year
 xi

ABSTRACT
Vietnam, Southeast Asia’s fourth-largest lubricants market, saw its total inland
demand for lubricants in these recent years. Promising to become a potential
economic industry, lubricant business has many good opportunities and strengths
to be developed thanks to the advantages of the economic context, the
development of transportation and other industries in which lubricant plays an
important role. There are more and more lubricant operators including local
enterprises and foreign companies have entered this field making lubricant market
become a fierce competition than ever.

Among lubricant players in Viet Nam, Castrol BP Petco (CBP) , a join-venture

company between British Petroleum (BP) and Petrolimex, is the market Leader
operating the country’s largest blending plant with the capacity of 70 kt/year. CBP
has a wide distribution network with hundreds Distributors and Dealers and
thousands customers on the nationwide. With strong heritage of the two global
leading brands and premium products and with valuable experience in lubricant
business, CBP proves its success through great business results in continuous
years. Nevertheless, besides the success, still there are some issues on the
investment policies and business orientation that limited CBP development in the
last few years. Therefore, how to solve these issues as well as to build an
appropriate strategy for CBP in order to keep its number 1 position in the market
and to develop business is the big questions for CBP strategists.

It’s is said that “If we know where we are and something about how we got
there, we might see where we are trending and if the outcomes which lie
naturally in our course are unacceptable, to make timely change” – by
Abraham Lincoln. By analyzing thoroughly external environment with macro and
micro factors on the lubricant market as well as assessing internal factors of CBP,
an appropriate strategy until 2015 has been formed with details plan of
implementation base on the opportunities and strengths after considering the
threats and company’s weakness. By gaining competitive advantages,
differentiating and strengthening Castrol & BP brands, focusing on the high quality
 xii

product and enhancing long term customer loyalty through innovative offers, a
bright and successful future of CBP can be predicted from today.

The study has been made by using secondary data, study and internal materials
provided by CBP and from other reliable sources with consultation, advices and
desk interview with Management Team, colleagues of CBP. Last but not least, the
success of this study thanks to the strategy knowledge provided in the MBA
Course and with references from useful strategic management book of Fred David
and others.
 -1-

Chapter 1

INTRODUCTION TO THE STUDY

1.1 RATIONALE OF THE STUDY:

Lubricant market has been developing strongly in these recent years together with
the development of transportations and other industries. The vehicle fleet in
Vietnam continues to expand, growing by some 11.3% in 2009, to a total of some
24.4 million units at year-end; the passenger car equipment rate remains among
the lowest in the world, with motorcycles accounting for 93% of the country’s total
fleet. Assuming continued robust growth in the country’s vehicle fleet, its broader
economy, and its industrial production, Vietnam’s lubricants demand is projected
to rise at some 4.1% per year on average through 2014, to 378 kt. With all of
these advantages, there is a promise of an optimistic picture for all lubricant
operators in Viet Nam.

Castrol BP Petco Co., Ltd (CBP) is a 65:35 joint venture between BP and
Petrolimex, operating Vietnam’s largest blending plant with semi-automated filling
lines and a testing laboratory. Base on the merge and acquisition between the two
leading lubricant companies: BP Petco Ltd. (since 1992) and Castrol Viet Nam Ltd.
(since 1991), CBP is now is now the leading lubricant marketer in Vietnam
inheriting the two global famous brands of Castrol and BP with the highest market
share of 27%.

Beside certain success in continuous years, CBP in Viet Nam still have to face
some issues that limit the development of the company. As a multinational
company, managed and directed by the region, every activity made by CBP
should have approval from and sometimes has been imposed by the region.
Following this, some policies and decision imposed by the region are not
appropriate with Viet Nam country. On one side, CBP Board of Directors are trying
to comply with but on the other hand, they are trying to harmonize business
strategy to be appropriate with Vietnam environment base on the external and
internal context in order to compete with other competitors.
 -2-

Building an appropriate strategy for CBP from now to 2015 with clear objectives
and vision is our purpose and the rational of the study in order to help CBP
Management Board to have a right business direction to keep number 1 position
in the market as expected.

1.2 PROBLEM STATEMENT:

Having significant success in the continuous years with average volume growth
rate of 10% and 20% growth in gross margin versus previous year, CBP has
proved strong and leading position in the lubricant market. Nevertheless, as a
multinational company under direct management from the region, CBP in Viet
Nam is now facing some problems in term of strategy management imposed by
the region that is not appropriate with Viet Nam. As the consequence, there is still
some limitation for CBP in developing the market. If these problems are not
solved, CBP might have difficulties in the fierce competition with many young and
strong competitors.

By analyzing thoroughly external environment with macro and micro factors on the
lubricant market as well as assessing internal factors of CBP, an appropriate
strategy for CBP in Viet Nam until 2015 has been formed with details plan of
implementation base on the opportunities and strengths after considering the
threat and company’s weakness. By gaining competitive advantages,
differentiating and strengthening Castrol & BP brands, focusing on the high quality
product and enhancing long term customer loyalty through innovative offers, the
strategy of CBP is very feasible and optimistic to be successful.

1.3 RESEARCH OBJECTIVES AND QUESTIONS:

1.3.1 Research objectives:

This thesis objective is to build up an appropriate business strategy for CBP

Vietnam to implement during the period 2012 to 2015. The study will apply
theories of strategy management, external and internal environment analysis,
SWOT analysis, competitive strategy by Michael Porter and use secondary data
to develop the business strategy for CBP Viet Nam until 2015.
 -3-

1.3.2 Research questions:

There are 3 big questions for this study, those are:

• What are the issues of CBP in term of business management and orientation?

• What are the external and internal factors influencing CBP business?

• How to build an appropriate business strategy for CBP in Vietnam until 2015?

1.4 SCOPE AND LIMITATIONS

The study focuses on analyzing internal factors of CBP and assessing external
context environment and lubricant market in Viet Nam. All the internal factors are
coming from overall aspects of the company in term of sales, marketing, finance,
distribution and customer services with SWOT analysis method. For external
factors, the study used PETS theory to analyze the politics, economy, technology
and society. The study also applied strategic management theories and its
literature review combining with the use of secondary data, desk interview and
other information from reliable resources to write this thesis. The thesis, therefore,
is about how to build an appropriate business strategy for CBP in Viet Nam for the
near future from 2012 to 2015 base on the situational analysis.

1.5 RESEARCH METHOD:

The study has been made by applying some research methods such as using
secondary data from CBP internal sources and other reliable reference books,
magazines, articles from internets. Besides, in order to reflect the honesty as well
as the quality of the study, a qualitative method has been used by having an
interview with some VIP of CBP and others with many open questions for them.
By doing this way, many good and interesting ideas, points of view have been
shared by CBP mentor, colleagues and others contributing to the success of this
thesis.

The study is also applied the theories and frameworks of SWOT, Porter Five
Forces model, PEST from many famous authors in the world.
 -4-

1.6 STRUCTURE OF THE STUDY:

The study is organized into 6 chapters as follows:

Chapter 1: Introduction to the study

This is the preliminary chapter, which provides the rational of the study, problem
statement, research objectives and questions, scope and limitations, research
method and structure of the study.

Chapter 2: Literature Review:

This chapter covers literature referring to this study including theory about strategy
management: strategy and its components, strategy hierarchy, strategy planning
process with external and internal analysis, strategy in action and choice. The
study also applies theory of PEST framework, Porter’s five forces model and
SWOT framework in order to achieve the objectives of the study.

Chapter 3: Analysis of external environment

This chapter focuses on analyzing the external factors influencing the business of
CBP. The context analysis is made with macro factors about political, economic,
social, technological issues and global trend. Lubricant industry environment and
market are also reviewed and assessed to find out what are the opportunities and
threats to the company.

Chapter 4: Analysis of external environment

This chapter focuses on analyzing all internal factors of Castrol BP Petco itself to
define what are the strengths and weaknesses of the company preparing for the
next steps of building the strategy for Castrol BP Petco.

Chapter 5: Proposed business strategy of CBP until 2015 and strategy

implementation

Base on the analysis mentioned in Chapter 3, Chapter 4 comes up with several

strategic alternatives after defining the business vision and mission as well as long
term objectives of the companies. An appropriate strategy until 2015 is
recommended for Castrol BP Petco.
 -5-

Objectives and strategy will not be achieved without specific actions and
implementation. This Chapter also helps to bring theory into reality by building
specific action plans for implementation of the proposed business strategy.

Conclusions

This section summarizes the previous chapters and evaluates the proposed
business strategy and its action plan.

1.7 FRAMEWORK OF THE RESEARCH STUDY:

Figure 1.1 - Framework of the research study

The above Figure 1.1 illustrated the framework of this study. This study will begin
with the review of literature which concerns the strategic management process,
particularly the process of strategy formulation. It also mentions to the concepts
and principles of Porter’s model to analyze the competitive environment of the
industry.
 -6-

Chapter 2

LITERATURE REVIEW

2.1 STRATEGY DEFINITION AND ITS COMPONENTS:

2.1.1 Strategy definition:

Havard’s Chandler (1962) defined strategy as “the determination of the basic long
term goals and objectives of an enterprise, and the adoption of course of action
and the allocation of resources necessary for carrying out the goals”. Implicit in
Chandler’s definition is the idea that strategy involves a rational planning process.
The organization is depicted as choosing its goals, identifying the courses of
action (or strategy” that best enable it to fulfill its goals, and allocating resources
accordingly (Hill/Jones, 1989). Similarly, B.Quinn of Darthmouth College (1980)
has defined strategy as “the pattern or plan that integrates an organization’s major
goals, policies and action sequences into cohesive whole”. And along the same
line, F.Glueck defined strategy as “a unified, comprehensive and integrated plan
designed to ensure that the basic objectives of the enterprise are achieved”.

However, planning-based definitions of strategy have evoked criticism for all their
appeal. As pointed out by Mintzberg, the planning approach incorrectly assumes
that an organization’s strategy is always the outcome of rational planning, while it
ignores the fact that strategies can emerge from within an organization without
any formal plan. Mintzberg defined strategy as “a pattern in a stream of decision
or actions”. The pattern being a product of whatever intended strategies (planned)
are actually realized and of any emergent (unplanned) strategies. Based on that, a
summary of the definition offered by many authors “a strategy is a fundamental
pattern of present and planned objective resources deployments and interactions
of an organization with market, competitors and other environmental factors” gives
the sufficient definition of strategy. Strategy is not only to do with the marketing of
the activities of an organization to the environment in which it operates and to its
resource capability, but also will be effected by the values and expectations of
those who have power in the organization.
 -7-

Overall, if a definition of strategy is required, these characteristics can provide a

basis for one. Strategy is the direction and scope of an organization over the long
term, which achieves advantage for the organization through its configuration of
resources within a changing environment, to meet the needs of markets and fulfill
stakeholder expectations.

In short, reviewing some of the most important work in the field of strategy, the
critical dimensions that contribute to the unified definition of the concept of
strategy have been identified by Hax and Majluf (1991) as following (Figure 2.1).

Figure 2.1 - Critical dimensions of strategy

Source: Hax and Mailuf, 1991

2.1.2 Strategy components:

In concrete, there are five components or sets of issues in a well developed

strategy:
 -8-

- Goals and objectives: Strategies should specify desired levels of

accomplishment on one or more dimensions of performance such as volume
growth, profit contribution or return on investment over specified time periods
for each of the firm’s businesses and product-markets and for the organization
as a whole.

- Scope: The scope of an organization refers to the breadth of its strategic

domain: The number and types of industries, product lines and market
segments it completes in or plans to enter. Decisions about an organization’s
strategic scope should reflect management’s view of the firm’s mission or
strategic intent.
Resource deployments: Every organization has limited financial and human
resources. Therefore, a strategy should specify how such resources are to be
obtained and allocated across business, product-markets, functional
departments or management teams and activities within each business or
product market.

- Identification of a sustainable competitive advantage: Perhaps the most

important part of any strategy is a specification of how the organization will
complete in each business and product-market within its domain. How can it
position itself to develop and sustain a differential advantage over current and
potential competitors? To answer such questions, managers must examine the
market opportunities in each business and product-market and the company’s
core competencies or strengths relative to it competitors.

- Synergy: Synergy exists when the firm’s businesses, product-markets,

resource deployments and competencies complement and reinforce one
another. Synergy enables the total performance of related business to be
greater than it would otherwise be: The whole become greater than the sum of
its part. Consequently, strategies should be designed to exploit potential
sources of synergy across the firm’s businesses and product markets as a
means of improving the organization’s overall efficiency and effectiveness.
 -9-

2.2 THE STRATEGY HIERARCHY:

Instead of a single comprehensive strategy, most organizations pursue a

hierarchy of interrelated strategies, each formulated at a different level of the firm.
The three major levels of strategy in most large, multi-product organizations are
as below:

2.2.1 Corporate strategy:

At the corporate level, managers must coordinate the activities of multiple

business units. Thus, decisions about the organization’s scope and appropriate
resource deployments across its various divisions or businesses are the primary
focus of corporate strategy:

Attempts to develop and maintain distinctive competencies at the corporate level

tend to focus on generating superior financial, capital and human resources;
designing effective organization structures and processes; and seeking synergy
among the firm’s various businesses. Synergy can become a major competitive
advantage in firms where related businesses reinforce one another by sharing
corporate staff, R&D, financial resources, production technologies, distribution
channel or marketing programs.

2.2.2 Business strategy:

Business strategy or competitive strategy refers to the plan of actions that

management adopts to use a company’s resource and its distinctive ability to gain
a competitive advantage over its rivals in a market or industry. Porter (1985)
proposed three generic strategies that company can pursuit to outperformance its
competitors in the market as below:

- Low cost strategy, strategy to design, produce and market a comparable

product more efficiently and thus cheaper than its competitors do. Cost
leadership strategy aims at the mass market and require aggressive
construction of how cost structure including efficient scale facilities, vigorous
pursuit of cost reduction, tight control of overhead cost and cost minimization
in areas like R&D, service, sales fore, advertising and so on. Low cost
 - 10 -

structure allows company to charge lower price and thus allow company to
compete when fierce competition exist with a quite reasonable good profit.

- Differentiation strategy refers to strategy to deliver uniqueness and superior

value to buyers in term of product quality, special feature, or after sales
services. Differentiation focus also at the broad market and involves the
creation of a product or service that is perceived through the industry as
unique. Unique product enables firms to charge higher price for its product.
The specialty can come from brand image, technology, features or dealer
network. Differentiation is viable for above-average profit. The research of
Caves and Ghemawat shows that differentiation generates high profit than low
cost strategy because it creates higher entry barrier.

- Focus strategy can be cost focus or differentiation focus. This strategy

focuses to serve only specific needs of market segment. Usually, this strategy
is pursuit by small company to a market niche while mass market has been
well dominated by other large companies.

2.2.3 Functional strategy

It is a plan of actions to strengthen an organization’s functional and organizational

resources as well as its coordination abilities in order to create core competence.

2.3 STRATEGY PLANNING PROCESS:

In the current fierce competitive environment, budget-orientated planning or

forecasted-based planning methods are insufficient for a large firm to survive and
to be wealthy. A strategy planning process is necessary for the firm from the first
step of defining objectives, assessing both internal and external situation in order
to formulate strategy, implement the strategy, evaluate the progress and make a
necessary adjustment to stay on track.
 - 11 -

Figure 2.2 :The strategic planning process

Source:
www.quickmba.com/strategy/strategy-planning, (1999-2000) Internet Center for
Management and Business Administration, Inc.

2.3.1 Mission and vision

Defining by Janmes C. Collins and Jerry I. Porras (2000), the mission statement
describes the company’s business vision, including the unchanging values and
purpose of the firm and forward-looking visionary goals that guide the pursuit of
future opportunities.

Instructed by the business vision, the firm’s leaders can define measurable
financial and strategic objectives. Financial objectives involve measures such as
sales targets and earning growth. Strategic objectives are related to the firm’s
business position and may include measures such as market share and
reputation.
 - 12 -

2.3.2 Environmental analysis:

According to David A.Aaker (1995), the environmental analysis includes three

components such as External analysis, Industry environment analysis and internal
analysis of the firm.

The internal analysis helps to identify the firm’s strengths and weaknesses. Those
are organization’s controllable activities arising in management, marketing,
finance/ accounting, production/operations, research and development and
management information system activities of a business. Identifying and
evaluating organizational strengths and weaknesses in the functional areas of a
business is an essential strategies management activity. Organizations strive to
pursue strategies that capitalize on internal strengths and eliminate internal
weaknesses.

Meanwhile, the external analysis reveals opportunities and threats with a overview
evaluation on economic, social, cultural, demographic, environmental, political,
legal, governmental, technological (PEST framework) and competitive trends and
events that could significantly benefit or harm an organization in the future
Opportunities and threats area largely beyond the control of a single organization,
thus the word external.

A profile of the strengths, weaknesses, opportunities and threats is generated by

SWOT analysis.

An industry analysis can be performed using a framework developed by Michael

Porter known as Porter’s five forces. This framework evaluates entry barriers,
suppliers, customers, substitute products and industry rivalry.

2.3.3 Strategy formulation:

Strategy formulation includes developing vision and mission, identifying an

organization’s external opportunities and threats, determining internal strengths
and weaknesses, establishing long-term objectives, alternating strategies and
choosing particular strategies to pursue. Strategy formulation issues include
deciding what new business to enter, what businesses to abandon, how to
allocate resources, whether to expand operations or diversify, to merge of form
 - 13 -

business and how to a hostile takeover. Strategists must decide which alternative
strategies will benefit the firm most. Strategy formulation decisions commit an
organization to specific products, markets, resources and technologies over an
extended period of time. Strategies determine long-term competitive advantages.
Top managers have the best perspective to understand fully the ramifications of
strategy-formulation decisions and they have the authority to commit the
resources necessary for implementation.

2.3.4 Strategy implementation:

Strategy implementation requires a firm to establish annual objectives, devise

policies, motivate employees and allocate resources so that formulated strategies
can be executed. Strategy implementation includes developing a strategy-
supportive culture, creating an effective organizational structure, redirecting
marketing efforts, preparing budgets, developing and utilizing information system
and liking employee compensation to organizational performance.

The success of the company much depends on the way in which the strategy is
implemented. Usually in a large company, the persons who implement the
strategy likely will be different from the persons who formulated it. Following this,
care must be taken from the beginning stage to the end in order to avoid making
wrong direction of the strategy.

Source: www.quickmba.com/strategy/strategy-planning, (1999-2000) Internet

Center for Management and Business Administration, Inc.

2.3.5 Strategy evaluation and control:

Strategy evaluation is the final stage in strategic management. All strategies are
subject to future modification because all external and internal factors are
constantly changing. Three fundamental strategy evaluation activities are
reviewing external and internal factors that are the bases for current strategies,
measuring performance and taking corrective action with the following steps:

a. Define parameters to be measured

b. Define target values for those parameters

 - 14 -

c. Perform measurements

d. Compare measured results to the pre-defined standard

e. Make necessary changes

2.4 PEST FRAMEWORK

The PEST analysis is a framework used in the assessment of external macro-

environment in which a company operates or intends to operate, it thus provides a
satellite view. But unlike Porter’s Five Forces model it addresses the external
environment in as detached way, i.e. without directly touching the industry in
which a company operates and therefore is intended as an assessment tool.

The PEST model is based on the assumption that certain external and indirect
circumstances that characterize an industry are able to influence its capacity to
produce value. Consequently companies and/or competitiveness are indirectly
affected. The four factors contemplated in the PEST model are: Political,
Economic, Social and Technological. They may be included at different levels of
analysis of an organization e.g. strategic, marketing, product development, etc.
but they can not be manipulated or changed in anyway by the company. The only
thing that a firm can do is to assess the factors and possibly prevent or react to
them in the most appropriate way (David Ward, Elena Rivani, An overview of
strategy development models and Ward-Rivani model, copyright Ward-Rivani). A
scan of the external macro environment in which the firm operates can be
expressed in term of the following factors:
 - 15 -

Table 2.1 - PEST analysis factors

Political Economic Social Technology

(Inc.legal)
Environmental Economic growth Income distribution Government
regulation and research
protection spending
Tax policies Internet rate and Demographics, Industry focus on
monetary policies population growth technological
rates, age effort
distribution

International trade Government Labor / social New invention

regulations and spending mobility and development
restriction
Contract Unemployment Lifestyle changes Rate of
enforcement law policy technology
Consumer transfer
protection
Employment laws Taxation Work/Career and Life cycle and
leisure attitudes. speed of
Entrepreneurial technological
spirit obsolescence
Government Exchange rates Education Energy use and
organization / costs
attitude
Competition Inflation rates Fashion, hypes (Change in)
regulation Information
Technology
Political stability Stage of business Heath (Change in)
cycle consciousness & Internet
welfare, feelings on
safety
Safety regulation Consumer Living conditions (Change in)
confidence Mobile technology

Source: David ward – Elena Rivani

The PEST factors combined with external micro-environmental factors can be

classified as opportunities and threats in a SWOT analysis.
 - 16 -

2.5 PORTER’S FIVE FORCES MODEL:

Figure 2.3 - Porter’s Five Forces Model

Source: www.quickmba.com/strategy/porter.shtml - (1999-2000) Internet Center for

Management
Porter’s fiveand Business
forces modelAdministration,
of competitive Inc.
analysis is a widely used approach for
developing strategies in many industries. The intensity of competition among firms
 - 17 -

varies widely across industries. Intensity of competition is highest in lower return

industries. The collective impact of competitive forces is so brutal in some
industries that the market is clearly “Unattractive” from a profit-making standpoint.
Rivalry among existing firms is severe, new rivals can enter the industry with
relative ease, and both suppliers and customers can exercise considerable
bargaining leverage. According to Porter, the nature of competitiveness in a given
industry can be viewed as a composite of five forces such as “Rivalry among
existing firms”, “Threat of substitutes”, “Bargaining power of buyers”, “Bargaining
power of suppliers”, “Threat of new entrants”

2.5.1 Rivalry among competing firms:

In the traditional economic model, competition among rival firms drives profits to
zero. But competition is not perfect and firms are not unsophisticated passive
price takers. Rather, firms strive for a competitive advantage over their rivals. The
intensity of rivalry among firms varies across industries, and strategic analysts are
interested in these differences.

The intensity of rivalry is influenced by the following industry characteristics:

1. A larger number of firms increases rivalry because more firms must compete for
the same customers and resources. The rivalry intensifies if the firms have similar
market share, leading to a struggle for market leadership.

2. Slow market growth causes firms to fight for market share. In a growing market,
firms are able to improve revenues simply because of the expanding market.

3. High fixed costs result in an economy of scale effect that increases rivalry.
When total costs are mostly fixed costs, the firm must produce near capacity to
attain the lowest unit costs. Since the firm must sell this large quantity of product,
high levels of production lead to a fight for market share and results in increased
rivalry.

4. High storage costs or highly perishable products cause a producer to sell goods
as soon as possible. If other producers are attempting to unload at the same time,
competition for customers intensifies.
 - 18 -

5. Low switching costs increases rivalry. When a customer can freely switch from
one product to another there is a greater struggle to capture customers.

6. Low levels of product differentiation are associated with higher levels of rivalry.
Brand identification, on the other hand, tends to constrain rivalry.

7. Strategic stakes are high when a firm is losing market position or has potential
for great gains. This intensifies rivalry.

8. High exit barriers place a high cost on abandoning the product. The firm must
compete. High exit barriers cause a firm to remain in an industry, even when the
venture is not profitable. A common exit barrier is asset specificity. When the plant
and equipment required for manufacturing a product is highly specialized, these
assets cannot easily be sold to other buyers in another industry.

9. A diversity of rivals with different cultures, histories, and philosophies make an

industry unstable. There is greater possibility for mavericks and for misjudging
rival's moves. Rivalry is volatile and can be intense. The hospital industry, for
example, is populated by hospitals that historically are community or charitable
institutions, by hospitals that are associated with religious organizations or
universities, and by hospitals that are for-profit enterprises. This mix of
philosophies about mission has lead occasionally to fierce local struggles by
hospitals over who will get expensive diagnostic and therapeutic services. At other
times, local hospitals are highly cooperative with one another on issues such as
community disaster planning.

10. Industry Shakeout. A growing market and the potential for high profits induce
new firms to enter a market and incumbent firms to increase production. A point is
reached where the industry becomes crowded with competitors, and demand
cannot support the new entrants and the resulting increased supply. The industry
may become crowded if its growth rate slows and the market becomes saturated,
creating a situation of excess capacity with too many goods chasing too few
buyers. A shakeout ensues, with intense competition, price wars, and company
failures.
Source: www.quickmba.com/strategy/porter.shtml - (1999-2000) Internet Center
for Management and Business Administration, Inc.
 - 19 -

2.5.2 Threat Of Substitutes

In Porter's model, substitute products refer to products in other industries. To the

economist, a threat of substitutes exists when a product's demand is affected by
the price change of a substitute product. A product's price elasticity is affected by
substitute products - as more substitutes become available, the demand becomes
more elastic since customers have more alternatives. A close substitute product
constrains the ability of firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products

outside the industry. The price of aluminum beverage cans is constrained by the
price of glass bottles, steel cans, and plastic containers. These containers are
substitutes, yet they are not rivals in the aluminum can industry. To the
manufacturer of automobile tires, tire retreads are a substitute. Today, new tires
are not so expensive that car owners give much consideration to retreading old
tires. But in the trucking industry new tires are expensive and tires must be
replaced often. In the truck tire market, retreading remains a viable substitute
industry. In the disposable diaper industry, cloth diapers are a substitute and their
prices constrain the price of disposables.

While the threat of substitutes typically impacts an industry through price

competition, there can be other concerns in assessing the threat of substitutes.
Consider the substitutability of different types of TV transmission: local station
transmission to home TV antennas via the airways versus transmission via cable,
satellite, and telephone lines. The new technologies available and the changing
structure of the entertainment media are contributing to competition among these
substitute means of connecting the home to entertainment. Except in remote
areas it is unlikely that cable TV could compete with free TV from an aerial without
the greater diversity of entertainment that it affords the customer.

2.5.3 Buyer Power

The power of buyers is the impact that customers have on a producing industry. In
general, when buyer power is strong, the relationship to the producing industry is
near to what an economist terms a monophony - a market in which there are
 - 20 -

many suppliers and one buyer. Under such market conditions, the buyer sets the
price. In reality few pure monopolies exist, but frequently there is some asymmetry
between a producing industry and buyers. The following tables outline some
factors that determine buyer power.

Table 2.2 - Buyer Power

Buyers are Powerful if: Example

Buyers are concentrated - there are a DOD purchases from defense
few buyers with significant market contractors
share
Buyers purchase a significant Circuit City and Sears' large retail
proportion of output - distribution of market provides power over appliance
purchases or if the product is manufacturers
standardized
Buyers possess a credible backward Large auto manufacturers' purchases
integration threat - can threaten to buy of tires
producing firm or rival
Buyers are Weak if: Example
Producers threaten forward Movie-producing companies have
integration - producer can take over integrated forward to acquire theaters
own distribution/retailing
Significant buyer switching costs - IBM's 360 system strategy in the
products not standardized and buyer 1960's
cannot easily switch to another
product
Buyers are fragmented (many, Most consumer products
different) - no buyer has any particular
influence on product or price
Producers supply critical portions of Intel's relationship with PC
buyers' input - distribution of manufacturers
purchases
2.5.4 Supplier Power

A producing industry requires raw materials - labor, components, and other

supplies. This requirement leads to buyer-supplier relationships between the
industry and the firms that provide it the raw materials used to create products.
Suppliers, if powerful, can exert an influence on the producing industry, such as
selling raw materials at a high price to capture some of the industry's profits. The
following tables outline some factors that determine supplier power.
 - 21 -

Table 2.3 - Supplier Power

Suppliers are Powerful if: Example

- Credible forward integration threat by - Baxter International, manufacturer of
suppliers hospital supplies, acquired American
Hospital Supply, a distributor
- Suppliers concentrated - Drug industry's relationship to
hospitals
- Significant cost to switch suppliers - Microsoft's relationship with PC
manufacturers
- Customers Powerful - Boycott of grocery stores selling
non-union picked grapes
Suppliers are Weak if: Example
- Many competitive suppliers - product - Tire industry relationship to
is standardized automobile manufacturers
- Purchase commodity products - Grocery store brand label products
- Credible backward integration threat - Timber producers relationship to
by purchasers paper companies
- Concentrated purchasers - Garment industry relationship to
major department stores
- Customers Weak - Travel agents' relationship to airlines

2.5.5. Barriers to Entry / Threat of Entry

It is not only incumbent rivals that pose a threat to firms in an industry; the
possibility that new firms may enter the industry also affects competition. In
theory, any firm should be able to enter and exit a market, and if free entry and
exit exists, then profits always should be nominal. In reality, however, industries
possess characteristics that protect the high profit levels of firms in the market and
inhibit additional rivals from entering the market. These are barriers to entry.

Barriers to entry are more than the normal equilibrium adjustments that markets
typically make. If firms individually (collective action would be illegal collusion)
keep prices artificially low as a strategy to prevent potential entrants from entering
the market, such entry-deterring pricing establishes a barrier.

Barriers to entry are unique industry characteristics that define the industry.
Barriers reduce the rate of entry of new firms, thus maintaining a level of profits for
those already in the industry. From a strategic perspective, barriers can be
 - 22 -

created or exploited to enhance a firm's competitive advantage. Barriers to entry

arise from several sources:

1. Government creates barriers. Although the principal role of the

government in a market is to preserve competition through anti-trust actions,
government also restricts competition through the granting of monopolies
and through regulation. To restrain utilities from exploiting this advantage,
government permits a monopoly, but regulates the industry.

2. Patents and proprietary knowledge serve to restrict entry into an

industry. Ideas and knowledge that provide competitive advantages are
treated as private property when patented, preventing others from using the
knowledge and thus creating a barrier to entry.

3. Asset specificity inhibits entry into an industry. Asset specificity is the

extent to which the firm's assets can be utilized to produce a different
product. When an industry requires highly specialized technology or plants
and equipment, potential entrants are reluctant to commit to acquiring
specialized assets that cannot be sold or converted into other uses if the
venture fails. Asset specificity provides a barrier to entry for two reasons:
First, when firms already hold specialized assets they fiercely resist efforts by
others from taking their market share. New entrants can anticipate
aggressive rivalry. The second reason is that potential entrants are reluctant
to make investments in highly specialized assets.

4. Organizational (Internal) Economies of Scale. The most cost efficient

level of production is termed Minimum Efficient Scale (MES). This is the
point at which unit costs for production are at minimum - i.e., the most cost
efficient level of production. If MES for firms in an industry is known, then we
can determine the amount of market share necessary for low cost entry or
cost parity with rivals. The greater the difference between industry MES and
entry unit costs, the greater the barrier to entry. So industries with high MES
deter entry of small, start-up businesses. To operate at less than MES there
must be a consideration that permits the firm to sell at a premium price - such
as product differentiation or local monopoly.
 - 23 -

Barriers to exit work similarly to barriers to entry. Exit barriers limit the ability of a
firm to leave the market and can exacerbate rivalry - unable to leave the industry,
a firm must compete. Some of an industry's entry and exit barriers can be
summarized as follows:

Source: www.quickmba.com/strategy/porter/shtml - (1999-2000) Internet Center

for Management and Business Administration, Inc.

Table 2.4 – Entry and Exit Barriers

Easy to Enter if there is: Difficult to Enter if there is:

- Common technology - Patented or proprietary know-
how
- Little brand franchise - Difficulty in brand switching
- Access to distribution - Restricted distribution channels
channels
- Low scale threshold - High scale threshold
Easy to Exit if there are: Difficult to Exit if there are:
- Salable assets - Specialized assets
- Low exit costs - High exit costs
- Independent businesses - Interrelated businesses
2.6 SWOT FRAMEWORK

A scan of the internal and external environment is an important part of the

strategic planning process. Environmental factors internal to the firm usually can
be classified as strengths (S) or weaknesses (W), and those external to the firm
can be classified as opportunities (O) or threats (T). Such an analysis of the
strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's
resources and capabilities to the competitive environment in which it operates. As
such, it is instrumental in strategy formulation and selection. The following
diagram shows how a SWOT analysis fits into an environmental scan:
 - 24 -

2.6.1 SWOT Analysis Framework:

Table 2.5 – SWOT Analysis Framework

2.6.1.1 Strengths:

A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths include:

• patents

• strong brand names

• good reputation among customers

• cost advantages from proprietary know-how

• exclusive access to high grade natural resources

• favorable access to distribution networks

2.6.1.2 Weaknesses:

The absence of certain strengths may be viewed as a weakness. For example,

each of the following may be considered weaknesses:

• lack of patent protection

• a weak brand name

• poor reputation among customers

• high cost structure

• lack of access to the best natural resources

• lack of access to key distribution channels

 - 25 -

In some cases, a weakness may be the flip side of strength. Take the case in
which a firm has a large amount of manufacturing capacity. While this capacity
may be considered a strength that competitors do not share, it also may be a
considered a weakness if the large investment in manufacturing capacity prevents
the firm from reacting quickly to changes in the strategic environment.

2.6.1.3 Opportunities:

The external environmental analysis may reveal certain new opportunities for profit
and growth. Some examples of such opportunities include:

• an unfulfilled customer need

• arrival of new technologies

• loosening of regulations

• removal of international trade barriers

2.6.1.4 Threats:

Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:

• shifts in consumer tastes away from the firm's products

• emergence of substitute products

• new regulations

• increased trade barriers

2.6.2 The SWOT Matrix:

A firm should not necessarily pursue the more lucrative opportunities. Rather, it
may have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm
can overcome a weakness in order to prepare itself to pursue a compelling
opportunity.
 - 26 -

To develop strategies that take into account the SWOT profile, a matrix of these
factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is
shown below:

2.6.3 SWOT / TOWS Matrix

Table 2.6 – SWOT / TOWS Matrix

• S-O strategies pursue opportunities that are a good fit to the company's
strengths.

• W-O strategies overcome weaknesses to pursue opportunities.

• S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.

• W-T strategies establish a defensive plan to prevent the firm's

weaknesses from making it highly susceptible to external threats.

Source: www.quickmba.com/strategy/SWOT - (1999-2000) Internet Center for

Management and Business Administration, Inc.

In summary, this chapter contains all the theories applied for the study of this
thesis. The chapter mentioned about the theories, concepts of strategic
management with all its process from the beginning formulation stage with
external and internal environment analysis, through implementation stage as well
as the review, evaluation action plan.

Base on the literature review provided in this chapter, the following chapters will
be developed following the concepts, frameworks and models of this chapter in
order to build, develop a competitive and feasible strategy for CBP that can help
the company to solve all current problems and to keep its number 1 position in the
market.
 - 27 -

Chapter 3

ANALYSIS OF EXTERNAL ENVIROMENT

“The opportunities and threats existing in any situation always exceed the
resources needed to exploit the opportunities or avoid the threats. Thus
strategy is essentially a problem of allocating resources. If strategy is to be
successful, it must allocate superior resources against a decisive
opportunity”. A famous saying of William Cohen has pointed out the reason why
we need to do an analysis of external environment. This chapter will provide a full
picture of micro environment with all economic, politic, social and technological
factors of that influence CBP business. Besides, the reader also can have an
overview on the lubricant market trend and competitive situations between
lubricant operators in Vietnam. The external analysis is a very important step
when formulating the strategy in order to bring the strategists the right directions
to have a good strategy.

3.1 INTRODUCTION TO LUBRICANT INDUSTRY IN VIETNAM:

3.1.1 Lubricant market overview:

The Vietnamese lubricants industry is largely deregulated, with no restrictions to

marketing lubricants in the country. Foreign and domestic companies are
permitted to own and operate local lubricant blending plants, but are required to
obtain the appropriate investment license from the Department of Planning and
Investment (DPI).

By the end-2009, Viet Nam had 16 major lubricants blending sites with a
combined capacity of some 345 kt/y. The BP-Petco joint venture’s 70 kt/y plant in
Nha Be, is the largest blending site in the country. Other major plants include
Shell’s 25 kt/y plant at Go Dau and AP Saigon Petro’s 25 kt/y plant at Cat Lai
(formerly owned by Castrol). Most of the country’s blending facilities are clustered
either in the north, around the important port city of Hai Phong, or in the south,
around Ho Chi Minh City.
 - 28 -

Table 3.1 – Selected major lubricant blending plants in Viet Nam

Capacity
Location Operator
(kt/y)
Nha Be Castrol BP Petco 50
Cat Lai AP Saigon Petro 25
Do Dau Shell 25
Hai Phong Petrolimex 25
Nha Be Petrolimex 25
Nha Be Vilub-Motul 25
Vinh Long Mekong lubricants 25
Can Tho Phuc Thanh 20
Ha Noi province Davina 20
Binh Duong
province PVPDC 15
Hai Phong PVPDC 15
Hai Phong Caltex 15
Hai Phong Total 15
Dong Nai Total 15
Ho Chi Minh City Dong Duong 15
Nha Be Sotrans 15

Further view to the Vietnam lubricant market, a bigger pictures of economy are
described that the blistering pace of Vietnam’s economic expansion was
dampened to some extent by the impact of the global economic crisis, with its
growth slowing to 5.3% in 2009, from 6.2% the previous year; industrial production
slowed to 5.5% in 2009, compared to an average rate of 9.5% for the preceding
five years. However, the country’s real GDP growth is accelerating once again,
and is projected at around 7% for both 2010 and 2011. Industrial activity is
concentrated in and around the urban areas, and particularly the key provinces
around Ho Chi Minh City; strong infrastructure spending and the government’s
policy of promoting industrialization will continue to drive Vietnam’s transition from
an agricultural, socialist economy to an industrialized, market-based economy.

Besides, there is a development of transportation when the vehicle fleet in

Vietnam continues to expand, growing by some 11.3% in 2009, to a total of some
 - 29 -

24.4 million units at year-end; the passenger car equipment rate remains among
the lowest in the world, with motorcycles accounting for 93% of the country’s total
fleet.

In term of governmental policies, Vietnam’s lubricants industry is largely

deregulated, but importers are required to obtain government’s approval for
specific import quantities; base oil imports are subject to import tariffs of 5%, as
well as a series of inspection fees.

3.1.2 Supply and demand balance:

Lubricant blenders in Vietnam rely essentially on imports to meet their base oil
needs, though small volumes of recycled base oils are available domestically.
Other Southeast Asian countries, and particularly Singapore and Thailand, supply
most of Vietnam’s base oil imports. Total imports of base oils and finished
lubricants stood at 240 kt in 2009, up 16.5% year on year, comprising mainly base
oils (+21.2%). The rise in imports reflects strong demand linked to the improving
economic environment, which particularly benefited the marine and HD segments,
as well as the impact of lower international base oil prices following the record
highs of 2008.

In 2009, BP Petco, which includes Castrol, accounted for an estimated 28% of all
base oil imports, followed by Petrolimex (16.5%), and Mekong lubricants (11.8%).
Total reportedly imported some 10.5 kt of base oils in 2009, destined for its newly
acquired Dong Nai blending plant. Imports for finished products in 2009 were
down by 10% year on year, to 27 kt, reflecting increased domestic production. The
progressive rise in finished lubricant imports over the course of this decade is
linked mainly to the emergence of demand for higher-quality lubricants, both in the
automotive and industrial segments, which local blenders have only recently
begun to produce.

Vietnam is Southeast Asia’s fourth-largest lubricants market, after Indonesia,

Thailand and Malaysia; its total inland demand for lubricants in 2009 rose by an
estimated 8.5% year-on-year, to 309 kt. The transport segment predominates,
 - 30 -

accounting for four-fifth of total lubricant sales in Vietnam, a reflection of the

dizzying expansion of the country’s vehicle fleet; the size of the Vietnamese
lubricants market has doubled over the course of this decade, driven mainly by
the extraordinary rise in demand for transport oils. Assuming continued robust
growth in the country’s vehicle fleet, its broader economy, and its industrial
production, Vietnam’s lubricants demand is projected to rise at an annual average
rate of 4.1% through 2014, to 378 kt, with the transport segment slightly outpacing
demand growth in non-transport applications

3.1.3 Recent trend:

Total inland demand for lubricants in Vietnam reached an estimated 309 kt in

2009, marking a rise of 8.5% year-on-year. Vietnam’s lubricants market has
roughly doubled in size since the start of this decade, and is now the fourth-largest
lubricants market in Southeast Asia, after Indonesia, Thailand and Malaysia.

Figure3.1-Lubricant demand by category Figure 3.2–Evolution of lubricant

demand

(
Source: PFC-Vietnam-20101)

Transport oils account for more than four-fifth of total lubricants demand in
Vietnam, and the segment’s share continues to rise, with demand for transport
lubricants rising by 9.6% in 2009, while non-transport applications saw more
moderate gains of some 3.9% year-on-year overall.

Table 3.2 - Evolution of lubricant demand

 - 31 -

Figure 3.3 – Motor Oil Intensity Factor Figure 3.4–Industrial Oil Intensity
Factor
 - 32 -

3.1.4 Transport segment

Demand for lubricants in the transport sector rose by an estimated 9.6% in 2009,
to 249 kt, from 227 kt in 2008 and just 124 kt in 2001. This decade’s surge in
demand for transport lubricants reflects the headlong expansion of the country’s
vehicle fleet. The number of registered motorcycles in Vietnam grew by 11% in
2009, comprising about 93% of the country’s vehicle fleet, while the passenger car
and commercial vehicle categories grew by roughly 24% and 12%, respectively.

Table 3.3 – Demand for transport Oil – Vietnam

Despite the predominance of motorcycles in the country’s vehicle fleet, heavy-duty

diesel engine oils (HD) still constitute some 37% of total transport lubricants
 - 33 -

demand. In the motorcycle oil segment, which accounts for 41% of transport
segment demand and 33% of all lubricants sold in Vietnam, demand has almost
entirely shifted to four-stroke oils.

Figure 3.5 – Transport segment Demand Figure 3.6–Demand Growth Trans. vs

Motor Fuels

Non-transport segment

Non-transport lubricants currently account for roughly just one-fifth of all lubricants
consumed in Vietnam. Total sales in this segment (including greases) increased
by 3.9% year on year to reach an estimated 60 kt, following average annual
growth of 6.7% during the previous five years.

Table 3.4 – Demand for Non- transport Lubricants – Vietnam

Figure 3.7 – Demand for Non- transport Lubricants Vietnam

 - 34 -

3.1.5 Competitive environment

BP remains the leading lubricants marketer in Vietnam, with a market share of

some 27%, followed by Petrolimex (13%), Shell (8%), and Mekong Lubricants
(7%).

The consumer segment is largely dominated by do-it-for-me (DIFM) channels,

with MCO and PCO distributed almost exclusively via such channels; in the
industrial segment, lubricant suppliers distribute products primarily through
wholesalers and distributors.

ExxonMobil withdrew from the Vietnamese lubricants industry in 2009, selling its
lubricants operations and assets to Total, which at end-2009 assumed management of
ExxonMobil’s distribution network and 15 kt/y lubricant blending plant in Dong Nai

Industry sources suggest that local operators enjoy a significant advantage compared to
international players, primarily due to their local connections and preferential access to
public sector contracts

3.2 ENVIRONMENT ANALYSIS (MACRO ANALYSIS)

It is essential to understand the environment in which a firm operates or intends to

operate. There are three types of environmental analysis, those are Macro-
environment analysis, Industry environment analysis and Internal environment
analysis.
 - 35 -

Traditionally macro-environment analysis is the first step of strategic analysis. The

purpose of macro-environment analysis is to identify the possible opportunities
and threats to the industry as a whole that are outside the control of the industry.
PEST framework is the tool for macro-environment analysis

3.2.1 Political (including legal) factors

3.2.1.1 Political stability

Political - Vietnam is a Single Party Communist State. There is more likely to be

higher government control and less autonomy for the organization wanting to
enter the Vietnamese market. However, on the good side, Vietnam is more likely
to have relatively greater political stability. Would be advisable to form good
relations with the local government and negotiate favorable terms with them. The
index scores are derived by combining measures of economic distress and
underlying vulnerability to unrest. Vietnam’s political instability index is classified
by Economic Intelligence Unit as moderate risk. The latest index is 4.5 (Vietnam
Review 2011) compared to 4.3 in the period 2009-2010 and improved 2.5 point
compared to 2007. The index is lowest among ASEAN countries.

3.2.1.2 Tax policies:

Vietnam imposes a standard corporate income tax rate of 25%, and has
eliminated the remittance tax that was formerly applied to companies seeking to
repatriate profits from the country. Importers and distributors of lubricants are
currently subject to two main taxes, including VAT and import duty. The applicable
VAT rate is currently 10%. Import duties on base oils and finished products have
seen significant reductions in recent years, in line with Vietnam’s commitments
under various regional and global trade agreements, including the WTO. Currently,
duties on base oils and finished lubricants stand at 5% and 10%, respectively.
Base oils originating from ASEAN countries qualify for a preferential 5% import
duty, in line with efforts within the organization to promote intra-regional trade.

Imports of base oil are also subject to a series of inspection fees. In addition to a
mandatory quantitative inspection for vessel discharge and shore receipts, imports
are subject to a fee of US$ 0.22/ton of cargo, or a minimum of US$ 450 per vessel
 - 36 -

and per port. If barges are used for the unloading of cargo, a fee of US$ 150 is
charged for each barge receipt. A 10% VAT rate is applied to all charges.

Blenders are subject to a blending fee of VND 600/liter (US$ 0.03/liter).

Depending on the quantity of lubricants blended, fees can range from VND 1,300
to VND 1,500 (US$ 0.07 to US$ 0.08) per liter.

3.2.1.3 Environmental regulation

The Vietnamese legal framework for environmental management continues to

rapidly

evolve. This section introduces the nation’s relevant environmental policies. The
key pieces of environmental legislation is followed by the environmental standards
that apply all lubricant production firms.

(i) Law on the Protection of the Environment (LEP) was enacted in 2005. The
LEP:

- Identifies the responsibilities of the state centre, provinces, organizations

and individuals to prevent and remedy environmental deterioration and
pollution and carry out specified environmental protection functions;

- Provides for the development of environmental standards and submission

of environmental impact assessment reports on new and existing facilities;

- Provides for responsible parties to pay compensation for environmental

damage;

- Establishes the right of individuals and organizations to petition for

enforcement of environmental regulations; Calls for civil and criminal
penalties for violations; and Encourages international environmental co-
operation.

(ii) Decree No. 80/2006/NS – CP promulgated on 09/08/2006 guides

implementation of the LEP.

(iii) Circular 08/2006/TT-BTNMT was promulgated in 2006 and provides

- Guidance in setting up and appraising environmental impact assessment

 - 37 -

- Reports, strategic EIA and commitment to environmental protection.

The National Environment Agency classifies used oils as hazardous wastes that
must be appropriately disposed of, in line with regulations imposed by the Ministry
of Science, Technology and the Environment (MOSTE).

Several companies located in Le Minh Xuan Industrial Zone – an industrial zone in

Binh Chanh District – currently collect and treat used oils and other hazardous
waste. The industrial zone has been designated by the government to include
companies in heavy industry and highly polluting industries. Companies involved
in waste oil recycling also include a venture set up in 2007 between Hyflux Ltd of
Singapore and two local partners, Success Blossom Environment Vietnam and
Van Dao Co. Ltd., for the development of a 12 kt/y plant in the Phu Nghia
Industrial Park in Ha Tay province.

3.2.2 Economic factors

3.2.2.1 Economic growth

Over the past decade, Vietnam has emerged as one of the best-performing
economies in Asia. Its average annual GDP growth of more than 7% over the past
decade is testament to the government’s pursuit of market-friendly policies in the
form of the Doi Moi (or “renovation”) reforms, first initiated in 1986. The policies,
centered on liberalization and the reduction of government involvement in the
economy, have led to a surge in foreign investment. Vietnam has thus developed
aspirations to being Asia’s next major global manufacturing hub, although there
are challenges associated with the resulting socio-economic realities, including
the growing disparity in wealth between urban and rural areas. Vietnam’s
increasing integration into the world economy is reflecting in a moderate
slowdown in its real GDP growth, to 6.2% in 2008 and 5.3% at end-2009, the
lowest since 1999. In the year 2010, with the government’s stimulus package the
GDP growth was better than year 2009.

The economic growth prediction is also optimistically at 7.1 – 7.5% in year 2011.
Consumers are more confident about the economy to be better in year 2011.
 - 38 -

According to TNS, a leading market information company, they claim that

consumer confident index in Viet Nam has improved from 89 to 78 (the smaller
number, the more confident of consumers on the economy).

Figure 3.8–Real GDP Growth & per Capital Figure 3.9–Unemployment &
inflation

The high economic growth and improved consumer’s confident index are good
conditions for companies to invest into Vietnam market.

3.2.2.2 Inflation

The impact of the financial crisis on Vietnam’s trading partners caused export
volumes to decline by roughly 9% in 2009, to about US$ 57 bn. The country’s
trade deficit nevertheless narrowed as imports fell by 13%, to around US$ 65 bn.
Its current account deficit for the year was equivalent to 7.4% of GDP, compared
to 11.8% in 2008. Following a staggering 23% rise in consumer prices in 2008 –
which the government countered in early 2009 with a 20% increase in the
country’s minimum wage – dampened domestic demand helped bring down
inflation to a more manageable 6.9% in 2009. Recent inflationary pressures in the
economy are linked to rising food prices, as well as increases in controlled
domestic fuel prices and transport costs.

According to the latest report for the 1st half 2011 from Vietnamese government
statistics that food, housing, education, transportation and other areas of price-
 - 39 -

driven have an inflation rate rose to 16%: food prices rose 20.6 percent, housing
prices rose 18 percent, transport and education in the budget, prices were up
nearly 12% and 24%. The report predicts that this 6 relative to the same period
the inflation rate will rise to 20.8%. Vietnam regularly, according to projections
released at the end of each economic data. Vietnam to full inflation rate of 11.5%,
gross domestic product (GDP) growth rate of nearly 7%. Vietnam’s economy has
recently showed high growth, high inflation trend, the current inflation rate is the
highest in Asia economies. Some analysts pointed out, the South China Sea
issue recently in Vietnam, such a tough and high-profile, does not exclude the
high domestic inflation rate, the Vietnamese government tried to transfer of
internal contradictions and attention.

3.2.2.3 Exchange rate

There are many factors influencing the exchange rate such as inflation, interest
rates, economic performance, commercial activities, central bank and political
stability.

Figure 3.10 – Exchange rate UD Dollars (D/$)

Exchange rate US Dollars (D/$)

25,000
20,835
20,000 17,800
16,119
VN Dong

15,000 19,149
15,983 16,548
10,000

5,000

0
2006 2007 2008 2009 2010 Sep-11

Year

(Source: http://www.theodora.com/wfbcurrent/vietnam/vietnam_economy.html)
 - 40 -

The exchange rate between USD and VND has increased dramatically from
19,140 VND for 1 USD in 2010 to 21,015 VND by 25 Apr and dropped a bit at
20,835 VND by Sep 11. High exchange rate can cause price inflation (in VND). As
the producer can not totally pass all the cost increasing to consumer, they will
pressure suppliers to reduce the price and thus can deplete supplier’s profit. It will
be risk to supplier of imported goods if they sign a supply contract in VND with a
long term fixed price. On the other hand, high exchange rate can make the end
product cost increase and later all decrease the purchasing power of the
consumers. It will obstacle the industry growth. In 2011, Castrol BP Petco has to
face this difficulty due to the high cost and has to increase the prices too many
times. Too high price has lowered the purchasing power.

3.2.3 Social factors

3.2.3.1 Demography

By Jul 2011, the Vietnam population increased at 90.549.390 people. The age from
14-65 occupy approximately 70% of total population (Source: http://vi.wikipedia.org/wiki
and Vietnam General Statistic, 2011). Vietnam’s manufacturing sector benefits
from low labor costs compared to most of its Southeast Asian neighbors, as well
as a currency that remains relatively weak, encouraging foreign direct investment.
Together with the development of the population, there is a significant increase of
vehicles, transportation means as well as other industrial machines creating a
good conditions and advantages for lubricant development.

3.2.3.2 Health consciousness

Nowadays, people are more aware of health and safety environment. All lubricant
firms must strictly follow the health and environmental policies regulated by the
government. The National Environment Agency classifies used oils as hazardous
wastes that must be appropriately disposed of, in line with regulations imposed by
the Ministry of Science, Technology and the Environment (MOSTE).
 - 41 -

3.2.4 Technology

The basic functions of a lubricant are friction and wear reduction, heat removal
and contaminant suspension. Apart from important application in internal
combustion engines, vehicles and industrial gear boxes, compressors, turbines or
hydraulic systems, there are vast numbers of other applications, which mostly
require specifically tailored lubricants. Designing a lubricant to perform above
stated functions in different systems is a complex task, involving a careful balance
of properties both in the lube base stocks and the performance enhancing
additives. Between 5000 and 10000 different lubricant formulations are necessary
to satisfy more than 90% of all lubricant applications.

Lubricants today are classified into two major groups: Automotive lubricants and
Industrial lubricants. Automotive lubricants have to perform in different types of
vehicles both petrol and diesel under a variety of operating conditions. Modern
vehicles are fuel efficient and comfortable with high levels of performance. They
are required to meet stringent emission norms. Quality requirement of such
lubricants are established by the Society of Automotive Engineers (SAE) and are
specified in its classification system. Industrial lubricants can be subdivided into
industrial oils and industrial specialties. Specialties in this case are principally
greases, metal working lubricants and solid lubricant films. Quality requirements
for these types of lubricants are defined by Original Equipment Manufacturers
(OEM) and end users of the products. On the global lubricants market, automotive
lubricants account for more than 60% of volumes sold.

Together with the development of global technology, lubricant industry has gained
significant achievement records of high standard level with many new product of
the best quality serving customer’s demand.

3.2.5 Global trend

Global lubricant demand is forecast to reach 40.5 million metric tons in 2012.
According to a recent study, the market is estimated at $48.8 billion. Companies in
this booming market are expanding their lubricant lines. Also, the industry has
 - 42 -

moved toward using synthetics instead of mineral oils to minimize maintenance.

The lubricants tend to be well balanced, and have been widely tested in laboratory
rigs and in the field. The preference for synthetics includes high wear protection,
higher efficiency from lower friction, and a wide operating temperature range.
Specialty synthetic lubricants typically outperform mineral-based versions under
the same conditions. Synthetics are further driven by a requirement for extended
lubrication intervals. Synthetic oils function over a wide temperature range and
resist deposit formation. Furthermore, many new lubricants and greases extend oil
change intervals from a matter of months to years, which significantly reduce time and
cost of maintenance.

Source: http://www.windpowerengineering.com/tag/lubrication

3.3 INDUSTRY COMPETITIVENESS AND COMPETITOR’S ANALYSIS:

One of the most efficient tools to analyze and illustrate the lubricant industry and
to give the company a deeper insight into the company’s current competitive
environment is the Porter Five Forces Model as bellows:

3.3.1 Barrier to entry

For lubricant industry, the barriers of entry are at medium level. The biggest
barrier to lubricant business firms in these recent years is the shortage of base oil,
the main factor for producing lubricant. In some periods in 2010 and 2011, a lot of
lubricant firms had to suffer from the shortage of base oil and the imported quota
was limited. Moreover, the high exchange rate and inflation devalue the
Vietnamese Dong and decreased the buying power from customers. All of these
problems caused the high cost leading the high price of products. This is actually
a high barrier for the company to do business.

In term of initial investment and fixed costs, capital and legal requirements, there
are no barriers and any corporate can join the industry. However, in order to
survive and build up reputation require players the best effort. Human resources
for the industry are scared as the technology is changing so fast. The means of
transportation have been being changed and improved much requiring suitable
lubricant that can meet the high standard level of machine’s technology. For
 - 43 -

example nowadays people prefer to use scooters to 4-stroke engine motorcycle.

Besides, brand loyalty of customers is important to existing players and new
players can not easily achieve customer’s reliability. The existing of too many
players sharing the markets also big barriers in the race of gaining market shares
and keeping customers.

3.3.2 Power of buyer

The bargaining power of buyers is high especially for B2B and OEM (Original
Equipment Manufacturing). Since most of B2B and OEM customers are from the
state owned companies and therefore they often require for the best price and
normally these companies call for tender according to the regulations of the
Ministry of Planning and Investment (MPT). For other private and small
companies, the customers can decide by their own. In order to gain market share
and to keep customer, sometimes, the lubricant providers have to accept the lost
in gross margin for some kinds of products and for that specific customers.

For B2C channel, the bargaining power of buyers is high also. Most of B2C
customers are petrol stations, washing shops, repair shops and spare-part
shops……... They care much about the brand reputation, quality of the product
and bargain the best price especially in this high inflation period since there are a
lot of choices for the end-users to use appropriate products at an acceptable
price.

3.3.3 Threat of substitutes

Threat of substitutes for those of lubricant is very low since the outcome of the industry
is unique and non surrogate. Lubricant is very important and necessary for the
operation of the machines with specific technological use. Currently it is considered
that Synthetic oil is used as a substitute for lubricant refined from petroleum when
operating in extremes of temperature, because, in general, it provides superior
mechanical and chemical properties than those found in traditional mineral oils.
Nevertheless, Synthetic oil is also considered as a kind of lubricant consisting of
chemical compounds that are artificially made (synthesized). Synthetic lubricants can
 - 44 -

be manufactured using chemically modified petroleum components rather than whole

crude oil, but can also be synthesized from other raw materials.

3.3.4 Power of suppliers

Bargaining power of suppliers is extremely high. Suppliers for lubricant industry

are mainly from base oil and additives imported from the foreign countries such as
USA, UK, France, Korea, Australia, Korea, Japan, Malaysia, Singapore, Hong
Kong & Taiwan and the rest from local suppliers in Viet Nam for packages,
investment equipments, advertisements, transportation... There are about more
than thousand suppliers internationally (10%) and domestically (90%). The
shortage of base oil, high exchange rate and inflation is the main reason for
suppliers especially for foreign suppliers increase the price of materials. The local
suppliers also base on that reason to bargain the price with lubricant players.

Figure 3.11 – Main lubricant CBP suppliers

Main lubricant suppliers

300
250
No of suppliers

200
150
100
50
0
Packaging

Printing,Production
Equipments

Fixed Assets &

Base Oil

Transporter
Advertising
Additives

Maintenance

& Station.

In order to choose suppliers, usually the lubricants players called for tender. The
price is one of the most important elements when choosing suppliers after
considering other elements such as quality, services, reputation… of those
suppliers
 - 45 -

3.3.5 Rivalry & competitor analysis

There are about 14 lubricant operators in Viet Nam including local state owned, private
and foreign companies making the lubricant market become fierce than ever.

Castrol BP Petco (CBP) is the largest lubricants marketer in Vietnam, leading through
its CBP joint venture with state oil company Petrolimex, which in 2009 controlled some
24.3% of the total market, well ahead of second-ranking Petrolimex (through sales of
its own brand). Shell, Mekong Lubricants, and Chevron are all mid-tier players in this
market. ExxonMobil, which has also held a mid-tier position here, withdrew from the
Vietnamese lubricants market in 2009, selling its operations here to French oil giant
Total, though it maintains a presence in the country’s aviation and international marine
lubricant segments.

Figure 3.12 – Lubricant Market Shares in Vietnam (2009)

Lubricant market share in Vietnam

17%
24%

2%
2%
2%
2%

3%
4% 13%
4%
5% 8%
6% 8%

BP&Castrol Petrolimex Shell Mekong lubricant

ExxonMobil Vidamo Chervon Phuc Tanh

Vilub-Motul Idemitsu Total Sotrans

Dong Duong Othes

Source:
Table 3.5 –PFC EnergySales
Lubricant from local
and sources
Market -Shares
2009 in Vietnam (2009)
 - 46 -

Source: PFC Energy from local sources - 2009

Foreign players account for about 49% of sales in the automotive segment. CBP has a
very well established position in the transport segment, and particularly in four-stroke
oils, where it has a market share of 30-32%. Local sources estimate that within the
premium market segment – defined here as demand for lubricants sold under
international brands – the BP and Castrol brands hold a combined market share of
around 55% (some sources estimate Castrol’s share alone to be as high as 60%). An
emerging shift toward higher quality lubricants is likely to benefit primarily the foreign
brands in this market, as these enjoy a stronger reputation for quality.

While CBP is now ranked second in lubricants for non-transport applications, it remains
the leading lubricants marketer in Vietnam overall, reflecting its strong presence in the
transport segment. Although Castrol withdrew from the transformer oil market in 2008,
BP Petco maintains a substantial presence in the grease and general industrial lubricant
sub-segments.
 - 47 -

Figure 3.12 – Transport and Non-Transport segment market shares

In contrast to its mid-tier position in the transport oils segment, Petrolimex is the
leading operator in non-transport applications, where it has recently overtaken BP
Petco. Its sales here depend heavily on government contracts, sales to state-owned
enterprises and large local private enterprises. As the country’s foremost supplier of
fuels (diesel, gasoline, fuel oil) to industrial end-users, Petrolimex draws substantial
sales by leveraging its relationships with these customers, and in 2009 sold an
estimated 12 kt of industrial lubricants, with growing volumes in virtually all sub-
segments and a particularly strong presence in the market for transformer oils and
hydraulic oils.

As with the transport segment, price and affordability continue to be strong

determinants in shaping the industrial oil business in Vietnam. To capture the larger but
more price-sensitive portions of this market, local private retailers tend to rely on
lower-quality base oils to gain a cost advantage relative to the international majors.
Local operators, such as Phuc Tanh Production and Trading Co. (Nikko) and Sotrans
Company (Solube), have reportedly used recycled oils in their production of lubricants
on occasion while also being transparent about the source of their raw materials and
corresponding cost benefits. However, while some users in the industrial segment
 - 48 -

knowingly purchase lubricants blended with recycled oils for the lower cost, most
remain unaware of this practice.

While commonly perceived as an untapped market with significant opportunity,

Vietnam’s lubricants scene continues to grow more crowded and competitive.
Encouraged by a largely deregulated environment permitting both domestic and
foreign companies to freely invest in lubricants blending and distribution, several new
players have entered the market over the past three years. These include South
Korea’s GS Caltex, which distributes imported products (mainly grease and PCO);
Italy’s Agip, which has established an initial presence in the transport segment and is
seeking to expand its distributor network; and AP Singapore, which, in partnership with
SaigonPetro (formerly Castrol’s JV partner) and Hyrax of Malaysia, is currently also
seeking to attract distributors for the sale of PCOs and motorcycle oils.

In addition to the official branded market, there is also a sizable grey market for
lubricants in Vietnam, which mainly thrives through the sale of non-branded or
counterfeit products by small private traders catering to the more price-sensitive
market segments. The grey market is currently estimated to be equivalent to around
15% of branded lubricant sales.

@ Profiles of all lubricant operators / competitors in Viet Nam:

 - 49 -

Table 3.6 - Profiles of all lubricant operators in Viet Nam

N Operator’s name Information

o
Agip – Premium o Supplying imported finished product to local distributors
operator eager to and via a representative office to facilitate trade sales.
1 o Targeting the same “premium” PCMO market, and to a
expand
lesser extent the MCO market
o Targeting both the transport and non-transport segments is
imported to both Vietnam and Myanmar and distributed by
GMGI Pte Ltd.
o Has plans to establish a blending plant in Vietnam.
o Currently responsible for importing and distributing its
finished product, or establishing a fully owned local
enterprise of its own.

o Is a joint venture formed in May 2008 between AP

Holdings Singapore and local player Saigon Petro,
2 AP SaigonPetro – previously Castrol’s local partner.
New entrant o Producing lubricants under its own SP Centur and AP
putting down roots brands and under third-party contracts. Production volumes
were low, however, at an estimated 2.5 kt for the year.
o As a relative newcomer to the Vietnamese lubricants
sector, the company is focusing on building up its own
distribution network, focusing mainly on securing contracts
with distributors, garages, and motorcycle wash and/or
repair shops.

3 BP-Castrol – o BP operates in the Vietnamese lubricants market through

Market leader BP Petco Ltd, a 65:35 joint venture with Petrolimex.
reorganizing o Incorporated in 1993 for duration of 30 years to
distribution manufacture lubricants and greases for both domestic and
network export markets.
o Merged with Castrol in 2007 (Castrol first entered the
Vietnamese market in 1991)
o Castrol BP Petco is now leading operator in the Vietnamese
lubricants market, with estimated Castrol- and BP-branded
sales of some 75 kt giving it a market share of roughly 27%
in 2010.
o Production plant in Nha Be with capacity of more than 70
 - 50 -

kt/year
o Existing network of more than 200 Distributors/Dealers and
about 17,000 retail sales agents nation
o Very strong at transportation oil, especially for MCO & CT

Caltex – Focus on o Occupies a strong mid-tier position in the Vietnamese

mid-tier and lubricants market
4 o Sales of 22 kt in 2009 giving it a market share of 7%.
premium
lubricants o Distributes its products via some 50 wholesalers and over
10,000 retail outlets.
o Focuses its lubricants marketing operations here mainly on
the medium and high-end segments of the automotive
lubricants sector.

ExxonMobil – o Sold its Vietnam blending plant and distribution

Relinquishing its infrastructure to Total in late 2009 prior to its exit from the
5 Vietnamese lubricants market in late 2009
position to Total
o Accounted for roughly 6.8% of all lubricant sales in
Vietnam.
o Strong in the premium lubricants segment, with some
estimates putting Mobil 1 products’ share of the luxury PCO
market at 50-60%, helped by its global partnerships with
OEMs such as Mercedes and Porsche.
o Dec 2009, Total assumed full ownership and management
control of ExxonMobil Vietnam Holding Co. Ltd. (renamed
to Total Lubricants Vietnam Holding Limited), including its
distribution network and 15 kt/y blending plant.

GS Caltex – o Began its foray into the Vietnamese lubricants market in

Expansion into less 2005 by importing finished products through its local
6 subsidiary GS Oil.
crowded markets
o Maintains its import-focused supply strategy, bringing in
modest volumes (~511 tons in 2008) of finished lubricants
directly from GS Caltex’s blending and grease plants in
Inchon, Korea.
o Had difficulties in making inroads into the motorcycle oil
segment and faced competitive pressures and low margins,
while it has achieved a measure of success in the PCO
market (via its Kixx product line), industrial oil and grease
segments.
 - 51 -

o O
Mekong o Formed in 1996 in the Vinh Long province to service the
Lubricants – Mid- lubricants requirements of the greater Mekong delta region,
7 local independent Mekong Lubricants is one of the larger
tier player with
strong brand mid-tier lubricants marketers in Vietnam.
visibility o The company’s Mekolube-branded products in 2009
accounted for an estimated 7% of total lubricant sales in
Vietnam, overwhelmingly derived from transport segment
sales, where it has a major presence in the lower-tier
segment.

8 Petrolimex (PLC) o In addition to its joint venture with BP, this state owned co
– Leading (PLC) also operates its own lubricants business.
domestic player o Is the strongest local lubricants marketer with sales of some
40 kt in 2009, market share of 13%.
o Enjoys strong nationwide brand recognition in the lubricants
sector thanks to its position as Vietnam’s foremost fuel
retailer.
o Sells motorcycle oils and PCOs through its 1,800-odd
service stations and other channels such as repair shops.
o 4,000 distribution and retail agents across the country.
o Focuses on offering competitively priced products in the
mid- to lower-tier motorcycle oil segment.
o Has a significant advantage over competitors in other
segments through privileged access to government
contracts, and particularly large supply contracts with major
state-owned enterprises.
o Collaborates with French operator Total to blend its
Disola/Atlanta and Aurelia product ranges for the marine
and generator segments.
o Supplying the domestic market and exports

9 Phuc Thanh o Is a local operator that was set up in 1994, accounted for 3-
(Nikko) – Focusing 4% of total lubricant sales in 2009.
on marine and o Focuses mainly on the marine and industrial segments,
industrial segments although it does market some automotive products, notably
its Delta-branded motorcycle engine oils. Its industrial oils
are sold under the Nikko brand, while marine lubricants fall
under the Delta brand.
o Has a distribution network of some 300 agents mainly in
 - 52 -

Vietnam’s southern and south-central provinces.

10 Shell – Ambitious o Is the third -largest lubricants marketer in Vietnam, behind

plans to double BP/Castrol and Petrolimex.
market share o Estimated overall market share of roughly 8%.
o Created in 2002 through the merger of Shell Codamo and
state operator PetroVietnam (also known at the time as
PVPDC) with Shell Bitumen, Shell Gas Saigon, and Shell
Vietnam Chemicals.3 The Shell Codamo JV was terminated
in 2006, and Shell’s operations in Vietnam are now 100%
foreign-owned.
o Blended lubricants in the country since 2001, and claims to
have over 2,000 branded distribution points for lubricants
nationwide.
o 25 kt/y blending plant in Dong Nai province (completed in
Sep 2001 at a cost of US$ 11 m)
o Maintains some 30-40 main distributors throughout
Vietnam, divided into tier one, tier two.
o Key motorcycle and PCO products
o Intent of doubling its lubricants market share in Vietnam
oo
11 Sotrans (Solube) – o Is an oil and gas wholesaler and distributor that has been
Strong in HDDEO operating since 1990, and is particularly strong in HCMC
market and Mekong Delta.
o Main lubricants products, marketed under the Solube brand,
are the Solube HD and Solube HDX.
o Also markets Somar marine oil, primarily to customers in
the Mekong Delta.

12 Total – Presence o Operates in Vietnam through Total Lubricants Vietnam, a

boosted by of new joint venture with Tracimexco and Port Cua Cam, in which
assets the French group holds a stake of 60%.
o Accounted for an estimated 2.3% of total sales in 2009.
o Oct 2009, Total acquired lubricants and specialties business
of ExxonMobil Vietnam Holdings Co. Ltd., including a
lubricant blending plant in the southern Vietnamese
province of Dong Nai and a nationwide base oil distribution
network. Prior to its withdrawal from the market,
ExxonMobil accounted for close to 8% of total lubricant
sales in Vietnam.
 - 53 -

o Total assumed full ownership and management control of

ExxonMobil Vietnam Holding Co. Ltd. in December 2009,
renaming it to Lubricants Vietnam Holding Limited. It also
took control of its nationwide lubricants distribution
network and its 15 kt/y blending plant in the southern Dong
Nai province.
13 Vidamo – Local o Is the successor to PVPDC, or PetroVietnam Processing and
player focused on Distribution Company, a division of PV Oil.
industrial o Markets lubricants under the Vidamo brand, remains one of
lubricants the larger operators in Vietnam’s lubricants market and,
with a strong focus on industrial lubricants, accounted for
roughly 5% of total lubricant sales in 2009.
o The company’s lubricants are produced at its two 15 kt/y
blending plants at Hai Phong and Binh Duong, located close
to the demand centers of Hanoi and Ho Chi Minh City,
respectively.
14 Motul-Vilube – o Motul-Vilube in 2009 accounted for an estimated 2.6% of
Targeting the high- total sales. Around 60% of its overall sales were
end transport concentrated in the Mekong Delta, with the remainder
segment derived mainly from sales in the southeastern Dong
Nai/Vung Tau region.
o Vilube (formerly Toan Tam) is one of the most visible local
brands in the Vietnamese lubricants sector.
o French lubricants company Motul Corp. in late 2005
acquired a 30% stake in local operator Vilube, with
Vietnam Lubricants and Chemicals Joint Stock Corporation
(Vilube) holding the remainder of the entity’s equity. In
March 2009, Motul acquired full ownership of Vilube,
which now operates as a 100% foreign-owned entity. At the
same time, it launched Motul-Vilube as a new dual-branded
identity for its lubricants in Vietnam.
o Aiming to achieve a 10% share of the Vietnamese
automotive lubricants market by end-2010.
o To upgrade production technologies used at its 25 kt/y
blending plant in Hiep Phuoc Industrial Park, Nha Be
 - 54 -

3.4 SUMMARY OF CONTEXT / EXTERNAL ANALYSIS

By thoroughly analysis the market context, macro environment, competitive

industries with both advantages and disadvantages influencing CBP business,
some great opportunities and potential threats have been recognized as below:

@ Opportunities:

- Lubricants industry is largely deregulated, with no restrictions to marketing

lubricants in the country

- Vietnam has relatively greater political stability.

- The country’s real GDP growth is accelerating once again, and is projected at
around 7% for both 2010 and 2011. The economic growth prediction is also
optimistically at 7.1 – 7.5% in year 2011.

- Business expansion as industrial activity is concentrated in and around the

urban areas, and particularly the key provinces around Ho Chi Minh City;
strong infrastructure spending and the government’s policy of promoting
industrialization will continue to drive Vietnam’s transition from an agricultural,
socialist economy to an industrialized, market-based economy

- Vietnam, Southeast Asia’s fourth-largest lubricants market, saw its total inland
demand for lubricants in 2009 rise by an estimated 8.5% year-on-year, to 309
kt; the size of the Vietnamese lubricants market has doubled over the course
of this decade, driven mainly by the extraordinary rise in demand for transport
oils

- The transport segment accounts for roughly four-fifth of total lubricant sales,
reflecting the dizzying expansion of the country’s vehicle fleet.

- The vehicle fleet in Vietnam continues to expand, growing by some 11.3% in

2009, to a total of some 24.4 million units at year-end; the passenger car
equipment rate remains among the lowest in the world, with motorcycles
accounting for 93% of the country’s total fleet
 - 55 -

- Assuming continued robust growth in the country’s vehicle fleet, its broader
economy, and its industrial production, Vietnam’s lubricants demand is
projected to rise at some 4.1% per year on average through 2014, to 378 kt.

- Material and growing space

- Scooter segment is dominantly growing

- Among all lubricant operators, Castrol BP is holding number 1 position in the

market with largest market share especially in motorcycle market space and in
transportation segment in general

@ Threats:

- Vietnam’s economy was negatively impacted by the global economic crisis,

with its growth slowing to 5.3% in 2009, from 6.2% the previous year; industrial
production slowed to 5.5% in 2009, compared to an average rate of 9.5% for
the preceding five years

- High inflation and exchange rate made the high cost and reduce the buying
power from the customers

- Poor transportation infrastructures somewhat limited the transportation

development.

- Unstable regulations & tax from government caused difficulty for the
companies.

- There are many young and strong competitors trying to gain the market such
as Shell, Total, Caltex, Petrolimex, Vilube... making is a fierce competition
between lubricant operators.

In order to be successful in business, Castrol BP Petco needs to take advantages

of all above mentioned opportunities to develop business while be aware of
potential threats and try to overcome these challenges.
 - 56 -

Chapter 4

ANALYSIS OF CBP INTERNAL ENVIRONMENT

“The idea is to concentrate our strength against our competitor’s relative

weakness”, a notable quote of Bruce Henderson has given a light for the
strategist in finding the ways to compete with the competitors. But what are the
strengths or weaknesses of CBP? This chapter helps to evaluate all the aspects
of the company in order to answer the above question and in order to build an
appropriate strategy base on the result of internal analysis.

4.1 COMPANY’S PROFILE

4.1.1 Introduction of BP Global Group:

BP Petroleum Corporation is a leading multinational in the world. BP offers to

consumers around the world for transportation fuel, energy for living, lighting and
heating and petrochemical products for everyday consumption.

Founded in 1908, now BP

operations in over 100 countries
worldwide, with 29 establishments
exploration and exploitation of oil
and gas, 17 oil facilities with a
total staff of up to 92,000 people.

BP logo was named the Sun

God Helios in the ancient Greek
myth with illustrations of the
most dynamic source of energy -
in all its forms, from oil and gas
Figure 4.1: BP global
to solar power - that every day the
company brings more than ten millions of its customers worldwide.
 - 57 -

BP is one of the first oil companies that came to Viet Nam in the 90s of last century. BP
in Vietnam with investments in two primary lines of business in oil and gas industry:
upstream - exploration and exploitation - and downstream - production and
consumption. In the field of lubricants, two world-known lubricant brands were present
in Vietnam those are BP and Castrol.

With these diversified products, BP and Castrol lubricants meet the requirements of
consumers and industry.

4.1.2 Introduction of Castrol BP Petco Co., Ltd

BP operates in the Vietnamese lubricants market through BP Petco Ltd, a 65:35 joint
venture with local operator Petrolimex. The venture, incorporated in 1993 for duration
of 30 years, was set up Vietnam to manufacture and market a range of lubricants and
greases for both domestic and export markets. Following BP’s acquisition of Burmah
Castrol in 2000 and the conclusion of Castrol’s alliance with local partner SaigonPetro,
Castrol was brought into the BP Petco alliance in 2007 (Castrol first entered the
Vietnamese market in 1991). Since then, the new name of the company has been

created as Castrol BP Petco, Ltd base on the merge and acquisition of Castrol & BP.

Castrol BP Petco (CBP) is the leading operator in the Vietnamese lubricants market,
with estimated Castrol- and BP-branded sales of some 75 kt giving it a market share of
roughly 24.3% in 2009. Lubricant blending factory of CBP located in Nha Be is the
largest and most modern lubricant factory in Viet Nam that has a designed capacity
greater than 50,000 tons / year. The factory was officially put into operation in May 5 /
1997 and has been accredited to the standard of ISO 9001 Quality Management
Standards, ISO 14001 Environmental Management and Safety and Occupational Health
Standard no OHSAS 18001.
 - 58 -

Figure 4.2: Nha Be Plant

Scope of activities of Castrol BP Petco is producing and trading lubricant products with
two world-famous lubricant brands such as Castrol & BP to serve domestic demand and
exports. With advanced technology of automatic blending through various scientific
methods to ensure international standards of quality products as well as the ability to
import specialized products, Castrol BP Petco can meet all customers’ requirements
about quality, technology, product types and packaging. In terms of technical services,
along with modern laboratories and professional analysis services, Castrol BP Petco
actively supported customers in analyzing and evaluating the status of the oil quality as
well as the status of diagnostic equipment to give a correct direction to maintenance
and repair.

Through the two main offices in Hanoi and Ho Chi Minh City, one big plant in Nha Be
and three big warehouses such as Nha Be, Kim Hang (South), Nam Song Hong (North)
and a wide distribution network on the nationwide, Castrol BP Petco is committed to
bring customers the best quality product and excellent customer services to serve
domestic demand and export.

In Vietnam, BP and Castrol lubricants are considered two leading brands that gained a
very large market share, especially in motorcycle lubricants and lubricants for
industrial manufacturing and transportation.
 - 59 -

4.2 ORGANIZATION STRUCTURES:

4.2.1 Organization chart:

Figure 4.3 - Organization chart of Castrol BP Petco

The company is managed by General Director – Mr. Le Van Dung, who is also a
Head Sales. The first time in history a Vietnamese can hold this highest position.
In the past years, all General Directors were foreigners with 2-3 year tenure.

According to the chart above, besides a position of Deputy General Director who
is from Petrolimex reporting directly to General Director, there are six main
 - 60 -

departments managed by six powerful managers those are Sales, Marketing,

Finance, Human Resource, HSSE & Administration, Plant. The Board of Directors
includes General Director, Deputy General Director and eight other powerful
Managers from each department (highlighted in red below). Among them, Sales
Department is considered the most important Department with total 68 people
directed by Head Sales and (also General Director) that directly influence the
business result of the company. Besides, all other departments have the same
important roles in the company’s business.

The company has 222 official staffs, in which there are 30 Managers, 170 male
staffs and 52 female staffs. Besides, Castrol BP Petco hires about 30 out-source
staffs mainly in production department and lower levels. All the members of
management team have very high education such as oversea or MBA graduation
and have a lot of experiences. University graduation is the minimum requirement
for a normal staff.

4.2.2 Organization management and HR policies:

All departments are under direct report to

General Director. Nevertheless, some
departments simultaneously report to the
regions such as Marketing, Finance and
Plant. Each department have their own
budget, target, objectives and key
performance index (KPI) to measure the
performance, manage the team as well as
to operate business efficiently.

CBP has a culture of “Customer Centric”

Figure 4.4 – Code of conduct
and “Innovation” that every body has to comply with. Besides, the company focus on
gross margin and all the performance should be linked with the objectives of the
companies. Another important values and messages to CBP employees is the
 - 61 -

compliance with laws, regulations and the code of conduct in which health, safety,
security, environment and ethics are always the first concern.

For leadership management, CBP apply box model approach with “value expertise”,
“energize people”, “act decisively” and “deliver results” as below:

Figure 4.5 – Castrol BP Petco’s leadership

How about other human resource’s policies and benefits? At Castrol BP Petco, salary
reflects skill, knowledge, experience and the employee’s value in relation to the
market and relative to peers, taking account of performance. Staff’s salary is reviewed
annually.

Besides, bonuses and Variable Pay Plans (VPP) links business performance and
individual performance. The VPP is the annual incentive for delivering individual
objectives in the context of SPU/Function results. Oversea incentive trips are offered to
the best performers of the year.
 - 62 -

Moreover, Castrol BP Petco offers employees a wide range of benefits to help protect
employees’ physical, emotional & economic health so that staffs can focus on growing
and contributing your energy & ideas to the success of the businesses. Benefits vary by
country and for Vietnam the scheme includes: In patient & Out patient medical care;
Annual leave (18 – 25 days); Pension & Share Match Cash Plan.

Figure 4.6 – CBP Employee’s benefits:

Finally as people development, Castrol BP Petco creates a lot of opportunities for

employee’s training, promoting talents as well as offering other recognition programs.

4.3 BUSINESS OPERATION:

4.3.1 Market segmentation and customers:

The company separates lubricant into three main segmentations those are automotive
lubricant, Industrial Lubricant and lubricant for Original Equipment Manufacturing.
 - 63 -

The automotive lubricant mainly for B2C channel includes three main market spaces:
Motorcycle Oil (MCO), Passenger Car Oil (PCO) and Consumer Truck Oil (CT).
Meanwhile the Industrial Lubricant is categorized into Heavy Duty (HD) market space.

For Motorcycle Oil, the target customers are service station (10%), bike wash (25%),
spare-part shops (25%) and other independent franchise workshop (8%).

For Passenger Oil, the target customers are car wash shop (10%), service station (7%),
spare-part shops (8%), independent workshop (35%) and other franchise workshop
(40%).

For Consumer Trucks, the target customers are service station (64%), independent
workshop (18%) and other franchise workshop (18%).

Figure 4.7 – MCO, PCO, CT Market segmentation and customers

 - 64 -

For Heavy Duty, the target customers are

state owned or foreign companies, private
enterprises and fleets… that need lubricant
for machine operation serving specialized
industry. HD lubricant, it can be categorized
into some small segments such as power
plant, mining, cement, steel mills,
construction, metal working, industrial gear
oil, grease, hydraulic oil, transformer oil,
cable and others.

Figure 4.8 – HD Market segmentation and HD

customers

For OEM, the target customers are garages, workshops, automotive manufacturing
companies.

Figure 4.9 – OEM Market segmentation and customers

OEM
 - 65 -

4.3.2 Products:

CBP has more than 350 products serving customer demand in which there are
about more than 90% products have been produced domestically and the rest is
imported by sea or sometimes by air to serve various demand from customers.

All motorcycle lubricant has small carton packages from 0.8 to 1L while passenger
cars need the 4L packages. For consumer trucks, appropriate packages are pails
of 18L & 25L. Especially all industrial lubricants are contained in drums of 208L &
209L

Figure 4.10 – Castrol BP Petco’s products

Table 4.11 – Some main Castrol, BP products

 - 66 -

4.3.3 Distribution channels:

CBP distributes goods to customers through wide distribution network of more than 200
Distributors, Dealers and direct accounts from B2B, B2C and OEM channels covering
all big cities and provinces on the nationwide. Distributors and Dealers after ordering
goods from CBP will deliver to retailers.

There are about 17,000 retail customers on the nationwide. Those customers are
washing shops, spare-part shops, petrol stations, repair shops, independent workshops,
garages, bike or car manufacturing factories and others. All these retail customers then
distribute goods to the end-users.

Goods departure from the three warehouses with geographical delivery arrangement
and lead-time as following: Nha Be ware house is in charge of delivering to B2C East
& Central and B2B South; Kim Hang ware house is in change of delivering to Ho Chi
Minh and West while Ha Noi ware house will deliver to North Cities and North
Provinces.

At CBP, safety is the first priority criteria especially for Logistics Team and production
departments. Therefore all transportation vehicles from suppliers have to meet the
safety standards as required by the regions in order to guarantee the safest delivery
outcome of the company.

4.3.4 Business performance analysis:

4.3.4.1 Annual sales records

Castrol BP Petco owns two leading lubricant brands of Castrol and BP base on
the merger and acquisition in November 2007. Since then, the two brands have
been developing continuously at the rate of 10% compared with the previous year.
The illustration in the below chart shows that BP brand is double Castrol Brand.
Nevertheless, there is a loss in BP brand in 2011 due to OEM account cutting due
to low gross margin.
 - 67 -

@ Figure 4.11 – Sales volume by brand 2006 – 1011

Sales volume by brand 06 - 11

60,000

50,000

40,000
Vol (KL)

BP
30,000
Castrol
20,000

10,000

0
2006 2007 2008 2009 2010 2011LP
Year

Castrol BP products are categorized into five main market spaces such as
Motorcycle (MCO), Passenger Car (PCO), Consumer Truck (CT), Original
Equipment Manufacturing (OEM) and Heavy Duty (HD). Among of them, MCO is
considered the back bone market space occupying 43% of the total volume and
contributing 49% total company margin. The second cash cow market space is CT
that contributes 24% of the total volume and 26% of total margin. HD also plays
an important role contributing 31% total volume and 26% gross margin. PCO and
OEM are very small parts occupying 5% of total volume and gross margin .

There are three main business channels such as B2B, B2C and OEM in which
B2C is the most focused channel contributing about 60% volume and margin of
the total company. B2C channel is divided into six small areas of North Cities,
North Province, Central, East, HCMC and West. B2C market space includes
MCO, PCO and CT with different price and promotional policies. B2C customers
are spare part points, washing shops, repair shops, petro stations and others.
Meanwhile, B2B channel focuses on State Owned companies, business private
enterprises, limited companies and export. B2B channel is divided into two small
areas of B2B North & Central and B2B South. B2B sales contributes about 36%
volume and margin of the total company with main selling products belong to
heavy duty lubricant (HD). The rest is OEM channel occupying a very small
 - 68 -

contribution percentage of only 7% both of volume and margin. This channel

mainly focuses on garages, workshops and motorbike or car manufacturing
companies.

@ Figure 4.12 – Sales volume by market space 2006 – 1011

Sales volume by Market Space 06 - 11

90,000

80,000

70,000 HD
60,000 OEM
Vol (KL)

50,000 CT
40,000 PCO
30,000 MCO
20,000

10,000

0
2006 2007 2008 2009 2010 2011LP

Year

@ Figure 4.13 – Sales volume by channel 2006 – 1011

 - 69 -

Within five continuous years, CBP keeps very good growth in volume, gross
turnover and gross margin with the volume growth rate at 10% and gross margin
growth rate of more than 30%, especially in 2009, gross margin is doubled
compared to 2008. From 2008 until now, the company has to increase price many
times because the shortage of base oil, the increase of exchange rate, high cost
and inflation. For all of these reasons and although the gross turnover goes up
strongly year by year but the gross margin keeps just at an acceptable growth
level. There is just a little concern with the slight loss from B2C and OEM channel
volume because CBP cut off some low margin accounts and there was price
influence due to the shortage of base oil in the middle of the year. In general,
Castrol BP Petco has a very successful business picture in the last five years.

@ Figure 4.14 – Sales volume, Gross Turnover, Gross Margin 2006 - 2011

Sales Volume, G.Turnover, Gross Margin 06 - 11

90,000 200,000

80,000 180,000

70,000 160,000
140,000
60,000

Amount (K $)
120,000
Vol (KL)

50,000
100,000
40,000
80,000
30,000
60,000
20,000 40,000
10,000 20,000
0 0
2006 2007 2008 2009 2010 2011LP
Year
Volume (KL) G.Margin (K$) G.Turnover (K$)

4.3.4.2 Castrol BP Petco capability and core competencies

CBP has strong capacities in various fields of management, marketing, finance and
technology as below:
 - 70 -

The ability to create the governance framework including the principles that guide CBP
board and management team as well as a system of controls that defines how the
company works.

The ability to manage operational risk: CBP’s new safety and operational risk function
has sweeping powers to oversee and audit our operations around the world. CBP is
committed to operate safely and reliably worldwide. The company is reviewing the
way company approaches risk in our operations and takes steps to strengthen ability to
manage these risks effectively.

CBP operating management system (OMS) provides a group-wide framework to drive

a rigorous and systematic approach to safety, risk management and operational
integrity across the company. CBP staffs are working to build strong relationships with
suppliers, contractors and partners, with a shared understanding of what responsibility
means. CBP’s sustainability as a company depends on the skills, commitment and
behaviors of the employees in every country where CBP operate.

Sustainable workforce: CBP is working to keep workforce sustainable through

educational outreach, technical recruiting and employee training and development

Developing CBP leaders: Development programmes are helping CBP business leaders
to build sustainable leadership capabilities throughout the group. Good leadership is
essential to the long-term sustainable success of CBP. The company is working to make
sure CBP leaders have the skills they need to lead – and that they share a common
understanding of what it means to be a good leader.

Diversity and inclusion: Strengthening safety, compliance and risk management across
the group depends on the actions our people take daily in their roles. CBP is working to
build a workforce whose diversity reflects the societies in which the company works.

CBP is committed to create a work environment where diversity and inclusion (D&I) is
valued and where everyone is treated fairly, with dignity and respect and without
 - 71 -

discrimination. To operate effectively as a business, CBP needs diversity in capabilities,

ways of thinking, experience and personal qualities. This means attracting men and
women of all races, ages, cultures and backgrounds to work for the company. CBP code
of conduct defines the standards of behavior expected from everyone who works for.
CBP’s code of conduct sets out standards of behavior for our employees, contractors
and suppliers. With clear and concise rules on topics such as safety, child labour,
workplace harassment and political activity, it is designed to help them do the right
thing in a complex business environment.

Constructive dialogue with stakeholders helps CBP to make responsible and

sustainable decisions as a group. CBP belongs to regional and international
organizations that are working to find and support collaborative energy solutions.

CBP has a strong finance as the company receives great support from the region.
Besides, CBP has very good control on debt, inventory and always make sure
appropriate financial figures as the company focuses on margin. Besides, the company
has very good physical infrastructure condition with plant of more than 50 millions litter
capacity and two big offices in Ho Chi Minh City and Ha Noi.

In term of marketing, the marketing activities of CBP are so strong that can hire and
bring the brand ambassadors like David Beckham, a very famous football star in the
world to Vietnam for sporting events combined with product advertisements. Recently,
Ronaldo was the second famous footballer who advertised for Castrol Power 1 brand.
Besides, Castrol BP is the sponsor of many famous events in the world and in Vietnam
that can polish the brand’s image in the consumer’s minds.

CBP has a very good understanding about the market and is always the pioneer in
launching new premium product serving customer’s demand. CBP engage with our
customers through surveys, interviews, feedback tools and other methods. CBP
customers’ satisfaction with Castrol and BP products and awareness of the CBP brand
are key indicators of whether the company is going in the right direction.
 - 72 -

CBP has given various attractive promotional schemes especially for B2C products.
Nevertheless, due to the interference from the region, some big promotion schemes are
still unsuitable to Vietnamese’s context.

For the technology, CBP apply modern and advanced technology in manufacturing
premium products of high quality such as Trizone, Scootek for MCO; Fluid Strength
for PCO and CleanGuard, HeatProof for CT. In production, CBP applies the
technology of semi auto batch and manual blending and has integrated
management system of ISO 9001, ISO 14001 and OHSAS 18001.

Some key success factors of CBP are as below:

Figure 4.15 - Key success factors of CBP

4.4 CASTROL BP PETCO STRENGTHS AND WEAKNESSES:

 - 73 -

@ Strengths:

- High combined market share of 2 leading brands

- Strong capacities of finance, infrastructure, marketing, sales, human

resources, technology and management

- Flexible large capacity plant of more than 50 million liter per year

- Very good sales growth and business trend

- Wide and strong distribution network, very active in local business

community with broad network: For B2C: Workshop 60%, Service station
8%, Bike wash 17%, Spare part 15%; For B2B: very active in local
business community with broad network

- Heritage & perception of “Innovation leader/technology advantage” for

Castrol

- Workshop investment more than any competitors

- Global Relationships with Key Accounts – BMW, Audi, VW, Ford

- Strong presence and high share in hydraulic segment, improving share in

the mining industry.

- CBP is the pioneer in launching scooter products in Vietnam such as Power 1

Scooter and Vistra 300 scooter with strong support from the region in term of
marketing and finance.

- The marketing activities of CBP are so strong that can hire and bring the brand
ambassadors like David Beckham, a very famous football star in the world to
Vietnam for sporting events combined with product advertisements. Recently,
Ronaldo was the second famous footballer who advertised for Castrol Power 1
brand. Besides, Castrol BP is the sponsor of many famous events in the world
and in Vietnam that can polish the brand’s image in the consumer’s minds.

- Young and dynamic workforce with about 250 staffs in which 222 official
staffs and 30 out-source with high education and experience.
 - 74 -

- Modern and advanced technology in manufacturing premium products of high

quality: The Company applies the technology of semi auto batch and manual
blending in production and has integrated management system of ISO 9001, ISO
14001 and OHSAS 18001.

- Among all lubricant operators, Castrol BP is holding number 1 position in

the market with largest market share especially in motorcycle market space
and in transportation segment in general.

@ Weaknesses:

- Power in the mind of BP is not strong yet

- Clear brand differentiation between Castrol & BP not in place yet

- Lack of visible technical differentiation compared with competitors

- Least trade margin offer

- Small space – less focus from sales team outside HCMC/HN

- Lack of strong and consistent brand activities. Growth mainly from sales
efforts & distributor and no clear OEM strategy, tactical opportunistic
approach.

- No clear strategy, developed on the run

- BP the stronger brand, limited regional & global support

- Restricted by import quota

- Local operators enjoy a significant advantage over international players,

primarily due to their local connections and preferential access to public-
sector contracts.

- Technical sales support is limited vs. other foreign competitors.

 - 75 -

4.5 SWOT ANALYSIS:

After thorough analysis of external and internal environments, it is easy now to

form a SWOT matrix to see where are the opportunities or threats and what are
the strengths or weaknesses of CBP in order to serve the next step of formulating
the strategy in the chapter following. The SWOT matrix is as below:

Table 5.1 - SWOT analysis

- @ Opportunities: - @ Strengths:
- Lubricants industry is largely - High combined market share of 2
deregulated, with no restrictions to leading brands. Among all lubricant
marketing lubricants in the country operators, Castrol BP is holding
- Vietnam has relatively greater political number 1 position in the market with
stability. largest market share especially in
- The country’s real GDP growth is motorcycle market space and in
accelerating once again, and is transportation segment in general.
projected at around 7% for both 2010 - Strong capacities of finance,
and 2011. The economic growth infrastructure, marketing, sales, human
prediction is also optimistically at 7.1 – resources, technology and
7.5% in year 2011. management
- Business expansion as industrial - Flexible large capacity plant of more
activity is concentrated in and around than 50 million liter per year
the urban areas, and particularly the - Very good sales growth and business
key provinces around Ho Chi Minh trend
City; strong infrastructure spending - Strong marketing activities: Could hire
and the government’s policy of and bring the brand ambassadors like
promoting industrialization will
David Beckham, Ronaldo and sponsor of
continue to drive Vietnam’s transition
many famous events in the world and in
from an agricultural, socialist economy
Vietnam that can polish the brand’s
to an industrialized, market-based
economy image in the consumer’s minds.

- Vietnam, Southeast fourth- - Wide and strong distribution network,

Asia’s
largest lubricants market, saw its total very active in local business community
 - 76 -

inland demand for lubricants in 2009 with broad network: For B2C:
rise by an estimated 8.5% year-on- Workshop 60%, Service station 8%,
year, to 309 kt; the size of the Bike wash 17%, Spare part 15%; For
Vietnamese lubricants market has B2B: very active in local business
doubled over the course of this community with broad network
decade, driven mainly by the - Heritage & perception of “Innovation
extraordinary rise in demand for leader/technology advantage”. The
transport oils . company applies the technology of semi
- Vietnam population of 87 millions auto batch and manual blending in
people is a good opportunity for
production and has integrated
lubricant demand.
management system of ISO 9001, ISO
- The transport segment accounts for
14001 and OHSAS 18001.
roughly four-fifth of total lubricant
- Workshop investment more than any
sales, reflecting the dizzying
competitors
expansion of the country’s vehicle
- Global Relationships with Key
fleet.
Accounts – BMW, Audi, VW, Ford
- The vehicle fleet in Vietnam continues
- Strong presence and high share in
to expand, growing by some 11.3% in
hydraulic segment, improving share in
2009, to a total of some 24.4 million
the mining industry.
units at year-end; Motorcycles
- CBP is the pioneer in launching scooter
accounting for 93% of the country’s
total fleet products in Vietnam such as Power 1

- Vietnam’s lubricants demand is Scooter and Vistra 300 scooter with

projected to rise at some 4.1% per strong support from the region in term of
year on average through 2014, to 378 marketing and finance.
kt. - Young and dynamic workforce with
- Material and growing space about 250 staffs in which 222 official
- Scooter segment is dominantly staffs and 30 out-source with high
growing education and experience.
@ Threats: @ Weaknesses:
- Vietnam’s economy was negatively - Power in the mind of BP is not strong
 - 77 -

impacted by the global economic yet

crisis, with its growth slowing to 5.3% - Clear brand differentiation between
in 2009, from 6.2% the previous year; Castrol & BP not in place yet
industrial production slowed to 5.5% - Lack of visible technical differentiation
in 2009, compared to an average rate compared with competitors
of 9.5% for the preceding five years - Least trade margin offer
- High inflation and exchange rate - OEM: Small space – less focus from
made the high cost and reduce the sales team outside HCMC/HN
buying power from the customers - Lack of strong and consistent brand
- Poor transportation infrastructures activities. Growth mainly from sales
somewhat limited the transportation efforts & distributor and no clear OEM
development. strategy, tactical opportunistic
- Unstable regulations & tax from approach.
government caused difficulty for the - No clear strategy, developed on the run
companies. - BP the stronger brand, limited regional
- There are many young and strong & global support
competitors trying to gain the market - Restricted by import quota
such as Shell, Total, Caltex, - Local operators enjoy a significant
Petrolimex, Vilube... making is a fierce advantage over international players,
competition between lubricant primarily due to their local connections
operators. and preferential access to public-sector
contracts.
- Technical sales support is limited vs.
other foreign competitors
 - 78 -

Chapter 5

CBP BUSINESS STRATEGY UNTIL 2015

It is said by Peter Drucker that “In actual navigation, a ship may veer off its
course for many miles. Without a compass bearing, a ship would neither
find its port nor be able to estimate the time required to get there”. If the
company has no strategy, never the goals or targets can be reached. But another
saying is that “Most of the time, strategies should not be formulating strategy
at all; they should be getting on with implementing strategies they already
have” – by Henry Mintzberg. This is to show that it is important to build a strategy
but it is more important to implement the strategies. This chapter describes how
the strategy of CBP is built and implemented.

5.1 CASTROL BP PETCO’S VISION AND MISSION:

CBP belongs to BP global group, therefore the vision and mission of the company is
formed with the same voice of BP global group as below:

Vision: “We will drive and shape the premium, global lubricants market by
anticipating our consumers and customers’ needs with innovative products and services
they can trust and depend on. We will achieve consistent profit growth and a return on
capital employed”

Mission: “We will focus on material markets around the globe providing lubricants and
related services to customers and consumers who demand high quality and good value”

5.2 OBJECTIVES OF CBP STRATEGY UNTIL 2015:

The objectives of CBP until 2015 are to build the brand image, increase market
share from 24% to 45%, to achieve 120 millions of volume and 100 millions US
Dollar of margin by the end of 2015 and continue to be a leading lubricant
company in Vietnam.
 - 79 -

Following this, there should be an annual growth of 15% in volume and margin
and a lot of things for CBP to do from now. Let start with building strategy as in the
following parts.

5.3 STRATEGY IN ACTIONS:

5.3.1 Business strategy alternatives initiatives base on SWOT analysis:

Base on the result of SWOT analysis and according to the TOWS matrix
developed by Professor Heinz Weihrich from SWOT, systematic strategies have
been formed by illustrating how strengths are utilized to take advantages of
opportunities or counter threats. Also weaknesses are examined for the purpose
of overcoming deficiencies in order to exploit opportunities. This process of
strategy formulation yields strategies, tactics and actions for an effective and
efficient coupling with organizational objectives and mission. The key beneficial
outcome of the TOWS model occurs with the generation of alternatives that lead
to choices for recommendations. Below is the TOWS matrix applied to CBP
bringing numerous alternatives for discussions and choices.

5.3.1.1 S-O strategy:

This S-O strategy is to take advantage of opportunities that are a good fit to the
company’s strengths:

Recognition of the potential development of vehicle fleet in Vietnam in these

recent years and in order to take advantage of this opportunity, the strategy for
CBP should be built focusing on the development of transportation segments such
as lubricants for motorcycles, consumer trucks and cars.

For motorcycle market space, focus on lubricant for scooters such as Castrol
Power 1 Scooter and BP Vistra 300 scooter since Scooter segment is dominantly
growing and expand its market to provinces, launch new premium products with of
higher quality levels and recycle some old, long life products in order to renew the
brand’s images.

For Consumer truck, focus on fleet or transportation organizations and to find

partners of taxi fleet, car manufacturing companies or garages.
 - 80 -

5.3.1.2 S-T strategy:

This business strategy is initiated to identify the ways that the firm can use its
strengths to reduce its vulnerability to external threats.

In the context of fierce competition and being aware of the best strength in
technology, it is necessary for CBP to invest on and be innovative in technology
because technology is always the main and the key differentiation that can help
Castrol BP product to differ from other competitors. As leading brands in the
world, currently Castrol BP applies many unique and advanced technologies in
formulating and producing goods. CBP should continue to strengthen the
technology and be innovative in bringing new premium products serving
customer’s demand.

5.3.1.3 W-O strategy:

This business strategy is built to overcome weakness in order to pursue

opportunities.

To develop Technical Team to be stronger because currently there are only two
persons in charge of this area and therefore sometimes, Technical Team could
not meet customer’s demand in time. The company needs to recruit at least two
more technical staffs and experts to focus on technical services in order to
compete with other strong competitors. Moreover, the company should focus on
“customer centric”, improve customer services to satisfy customers.

To ask for global and regional financial support on marketing budget especially for
BP brand because currently Castrol brand has more support from the region as
the result Castrol’s sales has positive result that is much better than BP brand.
Strengthen marketing activities to bring the brand images to customers.

5.3.1.4 W-T strategy:

This strategy is to establish a defensive plan to minimize the company’s

weaknesses and counter threats……………………………….

To seek for an alternative base oil and raw material sources with cheaper price to
have more option in term of pricing.
 - 81 -

5.3.2 Business strategy choice

By analyzing thoroughly all the aspects of internal and external environments, it is

recommended that the most suitable strategy for Castrol BP Petco is the broad
differentiation strategy to compete with other strong competitors and to gain
market shares in the market.

We know that differentiation strategy refers to strategy to deliver uniqueness and

superior value to buyers in term of product quality, special feature, or after sales
services. Differentiation focus also at the broad market and involves the creation
of a product or service that is perceived through the industry as unique. Unique
product enables firms to charge higher price for its product. The specialty can
come from brand image, technology, features or dealer network. Differentiation is
viable for above-average profit. The research of Caves and Ghemawat shows that
differentiations generate high profit than low cost strategy because it creates
higher entry barrier.

There are many reasons of choosing differentiation strategy as below:

- The consumer’s needs and uses are diverse. Consumers nowadays pay more
attention on quality and even show their emotion, their love to the product. A
company just can be successful if their products can meet various demands
from customers and can make them satisfied with their chosen products.

- Castrol BP are famous brands with it’s diversify and with thousands customers
on the nationwide. CBP capabilities are very strong in term of finance,
technology and human resource that can help the company to carry out this
differentiation strategy.

- There are many ways for CBP to make differentiation from the others such as
product quality and services that the customers perceive these differences as
having value.

- Among competitors, some chooses cost leadership strategy; some choose

focus strategy, only few rival firms are following a similar differentiation
approach.
 - 82 -

- The technological change is fast paced and competition revolves around

rapidly evolving product features.

- A successful differentiation strategy can allow CBP to charge a higher price for
its product for its product and to gain customer loyalty because consumer may
become strong attached to the differentiation features.

- CBP is ambitious to gain market shares and to protect the leading position in
the market and CBP should take the opportunities to achieve the target.

How CBP make differentiation from our competitors? Below are some contents
that CBP can differ from competitors:

- Invest on and always be innovative in technology because technology is

always the main and the key differentiation that can help Castrol BP product to
differ from other competitors. Be an innovation Leader, who use advanced
technology, better insights, innovation to tap latent demand / create a category.

- Launch new premium products from three backbone market spaces such as
MCO, PCO and CT with new advanced features using new advanced
technology of the two world famous brands of Castrol & BP.

- Build a strong brand distinctiveness for two differentiated master brands

Castrol & BP

- Invest and establish a professional service system for MCO, PCO and CT in
order to introduce products and bring the realistic services to customers.

- Apply WCSC (international management) in Distributor management.

- Combined with some focused strategies such as:

o Develop technical teams from two to 4 head accounts (1 in charge of North,

1 in charge of Central and 2 for the South.

o Increase market shares of PCO and OEM as they are potential market
space.

o Focus on two big markets: Ho Chi Minh City and Ha Noi

 - 83 -

o Strengthen marketing activities with more advertisements and attractive

promotions to attract new customers.

o Territory and price management

5.4 STRATEGY IMPLEMENTATION:

This section will suggest some solutions to implement the differentiation strategy
that is appropriate with CBP business. The sustainability of differentiation depends
on two things, its continued-perceived value to customers and the lack of imitation
by competitors. This requires CBP to maintain sustainable competitive
advantages as well as setting up barriers of imitation and search for durable
sources of uniqueness.

- Invest on and be innovative in technology because technology is always

the main and the key differentiation that can help Castrol BP product to differ
from other competitors. As leading brands in the world, currently Castrol BP
applies many unique and advanced technologies in formulating and producing
goods. For Motorcycle, Castrol BP is the innovator in bringing the technology
of Trizone and Scootek to customers. This an advanced premium quality 4-
stroke engine oil which offers low friction and provides additional protection
against high temperature operation by resisting oxidation. Combined with its
fast flowing Power Release formula, Power1 Scooter helps reduce internal
power losses in the engine and enables the scooter to deliver maximum power
without compromising protection. For passenger car, CBP apply the Fluid
Strength technology. This technology can help to maximize short and long
term engine performance, sustain improved performance for longer even when
under pressure and deliver excellent protection when reducing metal to metal
contact between the critical engine surfaces. For consumer truck, CBP apply
the technology of CleanGuard, HeatProof that can protect the engine much
better, prevent the engine from sludge and wear to a gasoline engine when run
on a fuel which is prone to causing sludge… The customers can enjoy the
benefits from using Castrol, BP lubricant that can help to maximize engine’s
performance and its durability. Technology is also the best strength of CBP
that need to be focused and invested on to make differentiation from
 - 84 -

competitors and meet customer’s demand. CBP, therefore should always be

an innovation Leader, who use advanced technology, better insights,
innovation to tap latent demand / create new product category to keep number
one position in the market.

- Launch new premium products with higher quality level and better
design especially from three backbone market spaces such as motorcycle,
passenger car and consumer truck. CBP needs to check, evaluate the product
life of all products to recognize which one need to be upgraded at higher
quality level, which ones need to be recycled. The Power 1 and Vistra series
need to be renewed in the year 2013 while Castrol Activ and Supper Long Life
need to be immediately re-launched in 2012. Besides, some PCO product
need to be upgraded at higher level such as GTX, Magnatec, Edge...
Improving the quality of product is very important but the package design and
quality is important too. Currently, every month the customer service team
receives a lot of complaints from customers on the issue of package quality
that causes the leaking of the products. Following this, CBP need to choose
the best package supplier who can guarantee the package design and quality.

- Build a strong brand distinctiveness for two differentiated master brands

Castrol & BP (except PCO space- Castrol), capitalising on and protect the
power of the Castrol brand and strengthening BP brand:

o Castrol – As a specialist, innovative, technical, dynamic, those in the know

recommend. Following this CBP continue to be sponsor of sport events
such as football and others in order to polish the Castrol image

o BP – As a friend, caring, quality, reliable, trust, experts recommend. In

order to do this, CBP needs to organize annual events, for instance, the
“Golden Wrench”, a skill contest for mechanics or other events to bring BP
image to customers.

- Invest and establish professional service systems for MCO, PCO and CT
in order to introduce products and bring the realistic services to
customers:
 - 85 -

o For MCO/PCO, design a service program named “Partners for Life” as a

distinct and market leading offers for any stage/point of the Workshop
Lifecycle – MCO/PCO. With this program, selected workshops, bike points
can have nice decoration and facility investment and with promotion offer to
customers who came to any shop belongs to this service system. With this
program, CBP plays as a partner who can best help customers evolve and
grow. These activities help to build brand advocates and improve account
management skills in PCO and attract new customers.

o For CT market space, design a radio program of “Intimate Friend” for all
truck drivers, who are often on the long road so that they can hear about
the news, listen to music or other entertainments program combining with
Castrol BP advertisements broadcasted on this radio channel.

- Develop technical team from two to four head accounts. Currently, technical
team is very thin of only two persons and therefore usually can not meet rising
demands from customers. There is a need to recruit more staffs for technical
team: 1 in charge of North, 1 in charge of Central and 2 for the South in order
to provide prompt technical services to customers as well as to give more
technical training for sales people of CBP and of Distributors’.

- Apply WCSC, an effective international management program in order to

strengthen distributor management capabilities and continue to build
WCSC capabilities at distributor level. CBP should develop leverage key OEM
relationships – BMW, Audi, Ford, VW, Toyota and build WCCM account
management capabilities.

Besides, CBP needs to combine with focused strategy and pricing segments
strategy such as focusing on core markets of Ho Chi Minh and Ha Noi and extend
our leadership in growth markets & 2nd cities. CBP also need to focus on
Premium & Mass Prestige segments and keep fit & strong the Backbone of
business MCO and CT. For HD, CBP needs to maintain value leadership with
customers. Besides, the task of territory, cost and price management is very
important also. CBP should also enhance distribution channel on the nationwide
 - 86 -

and focus more in marketing activities with more advertisements and attractive
promotions to attract new customers.

All of these strategies are to protect volume share and aggressively pursue
greater value share across all market spaces, by differentiating and strengthening
our brands and enhancing long term customer loyalty through innovative offers,
focused and disciplined execution, trade up and through a fit for purpose
organization that enhances the offer at every step along the value chain.

5.5 CBP SALES FORECAST BY MARKET SPACE UNTIL 2015:

With the above mentioned strategies, CBP expect to have a volume growth by
15% each year in all market spaces. Following this until 2015, CBP can reach
total volume of 120 millions liters and can gain a market share at about 45%.
Assuming the growth rate of gross margin is equal as of volume, CBP can achieve
more 100 millions US Dollar by the end of 2015.

Figure 5.1 – CBP forecast of sales volume by market space until 2015

Forecast of sales volume by market space until 2015

140,000

120,000

100,000
Vol (KL)

80,000 HD

60,000 OEM
CT
40,000
PCO
20,000 MCO

0
2006 2007 2008 2009 2010 2011LP 2012LP 2013LP 2014LP 2015LP

Year

It is really an optimistic and feasible picture for CBP in order to achieve the target.
In order to reach the target, CBP needs to utilize all the sources of finance,
people, management capabilities of production, marketing, sales and distribution
 - 87 -

channel with annual review and evaluation during action process to make things
happen.
 - 88 -

CONCLUSIONS AND RECOMMENDATION

The lubricant industry in Vietnam is growing fast especially when the country
opened the door to welcome foreign business organizations who choose Vietnam
as a potential land to develop their business. The development of economy, politic
and technology bringing both opportunities and threats to all lubricant business
organizations and Castrol BP Petco is one of them, the best among the best in
term of business dimension and capabilities. Hence to keep number one positions
in the market require an appropriate business strategy.

As the result of SWOT and other necessary analysis mentioned from Chapter 1 to
Chapter 5 of this thesis, the issues of Castrol BP Petco have been solved and an
appropriate business strategy have just been built for implementation from now to
2015. It is recommended that Castrol BP Petco should apply the differentiation
strategy of launching new premium products with new benefits to customers,
strengthening brand distinctiveness, building a professional service systems,
being innovative and applying international management system in order to bring
customers the new tastes, develop business and gain more market shares.
Castrol BP Petco is confident to implement this strategy thanks to strong
capabilities of finance, human resource and business management with great
support from the region. The sustainability of differentiation depends on two
things, its continued-perceived value to customers and the lack of imitation by
competitors.

In long term view, things will change and competitors might imitate these
strategies, therefore there should be an annual review and evaluation of strategy
whether Castrol BP Petco should adjust or change the business orientation
depends on actual business circumstances. There is only one thing that should
not be change in this strategy is that Castrol BP Petco should always be
innovative and pioneer in business management in order to keep leading position
in the market.

The study recommends differentiation strategy. However, it is proposed that the

company to continue finding new sources of uniqueness and create high barriers
 - 89 -

of imitation in order to sustain competitive advantage. Every day is a new school

day, the study will never be the end and there should be a further study for Castrol
BP Petco in a long business journey in order to reach the target.
 I

REFERENCES
Books:

1. David, Fred R. (2006), Khaùi luaän veà quaûn trò chieán löôïc, Nhaø Xuaát
Baûn Thoáng Keâ.

2. David, Fred R. (2009), Thirteenth Edition, Strategic Management – Concepts

and Cases, Prentice Hall, New Jersey .

3. Porter, Michael E. (1998), Competitive strategy: Techniques for analyzing

industries and competitors with a new instructions, New York, The Free
Press.

4. Porter, Michael E. (2008), The Five Competitive Forces That Shape Strategy,
Havar Business Review.

5. David Ward & Elena Rivani (2005), An Overview of Strategy Development

Models and the Ward-Rivani Model, General Economics and Teaching
0506002, EconWPA.

6. Andrews, Kenneth (1980). The Concept of Corporate Strategy, 2nd Edition.

Dow-Jones Irwin.

7. Bryson, John M. (1995). Strategic Planning for Public and Nonprofit

Organizations. Jossey-Bass.

8. Denise Youngblood Coleman Ph.D. (2011), Vietnam - 2011 Country Review,

Country Watch, Houston – Texas.

9. Building your company’s vision (2010), Havard Business School Publishing

Corporation , The Free Press.

10. Global Lubricants Service – Vietnam – GLS Country profile (2010), Strategic
Advisors in Global Energy.

11. Lubricants and Base Oils in East Asia – Prospects in recovering markets (2005),
Nexant Chem Systems Inc.

12. Brief Industry Report - Lubricant Industry (2009).

 II

13. Country forecast – Vietnam at glance 2008 – 2009.

14. Environmental Assessment Report August (2010)- Project Number: 2619.

15. Lubricant Industry to 2015 (2011), The Free Press of Technology.

16. Lubricating Oils and Grease (2011): Market Research Report – Market
Publishers, market report database.

17. Monthly, yearly internal reports of Castrol BP Petco from 2006 to 2011

Sildes from the course:

1. Georges Wanet, Strategy

2. Anne Drumaux, Management & Organization

3. Claire Gruslin, Market Research

4. Marianne Claes, Applied Marketing

5. Michel Verstraeten, Human Resource Management

Websites:

http://castrolbppetco.com

http://www.bp.com

http://www.windpowerengineering.com/tag/lubrication

http://www.quickmba.com/strategy

http://www.theodora.com/wfbcurrent/vietnam/vietnam_economy.html

http://vi.wikipedia.org/wiki and Vietnam General Statistic, 2011

http://www.thetimes100.co.uk/theory/theory--pest-analysis--166.php

http://www.scribd.com/doc/56784713/An-Overview-of-Strategy-Development-
Models

LIST OF SUPPORT AND INTERVIEWED PERSONS
No Name
1 Mr. Le Van Dung
2 Mr. Nguyen Ngoc Khoi
3 Ms. Pham Thi Ngoc Han
4 Mr. Le Xuan Hoang
5 Mr. Nguyen Huu Nhan
6 Mr. Ta Dinh Quang
7 Ms. Tran Thi Lan Huong
8 Mr. Nguyen Minh Tan
9 Mr. Nguyen The Giao
10 Mr. Huynh Dai Phu
11 Ms. Tran Ngoc Huyen
12 Ms. Dang Thi Kim Hoan
13 Duong Thuy Chi
14 Mr. Nguyen Van Von
15 Mr. Pham Quoc Thai
16 Mr. Quach Truong Giang Production Manager
17 Mr. Pham Van Nam Hai
III
Position
General Director
Finance Manager
HR Manager
B2B National Sales
Manager
Sales Operation Manager
Technical Manager
Admin Manager
Logistics Manager
B2C Sales Manager -
HCMC
B2C Sales Manager-
Central
Credit Controller – Finance
Marketing Manager
Admin Manager – Ha Noi
Fomer Production Manager
Fomer HR staff
Sales Manager
Company
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Castrol BP Petco
Hong Ha Co. Ltd
Mekong Auto
Company
 IV

SOME OPEN INTERVIEW QUESTIONS

1/ What do you think about the lubricant business trend in Vietnam in the near
future?
.........................................................................................................................................
.........................................................................................................................................

2/ What are the opportunities / advantages for lubricant operators in Vietnam in

this period?
.........................................................................................................................................
.........................................................................................................................................

3/ What are the threats / disadvantages?

.........................................................................................................................................
.........................................................................................................................................

4/ What aspects, do you think that Castrol BP Petco is the best at?
.........................................................................................................................................
.........................................................................................................................................

5/ What are the problems that Castrol BP Petco is facing with?

.........................................................................................................................................
.........................................................................................................................................

6/ According to you how to solve those problems?

.........................................................................................................................................
.........................................................................................................................................

7/ In a short term view, what are the things that Castrol BP Petco should give
priority to do now to develop business?
.........................................................................................................................................
.........................................................................................................................................

8/ In a long term view, what Castrol BP Petco should pay attention to do?
.........................................................................................................................................
.........................................................................................................................................

9/ According to you, in this fierce competition, what Castrol BP Petco can make
differentiation from other competitors in order to keep number one position in the
market?
.........................................................................................................................................
.........................................................................................................................................