Luận văn MBA nâng cao chiến lược cạnh tranh sản phẩm dầu nhờn và dẫu mỡ tại công ty cổ phần hóa dầu petro

THE CAPSTONE PROJECT REPORT OF GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION includes the main contents as followed: Introduction Chapter 1: The theories in regard to competition an

Luận văn thạc sĩ Nâng cao chiến lược cạnh tranh sản phẩm dầu nhờn và

dẫu mỡ tại Công ty cổ phần hóa Dầu Petro

MBA THESIS TITLE

IMPROVING THE COMPETITION STRATEGY IN THE AREA OF

LUBRICANT AND GREASE BUSINESS FOR PETROLIMEX

PETROCHEMICAL J.S COMPANY

INTRODUCTION

Our country is in the beginning period of the market economy under the Statemanagement Market economy opens the development opportunities as well

as the big challenges for Vietnam's enterprises

An indispensable matter in economy - the most outstanding question of theday in the market economy that is competition Because, in spite of anyfields, any sectors, the market has the division by the domestic andinternational enterprises The competition is more and more severe Theenterprises never satisfy with the occupied market (because it means theyaccept to be annihilated), and they always try to expand their market share Inorder to reach this, the enterprises must have the suitable tools, solutions toincrease the competitiveness as the foundation to ensure the enterprises tostand firmly and develop in the severe competition in the market

Petrolimex Petrochemical Joint Stock Company (PLC) is specialized in doingbusiness on the products such as Lubricants and Grease and the productsoriginated from petroleum like asphalt, Chemical Through 17 developmentand operation years, the Company has built the position as one of the leadingenterprises in Vietnam’s Lubricants and Grease market However, PLCCompany has had to confront with the strong competition from the renownedenterprises inside and outside the country such as: BP, Castrol, Shell,EssoMobil, Caltex, PVPDC, APP in Lubricants and Grease market inVietnam In order to continuously develop and expand the market share, theCompany needs to do research and set forth the suitable strategy to improveits competitiveness Then, the Company could win the competitors, standfirmly in this severe competition market

Originated from the above mentioned overview, Team 2 - Class M07.09 has

agreed to select “Improving the competition strategy in the area of lubricant and grease business for PETROLIMEX Petrochemical J.S company (PLC)” as the capstone project report of the course

THE CAPSTONE PROJECT REPORT OF GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION includes the main contents as followed:

Introduction

Chapter 1: The theories in regard to competition and competition

improvement for enterprises

Chapter 2: Analysis on PLC’s current competition power in lubricant and

grease business

Chapter 3: Improvement of competition power and solutions to be

implemented within 2011 - 2015

Conclusion

Chapter 1 THE THEORIES IN REGARD TO COMPETITION AND

COMPETITION IMPROVEMENT FOR ENTERPRISES

1 Competition and its roles in regard to an enterprise’s operations

1.1 The roles of competition in regard to the operation of enterprises

a The concept of competition:

- The business dictionary (published in Britain in 1992) defines

“competition is the rivalry between the businesses striving for the sameproduction resource”

-“Competition includes attacks and counter-attacks from businesses againsteach other to build/ protect their competition advantages or improve theirmarket position”(1) Businesses have to compete against each others and atthe same time keep improving their competition power to be in a betterposition than the rivals:

+ The action in which businesses compete against each other in regard tosome products or in some market areas are called multimarket competition.The group of attacks and counter-attacks made by the businesses is calledcompetition motivation

+ As the time goes, businesses continuously attack or counter-attack eachother This suggests that the businesses depend on each other in

competition ”the more severe the competition is the less profit the businesses will gain”

- Competitors that are similar in resources and market coverage will bestdefine competition Similarity in market means the number of markets thatcompetitors have in common Similarity in resources means thecompetitors can be compared against each other in term of tangible of

intangible resources etc Businesses that are similar in resources andmarket coverage will most likely be direct competitors

- The forces that lead the businesses’ competition include: perception,motivation and capabilities

- Competing includes attacks and counter-attacks made by businesses inorder to be in a better market position

- In economics, competition is categorized as follows:

+ Competition between sectors: businesses from different economic

sectors compete against each other to invest in the sectors that will benefitthem best The competition between sectors therefore motivates businesses

to look for the most beneficial sectors to invest in and transfer capital from

the less profitable sectors to the more profitable ones

+ Competition inside the sector: the businesses/ competitors produce and

market the same products/ services The competition inside the sectortherefore forms market price for one product/ service basing on its commonvalues In this type of competition, the competitors will eliminate each other.Winning means expansion and losing means downsizing or even bankruptcy

b The roles of competition in regard to the operation of enterprises

- Competition is rooted from the freedom in business operation for greatervariety in services and products or for more participation from morecompetitors Competition is a race without a finish line Competition meansnot only leading but also “winning” customers by best satisfying theirdemand

- In a market economy, competition helps lowering prices of productsservices and at the same time improving their quality

+ Competition will remove businesses having high costs and encourage thosehaving lower ones This pressurizes businesses to improve their competitionpower via lowering costs and improving their productivity, which eventually

benefits the society in the long run but also forces some certain businesses to

go bankrupt, resulting in waves of unemployment

+ Competition also forces businesses to apply new technology and advancedproduction skills for the improvement of quality, productivity and variety ofproducts The businesses are also forced to faster access into information aswell as take full advantage of opportunities

In summary, competition does not mean elimination but instead it helps replacing those having bad performance and wasting resources with better ones in order to better meet the social demand for the development of nations Fair competition motivates the economies and businesses to grow

1.2 Types of competition in business

The categorization of market basing on competition is closely attached to therelationship of supply-demand This categorization shows us the followingtypes of competition:

1.2.1 Perfectly Competitive Market

- In a perfectly competitive market, there are various competitors supplyingthe same products/ services Since the businesses can not make anydifferences (on model, specification, quality ) from each other; none of themare therefore able to supply a quantity of products big enough to influence theprice The conditions for market entry/exit are easy Hence, the only way forbusinesses in the this market is to minimize their costs for better profit

- This type of competition hardly exists in reality

1.2.2 Imperfectly Competitive Market

Imperfectly Competitive Market is a normal one as it exists in reality There are two types of Imperfectly Competitive Market as follows:

a (Full) Cartel Monopoly

There are only a few (a group of) businesses that supply the majority (or all )

of certain products/ services These businesses are sensitive on each other’s

operation They depend on each other while setting prices and deciding on thequantity of products/ services that they are to supply When a business in thecartel lowers its price, the others will lower their prices even more OR whenone in the cartel increases its price while the other don’t, that one will finallylower its price to the earlier rate or else will lose its customers The way forcompetitors of this type is to lower their costs via various ways, such as:increasing quantity

b Cartel Monopoly (with differences)

There are a few businesses producing and marketing products/ services withcertain differences The differences may be in quality, model etc

c Monopolistic competition

Many businesses are able to create differences for all or a part of theirproducts/ services Customers recognize each business’s products/ servicesvia label, advertisement, packaging and other services In this market, thebusinesses are able to set their own prices, but not entirely on their own Thecompetitors will focus on the market segments where they can better servetheir customers and therefore can set higher prices This market will bestbenefit big businesses

1.2.3 Complete Monopoly

There is only one business supplying a certain product/ service ThisMonopoly is supported by the State or by patent, huge scale of investment,exclusive right in technology Competition does not exist in this market Themonopolistic enterprise decides on the price

1.3 Enterprises’ adaptability to competition

a Relying on competition advantages to win

- The businesses’ common competitive weapons are structure of products,product quality, prices, sales services and others

+ Competition via quality: via reliabilities, design, technology

+ Competition via prices: businesses attract customers via competitive prices + Competition via services: businesses design pre and after sales services tobuild the prestige for their products This is a good competitive weapon thatare used more and more by businesses today

b Building entry barriers to both new businesses and existing ones:

To boost the competition advantages, the businesses usually choose to buildentry barriers to new players such as: increase of size, diversifyingdistribution channels etc

- The businesses also build other types of entry barriers which try not todirectly confront other competitors, such as:

+ Selecting certain segments: selecting the segments with no or only a fewcompetitors; selecting areas with remarkable demand but with no competitors

or selecting the segments where the competitors do not perform well

+ Preventing other competitors’ penetration: by having big stocks, goodquality, good marketing policy …

+ Cooperating with competitors: in such fields as science & technology etc…

1.4 Improvement of competition is vital and obvious to enterprises

1.4.1 Enterprises’ competition power

a A business will have certain competition advantages when its profit is

higher than the sector’s average rate This advantage is sustainable when it ismaintained in a long period of time The indicators for competitionadvantages are the values of the products/ services that customers enjoy andthe involved costs

- The values that customers enjoy from a business’s products/ services are

usually higher than the price they pay for those products/ services This

difference is called consumer surplus The competition between businesses

has awarded the consumers with this surplus In other words, this is because abusiness can not categories its products/ services into segments that cover the

customers well enough so that it can ask for the right price for the values thatcustomers enjoy… From these this standpoint, the businesses can select either

of the following competition solutions:

+ Creating more values for customers, exceeding the customers’ demand byoutstanding design, functions, quality, etc so that the customers can feel thevalues and therefore they are willing to pay higher prices

+ Improving the business’s performance/ operational efficiency in order tolower the costs  increasing the marginal profit

“Hence, by fully utilizing its core business to go beyond standards, a business will create added values for their customers” (2).

In order to create outstanding values, it is not a must for a business to eitherhave the lowest costs or to make products with highest quality in the sector.Instead, it is vital that the business must create a bigger difference between

Value & Cost (compared to other competitors) Following M.E Porter:

“competition advantage (higher profit) will be with any business that can create outstanding values The way for creating outstanding values comes the efforts in lowering costs or/ and creating differences for its products And thus, the customers will better realize and willing to pay an additional amount”(3)

b Competition power/ advantage may also mean “the ability that a business

has to maintain its position in the market for a long period of time and tomake a profit that can cover the ambition for its strategic target”

Theoretically, there are various indicators reflecting the competition power

One important one is the market share that a business has The bigger themarket share, the better the competition power To survive and develop, abusiness must have a market share that is big enough

1.4.2 Factors affecting enterprises’ competition power:

Four fundamental factors:

- Efficiency: to a business, the inputs are labor, land, capital, management,technology and the outputs are products/ services Efficiency can be measured

by the ratio of output/input

- Quality: this factor can influence competition power as follows: 1 increasethe quality of the product following customers’ feeling  higher price

2 higher quality  higher efficiency and lower costs

- Improvement: is the new idea or new way that a business operates orproduces Successful development is the development of new products or thenew way of management that creates values for customers (4)

- Meeting customers’ demand/ expectation: to this, a business must meet thecustomers’ demand better than other competitors, These include outstandingquality and other improvement for customers’ satisfaction; supplyingcustomers with unique products/ services; time of delivery (5)

1.4.3 The tendency of competition in the 21st century:

a Competition is more and more severe because of the following reasons:

+ The appearance of information technology

+ The application of new knowledge in science & technology that hasimproves the quality of human resource

b The differences between sectors are disappearing Knowledge plays a vital

- In a market economy, competition in inevitable and the businesses must

accept this Competition will improve production/ operation and at the same

time competition will remove the businesses with poor performance Hence,every business must design a reasonable competition strategy

- Together with the booming of science-technology, customers are better and

better served Presently, Vietnam has become a WTO’s member and thus thelocal businesses have to compete with other international players So, theyhave to improve their competition power

2 The fundamentals of strategy and business strategy

2.1 Concepts of strategy and business strategy

- Alfred Chandler defines strategy to be “the specification of long term targets of a business, application of actions and the allocation of necessary resources to reach the said targets”(6).

- Quinn defines strategy to be “the integrated plan aiming at major targets, policies with a closely structured actions” (7)

2.2 Strategy management and selection

2.2.1 The concepts of strategy management

+ Alfred Chander defines strategy management to be “the process that a business specifies its long term targets, actions and allocation of resources to reach those targets”

+ John Pearce II and Richard B Robinson define strategy management to be

“a system of decisions and actions designed to reach a business’s set targets”

- “Strategy management” is a bit different with “business policy” in a way

that strategy management not only focuses on internal functions but also on

the environment and strategy (8)

2.2.2 Types of business strategy

a Functional level: focuses on how a business creates competition power

following such factors as efficiency, quality, improvement and meetingcustomers’ demand These aim at improving the activities of marketing,material management, development of production and customer services

b Business unit level: focuses on how a business position itself in the market

to win competition advantage These are 3 types of strategy at this level Theyare: 1 cost leader, 2 making differences and 3 focusing in certain market

c Corporate level: focuses which product/ operation is most beneficial in the

long run

d Globalization level: in the current globalization requests a business to step

out in to global arena in order to win competition advantage When a businesspenetrates a new market, it needs to consider/ calculate its benefits & costsbasing on the following strategies: multi-domestic, international, global andtransnational

2.3 The role of business strategy

Strategy management delivers the following benefits:

- Helping businesses to better realize its visions by setting targets and ways tomove forward

- Improving businesses’ mindset on the changes from the environment

- Assisting businesses to focus on important issues

- Assisting businesses to see its strengths, weaknesses, opportunities & threats

to design relevant policies

- Assisting businesses to make right decisions

2.4 Models of superior profit:

a As defined at point 1.4.1, a business will have competition advantages if its

profit is higher than the average of the sector

There are 2 models One is sector and the other is resource

b Sector model:

- This model shows that supernormal profit is affected by external factors

- It is more affected by the sect oral factors rather than the business’s internalfactors An attractive sector is the one that bring about a profit that is higherthan the average  the business will have to indentify such a sector 

designing the right strategy  allocating necessary resources  continuingits strategy to succeed  gaining supernormal profit…

 taking actions

3 Strategy design process

The strategic management process: the details in attached Figure 1

3.1 Vision & mission

a Strategy management is to satisfy the involved parties/ stake holders

- “The involved parties are those that are affected by the business’s performance and are entitled to benefit from the business’s result” (9);

They include:

+ internal: share holders, staff, board of directors & management

+ External: customers, suppliers, government, trade union, public …

- These involved parties are linked to the business by supporting the businesswith resources and at the same time benefiting from the business’s

performance

b A business’s mission & vision are what it states to gain and plan for basing

on the stake holders’ request

3.2. Objectives of strategy

The objective of strategy has 4 characteristics:

+ Accurate & measurable

+ Aiming at important issues

+ Challenging but doable

+ Good scheduling

- Share holders are the first and most important stake holder of a business.Hence, it must satisfy this stake holder the most

3.3 Analysis on external enviroment

External environment includes factors that are out of the leader’s control butthey affect the planning and implementation of a business’s strategy Theanalysis of the external environment helps the business to identifyopportunities & threats to a business External environment are divided into 2categories: macro & micro

3.3.1 Analysis on macro environment

This macro environment is analyzed by the matrix PESTLE

a Macro economy: is the state/ prosperity of a nation’s economy This affects

a business’s performance There are 4 factors in this macro economicenvironment:

3.3.2 Analysis on micro/ sectoral environment

a Industry & competition:

-An industry includes businesses supplying similar products/ services

b Five competitive forces (the details in attached Figure 2):

The five competitive forces will affect a business’s performance and profit.The strength of these forces changes from time to time  the business’sleader must see the opportunities & threat and take relevant actions.

b1 Potential entrants

They are not direct competitors but will be if they want to These potentialentrants are interested in the existing sector and therefore force the existingplayers to improve

b2 Industry competitors

This is the direct competitive force to a businesses Hence, the businesseshave to indentify this force and design a right strategy

b3 Bargaining power of buyers

Buyers are end users and are considered as a threat when they have thebargaining power and therefore they are able to ask for better quality withlower price  increasing a business’s costs

b4 Bargaining power of supplier

The suppliers are considered as threat when they ask for higher price ordeliver lower quality  lowering a business’s profit

b5 Substitutes

Substitutes are the products/ services from other industries These products/services are similar and are able to substitute for the excising products/

services provided at the existing industry

b6 The defects of “Five Competitive Forces”

The model misses the importance of renovation & the differences betweenbusinesses

c Competition changes during the life cycle of an industry

-Introduction: slow growth, entry barrier is the key, technology plays a moreimportant role than cost saving or loyalty to brand

-Growth: the businesses can increase their profit without fighting for othercompetitors’ market share

-Restructuring: competition is severe The businesses’ normal strategy duringthis phase is lowering prices

-Maturity: demand grows poorly The businesses try to maintain their marketshare

Decline: negative growth due to different reasons Competition in prices is themost severe

3.4 Analysis on internal environment

3.4.1 Value chain

Value chain means a chain of a business’s activities/ process that convertinputs into values for customers (the details in attached Figure 3) Thisprocess includes:

a Main activities

a1 Inside logistics: handling of materials, warehouse…

a2 Production: converting inputs into values

a3 Outside logistics: collecting, storing and delivering products to customers

a4 Marketing & sales:

a5 After sales service/ customer service

b Supporting activities

b1 Technology R&D: focusing on the product/ service improvement

b2 Human resource management: including recruitment, training, payment… b3 Business’s infrastructure: including its structure, management system,

accounting & finance system, government relation…

c The above mentioned activities must be compared to other competitors’

d The business can outsource a part of or all of main/ supporting activities

d1 Why outsourcing is necessary:

- Improving the business’s capabilities by hiring outside experts for technicalimprovement, etc.

- Utilization of global resources

- Increase of profit via process renovation

- Risk sharing

- Redirecting investment/ resources to other sectors

d2 Principles for outsourcing

- Searching for the best from the outstanding companies

- Evaluation of resources & capabilities: not outsourcing the services that thebusiness is able to handle by itself

- Not outsourcing services/ capabilities that are the keys to the business’ssuccess

3.4.2 The benefits of sustainable competition to enterprises/ businesses

a The businesses must keep focusing on the factors, described at point 1.4.2.

b The business must turn itself into a learning organization which is able to learn from the mistakes and improve

c Benchmarking: the business must compare its products/ services to its most

successful competitors

d Overcoming its own stagnancy

3.5 SWOT analysis:

3.5.1 Concepts of SWOT:

SWOT stand for Strengths, Weaknesses, Opportunities, Threats SWOT is used

when a business wants to analyze the internal & external factors whiledesigning its strategy

3.5.2 SWOT analysis:

a External Factor Evaluation (EFE) matrix is at the same time used.

b External Factor Evaluation (EFE) matrix is also used.

c Businesses usually use SWOT matrix to analyze and design its strategy

A business may use one or more SWOT matrix to analyze and make decisions

CHAPTER 2 ANALYSIS ON PLC’S CURRENT COMPETITION POWER

IN LUBRICANT & GREASE BUSINESS

1 Introduction of PLC

1.1 Establishment & development

a Earlier, PLC was a lubricant & grease trading company Later in 2003, the

company was privatized and becomes Petrolimex Petrochemical J.S company

On 27/12/2004, PLC was listed in Vietnam stock market

- Full name : Petrolimex Petrochemical J.S company (PLC)

- Logo :

- Office address : 195 Kham Thien Str.- Dong Da Dist- Ha Noi

- Before 1994, PLC imported 100% of its products Currently, PLC has beenimporting materials and blending products under PLC brand PLC distributesits products in domestic market and exports some to Laos, Cambodia, China,Hong Kong, Taiwan and Philippines

1.2 Business areas

- Trading, import - exporting grease, lubricant, chemicals and petrochemicalproducts

- Trading, importing-exporting petrochemical equipments

- Operating in other relating areas such as: warehousing, blending, testing,consultancy services

- Currently, PLC (the parent company) is mainly dealing with lubricant &grease PLC’s two other wholly owned subsidiaries are in charge of chemicalsand bitumen…

1.3 Organization and management structure

The total number of PLC’s staff is 326 people

1.4 A brief introduction of PLC’s products

1.4.1 An overview of grease & lube products

-Grease & lube products are blended from base oil & additives

-Function: lubricating, etc

-The products are categorized into:

+ Engine lubricant: for motorbikes, commercial cars, passengers cars, certainequipment

+ Industrial lubricant: including transmission lube, hydraulic lube, transformerlube and others

+ Marine lubricant: for marine engine & equipments

1.4.2 PLC’s products

a PLC’s products follow international standards and can be substitutes for

international brands

b PLC has about 400 products, divided into 6 groups:

- Motorbike engine lube: PLC Racer Scooter, PLC Racer SJ, PLC Racer SG,PLC Racer SF, PLC Racer SD, PLC Racer 2T, PLC Racer 2T Extra,

- Passenger vehicle engine lube: PLC Motor Oil Extra 40 & 50, PLC KomatSHD 40 & 50, PLC Komat CF, PLC Cater CH4, PLC Cater CI4,

- Commercial vehicle engine lube: PLC Racer Plus, PLC Racer HP,

- Marine lube: Atlanta Marine D, Disola, Aurelia XL, Talusia HR70,

- Industrial lube: PLC Rolling Oil 32, 46, 68, PLC AW Hydroil 32, 46, 68, PLC Supertrans, PLC Gear Oil MP 90 EP & 140 EP, PLC Angla 150, 220, PLC Brake Fluid Dot 3, PLC Super Coolant 100

- Grease: PLC Grease L2, L3, L4; PLC Grease C2, PLC Grease L-EP 0, 1, 2,3; PLC Grease BHT 252,

c PLC’s product standards

1.5 PLC’s general process of production and business

- Theoretically, the process starts from refinery and looks like:

Crude  Mazut  base oil  grease & lubricant products

- Currently, PLC has no refineries Instead, it has two blending plants located

in Hai Phong & Hochiminh PLC’s production process is:

Import of materials & additives  production

- PLC also import 15% of its products for domestic distribution

1.6 Main materials and inputs:

a Main materials:

- Main materials include: base oil, additives, steal drums and plastic cans,carton boxes PLC imports base oil & materials from France, U.S, Japan,Korea, Taiwan, Singapore, Thailand

b Other materials:

- PLC buys other materials from both domestic & international suppliers

c Commercial products:

PLC imports some special & commercial products for its distribution

1.7 Facilities and technology

1.7.1 PLC’s facilities (warehouse, port, plants ) locates at strategic positions equiped with advanced technology Its existing quality management is ISO 9001:2008

Can Filling Production Line Drum Filling Production Line

a Thuong Ly – Hai Phong blending plant:

Area: 25.000 m2; Capacity: 25.000 MT/year and being expanded Port canreceive 1,500 MT vessels, number of base oil tanks: 8, number finishedproduct tanks: 07, number of blending tanks: 07, drum blending plant:3,600m2

b Hochiminh blending plant

Area: 41.000 m2; Capacity 25.000 MT/year and being expended Port canreceive 7,000 DWT vessels, number of base oil tanks: 09, number of additivetanks: 06, number of finished product tanks: 07, drum blending plant:3,852 m2

c Duc Giang – Hanoi warehouse: total area of 6,000m2

d Nguyen Khoai (Hochiminh) warehouse: total area of 3,000m2

1.8 Quality and quality control system:

- PLC’s materials, products are strictly controlled

PLC’s testing labs have advanced equipment, handled by experienced staff.PLC’s labs are able to analyze 34 petrochemical standards

- PLC is now applying quality management system of ISO 9001:2008

1.9 Market & sales channels

a Petrolimex master dealer channel:

Petrolimex is having more than 5,500 petrol stations nationwide that hasprovided PLC with a good competition advantage over other competitors.PLC’s sale volume is the biggest via this channel.

b Dealer channel/Outside Petrolimex channel:

This channel includes traders, businesses, organizations outsidePETROLIMEX This channel helps increasing PLC’s sale, especially in thesegment of motorbike/ car engine lube

2 The analysis of environmental factors affecting competition power

2.1 The macro environment

a Macro economic factors

a1 Vietnam’s economic growth after 1990 is detailed out in the following chart

0 2 4 6 8 10 12

-Development of industries and the economy: Among industry, agriculture andservice, the highest development goes to industry This is because of the waves

of urbanization and the coming of many new industrial & processing parks,etc These lead to a growth in the demand for lube

a2 The structure of Vietnam’s economy: has greatly transformed and seen a

growth in industry, construction, service and a decline in agriculture Thistransformation has increased the demand for petrochemical and lubricantproducts

a3 Integration into the global arena: Vietnam becomes a WTO’s member better opportunities for foreign lube players in Vietnam  more competition

a4 Interest rate is increasing in the recent years  increasing the productioncosts  lowering the profit and competion power of players, especially toplayers with poor financial capability

a5 Exchange rate increases the price USD and other power currency increasing such price imported materials as base oil, additives

b Technology development brings about new equipments  lube businessesmust invest in higher quality products for these equipment

c Sociological environment: by 2008, Vietnam’s population is 86.21 million

and according to reports from the Ministry of Transport, the main mean oftrasport in Vietnam is motorbike (98% of Hochiminh’s families havemotorbike while the figure is 87% in Hanoi) The growth in transport mean is16.6% in the last 5 years The growth in the numbers of motorbikes and cars

is estimated to be ongoing in the next 5-10 years  growing demand for lube

d Legal & Political environment: is better and better regulated  better

environment for lube players at the same time these players also have toimprove to be more professional

c Global environment: creates more opportunities for new international

players to join Vietnam’s market at the same time domestic players can alsoexport inland produced products to the global arena

2.2 The micro environment (lube industry)

2.2.1 Legal issues – threats & opportunities – in the lube industry

There are no more entry barrier to lube players Now, both local andinternational players can own and operate lube blending plants  low entrybarrier  more severe competition

- The Ministry of Science, Technology & Environment (MOSTE) sets stricter

regulations on the lube business  players have to invest better inequipments & facilities to comply with the new requirements

2.2.2 Overview on Lube Demand in Vietnam

In general, the demand is growing stably, equivalent to or lower than theeconomic growth

a In such a booming economy, the growth in transport & industry is also

booming PFC estimates Vietnam’s demand in 2006 is 266,000 tons, anincrease of 12% compared to 2005 Vietnam has replaced Malaysia to be the3rd largest market in the Southeast Asia

b Two segments in Vietnam’s lube market:

b1 Transport segment accounts for roughly 80% of the demand This

segment also sees an annual growth of 11.76% Demand for heavy duty dieselengine oil (HDDEO) accounts for 38% of the segment

b2 Demand for non transport segment (industry) is also sharply growing,

reaching 55,000 tons in 2006, accounting for 20.7% of the overall market

In summary, the growing demand for lube products has awarded lube playerswith good opportunities to increase their sales and margin

2.2.3 Supply chain

a Production of base oil: base oil is not produced in Vietnam’s existingrefinery of Dung Quat and the other two upcoming refineries of Nghi Son &Vung Tau

b Renewal of used lube: there are not any big players operating in this

segment in Vietnam now

c Blending lube: there are about 15 blenders in Vietnam with a total designed

capacity of 325,000 tons/year Most of the blenders locate in Haiphong, North

of Vietnam or Hochiminh, South of Vietnam The total blended volume in

2006 is 219,000 tons/year It is noted that the blenders are having excesscapacity now  they have to lower prices  risk of price competition

d Import of base oil, lubricant & grease

As Vietnam do not produce base oil  the players have to import 100% inthe long run These suppliers of base oil (from Singapore, Middle East,Russia, South Africa ) play an important part in the success of these lubebusinesses

As Vietnam, local blenders can not produce some certain high quality types oflube, Vietnam still have to import some for domestic distribution (26,000 tons

in 2006 and increasing) (Source: PFC Energy)

2.2.4 The power of material suppliers

a The power of main material suppliers

As Vietnam has to import all of main materials (base oil & additives) fromhot markets such as Iran, Iraq and due to the economic-petroleum policy ofsuch powerful countries as the U.S, the suppliers’ power is getting strongerever  Vietnam has to buy the materials at higher prices or have to lower itsrequirements on quality  lowering the businesses’ profit  affecting thelocal lube business

b The power of other material suppliers

Other materials include steel drums (217 liters), plastic cans (0.4, 4, 18 & 25liters, carton boxes…) The materials of this type are not high in quality Atthe same time, there are many suppliers in the industry at scattered locations

 these supplier can not pressurize the local lube businesses  opportunityfor the local lube business

2.2.5 Buyers

a There are many types of buyers in Vietnam market

b Buyers can be classified as follows:

b1 Basing on end user point of view, they are:

- Industrial customers

- Transportation customers

- Agriculture customers

- Personal motorbike/car customers

b2 Basing on distribution channel point of view, they are:

- Direct customers

- Wholesalers

- Dealers/ distributors

c As there are many lube brands in Vietnam – the customers have many

choices  good power for customers

- The most powerful customer in the market is personal car/ motorbike users

who can change from one brand to another easily

- The second powerful customer wholesalers, dealers, distributors who canchange from one blender to another easily

- In the future, demand for higher quality products will increase

2.2.6 Potential Entrants:

- Currently, most of international players own and operate their own blendingplants There is still excess capacity  difficult for new potential entrants.However, the possibility is there may still be other international playersbuying over blending plants or hire blending capacity to join the market

- In rural & remote markets, demand for low quality lube still remain  someplayers may exit/ enter this segment due to low entry barrier

- In high quality lube segment, the loyalty to international brands will be astrong barrier for any new entrants

2.2.7 Substitutes:

- International brands follows international standards  they can replace eachother  lowering the entry barrier in this segment.

- Most of the products marketed in Vietnam’s market is mineral lube.Synthetic products (expensive) are also marketed in Vietnam’s market there may substitute for this synthetic segment in the future

3 Evaluation of PLC’s current competition power

3.1 Competition in Vietnam’s lube & grease market:

a The competition in Vietnam’s market is getting more and more severe.

Since 1991, more and more players enter the market By now, the brandsinclude Castrol, BP, Shell, Esso - Mobil, Caltex - Chevron, Total - Elf, Honda,Petrolimex - PLC,Vidamo - Petro Viet Nam, APP, Vilube, Solube…At thesame time, some local businesses (about 20) also import international productsfor distribution

b 2005 – 2009: during the period, the industry sees a few mergers such asMobil-Esso in 2005 and BP-Castrol in 2007, Total-Mobil in 2009

c Though, the government still allows the industry to follow marketmechanism still there are also bad signs of competition

+ Some players import low quality/ under par products  loss and damages tobuyers This must be controlled

+ The buyers has poor knowledge on quality  role of quality in competitiondecreases  unfair competition between businesses

3.2 Analysis on the existing competitors in lube & grease market

3.2.1 The players in Vietnam’s market are big and professional The following

are some of the major players

a PB-PETCO, a 48 million USD joint venture between BP (65%) and

PETROLIMEX (35%) This is both a strong competitor and supplier to PLC.PLC is buying special products from BP-PETCO BP has a 50,000 tons/yearblending plant in Hochiminh In early years BP-PETCO distributed its

products via PETRILIMEX’s network Later, BP-PETCO has built its ownchannel BP-PETCO produces 70% commercial vehicle lubricant (CVL) and30% passenger vehicle lubricant (PVL) PB-PETCO is currently the biggestcompetitor in Vietnam’s market.

b Castrol Vietnam was first a joint venture between Castrol and SaigonPetrol.

In 2007, Castrol (60%) changed its partner to Petrolimex (40%) Castrolbecomes PLC’s direct competitor for biggest market share For PVL segment,Castrol’s biggest market is in the Southern provinces of Vietnam Thecompany later expands to Northern market Castrol distributes its products via

a network of thousands of sales outlets/ service stations Castrol started with a25,000 tons/year blending plant in the South of Vietnam Later, Castroloperated another 3,000 tons/year plant blending transformer lube 79% of itssales comes from PVL segment while the rest 21% comes from commercial &industrial segments Castrol is a big brand and a strong competitor in themarket Castrol’s business and BP-PETCO’s are separated from each other

c Shell Vietnam is operating a 25,000 tons/year blending plant and a sales

network of over 2,000 outlets Shell’s industrial buyers are from cement,steel…Its major market is in the Southern provinces of Vietnam Shell became

a 100% foreign company when it ended its Shell Codamo J.V with localpartners Shell has a close relationship with KTA who helps Shell Vietnam toimported Shell brand lube (especially transformer lube)

d ExxonMobil Vietnam: is operating a 15,000 tons/year blending plant in the

South of Vietnam Shell distributes its products via a long time partner and abig petroleum product wholesaler – Comeco – who is operating a network of

28 petrol stations Shell also distributes its products via its partnership withsome PETEC petrol stations

e Chevron Vietnam is operating a 15,000 tons/year blending plant in

Haiphong, North of Vietnam It is marketing its products under Caltex brand

Exxon distributes its products via a network of 60 wholesalers and thousands

of sales outlets nationwide

f Total-Elf Vietnam – 100% foreign company - is operating a 15,000

tons/year blending plant in Haiphong, North of Vietnam

g Vidamo/PVPDC is a local company and is operating two 15,000 tons/year

blending plants

h Phuc Thanh (Nikko) is a local company established in 1994 It is operating

a 20,000 tons/years blending plant in Can Tho, South of Vietnam Phuc Thanhdistributes its products via a network of 300 dealers in the central and southernprovinces of Vietnam

i Vilube/ Motul : despite Vilube’s marketing efforts, Vilube is still considered

brand much lower than the other operating international brands In 2006, AFrench player (Motul) bought over 60% of Vilube’s shares It is more likelythe company will expand its blending capacity or build additional facility totransfer the production from Singapore

j Sotrans (Solube) is operating a 15,000 tons/year blending plant and

distributes diesel engine and marine lube under solube brand

k Mekong : was established in 1996 in Vinh Long, South of Vietnam to

serve the growing demand in Mekong Delta The company also exports part

of its volume to Cambodia (240 tons/year)

m Dong Duong has a modest market share and is distributing products under

foundation to import key material, therefore, technician facilities serving formanufacturing industry of Lubricants And Grease products are essentialimportant resources that have significant role in the maintaining andimproving competitive status in the production, manuafacturing ofPLC Company

- Scale and capacity of lubricant oil making up of PLC Company and

enterprises in Lubricants manufacturing industry in Vietnam (the details in attached table 1):

This table proved that in Vietnam : PLC Company has total lubricant oilmaking up equivalent to the company with greatest capacif BP Petco which has created scale advantages forPLC Company

- Especially PLC Company , as being inheritaged from Petrolimex, continued

to extend the investment and operation: Thuong Ly Lubricant Oil Factoryand Nha Be Lubricant Oil Factory (those detailed scale, capacities,tehnologies have been introduced at above mentioned article 1.7.1, item 1)distributed evenly at the two ends of the country  that has created specialadvantage for PLC Company :

+ Both those two fatories have advantageous places with wharfs which easilyreceive oil carrying ships from overseas imported to Vietnam , adjacent tomass comsummation markets of Lubricants And Grease such as HCM City ,Hai Phong , Quang Ninh …

+ Both the two fatories of PLC Company has advanced manuafacturingtechnologies, high automatization with equipment imported from the worldleading industrial countries such as: USA, Germany, Japanese, South Korea + There is directly under intermediate transition warehouse of Lubricants AndGrease in the center of the regions all over the country: Hanoi , Da Nang(convenient for railway transportation), Can Tho (easy to transport by riverway)  this is a significant advantage of PLC Company

PLC Company is the enterprise with great technical facility system(preparation factory, wharf , transistion warehouse ) spreaded evenly all overthe country.

Investment value on material facilities is increased with annual high rate;

+ Proprietor’s capital source of PLC Companye increases strongly at the end

of the year period: 2008 is more than 317 billion VND, 2009 is more than 473billion VND, 2010 is 738 billion VND

 Reviewing on scale and criteria of rather great total asset and proprietor’s capital source as above mentioned, PLC Company has enough conditions toinvest to build necessary infrastructurec to import great volume of original oil

to prepare Lubricants and Grease products to supply in themarket.Silmutaneously, the Company has condition to exploit economicefficiency due to great scale on many aspects that currrent competititors takeyear to have

With structure, conditions on above mentioned financial resource, it provesPLC Company has created prestiges with credit organization, therefore,capital loan capacity of the company is good, proportion of using loan/proprietor’s asset is very high (normally above 72 %)

c Human resources - staff:

- Policy with employees: PLC pays attention to human resources factory,

centered staff and employees during the development, establishment process

of the Company The Company interests in investment technical facilities,

working conditions, create best working environment for the staff so that theyfeel secure and attach to work for the long term in the Company, createfavorable conditions for staff, employees promote their innitiates to createnew value for the sustainable development of The company and for thebenefits of each employee in the Company The company implementssufficiently rights and responsibilities to employees due to regulations ofthe Laws

- Genera on quantity and qualification of staff, employees of PLC Company : Petrolimex has rather high qualification human resources (regarding trainingand qualification),team of leaders, managers, experts with graduated and postgraduated qualification occupy more than 52,76%

d Distribution system: Lubricants and Grease products of PLC are consumed

through 4 main distribution channel systems, in which PLC company isrunning 2 distribution channels of most special advantage in comparison toother opponents in Vietnam’s market which are export and Petrolimex generalagent channel

- Petrolimex general agency channel with more than 5.500 petrol and gas

outlets of Petrolimex is located nationwide Its location is convenient,creating commercial advantage, having large enough scale to make profit andabove all, Petrolimex outlets give priority for consumption of Lubricants andGrease products of PLC as those products are also products of Petrolimex,moreover Petrolimex general agents are assigned by Petrolimex to consumeLubricants and Grease products of PLC just like to consume oil and petrol…

- Lubricants and Grease export channel: being former 26th member of ELF(today known as Total Elf Lubricants) operating globally in marine lubricants,PLC cooperates with Total Elf Lubricants to make up marine lubricants tosupply to domestic markets and export a remarkable volume of lubricants andgrease to regional countries Up to date, PLC nearly becomes the sole

enterprise manufacturing lubricants and grease products to export to foreigncountries and is preparing to participate in trading base oil in regionalmarkets…

e Model, organizational and operation structure of PLC:

- Being equitized, operating in accordance with Enterprise Law in 2005, PLC

is active in exploiting and mobilizing internal resources, flexible and prompt

in face of changes in market mechanism to promote development of theenterprise Management mode of joint stock companies has been changed,transparent, dynamic and has better supervision Leadership of joint stockcompanies can bring into full play of their ability, competence in seeking fordevelopment opportunities…

- PLC’s share is listed in Hanoi Stock Exchange This is a favorableperquisite for the company to easily mobilize capital from securities market toincrease equity to meet business requirements and development investment

As having been listed, PLC must establish, operate its internal managementsystem according to advanced standards set put forward by securities market

 making contribution to improve competitive competence of PLC:Petrolimex’s shares accounts for vast majority in PLC PLC will continue tohave specific advantages in comparison to opponents in Vietnam as OLC hasadvantages in contracts with governmental agencies as it had once been a

“State company”

- Re-structure organization and operation of PLC according to model ofparent-subsidiary companies, in which parent company is PLC (focus onmanufacturing and trading lubricants and greases and capital investment), 2subsidiaries, 100% capital of which is owned by PLC and each companyfocuses on manufacturing and trading asphalt and chemical products eachfield will be more deeply intensive, to better exploit strength and potentials ofeach field, to improve competitive competence and thus to promote efficiency