The marketing information provides a strong case for Castrol’s involvement in Vietnam. There is clearly a gap in the market for the supply of high quality, performance lubricants. Castrol’s association with Vietnam began in the early 1980s through a link with Vosco Shipping, Vietnam’s premier overseas shipping line, which, at that time, was having vessels constructed in the UK. The ongoing link between Castrol and Vosco grew from strength to strength and Castrol developed a dominant share (90%) of the Vietnamese marine market. As a result of this link, Castrol was introduced to Saigon Petroleum in 1988.
Saigon Petroleum is a former subsidiary of the Food Company of Ho Chi Minh City (Foocosa). Foocosa is one of the most successful capitalist organisations in Vietnam. It has a sales turnover in excess of 200 million US dollars per annum and is one of the largest earners of foreign exchange in the country. It therefore has the facility to provide foreign exchange for importing base oils and additives. Foocosa itself is wholly owned by the People’s Committee of Ho Chi Minh City (effectively the Municipality). The creation of the joint venture in the early 1990s was built on a number of years of close co-operation involving the distribution and test marketing of new and existing lubricants in Vietnam.
Castrol and Saigon Petroleum established the joint venture under Vietnamese law to construct and operate a lubricant blending plant and to market and sell lubricants in Vietnam, trading under the name Castrol Vietnam Ltd. Castrol owns 60% of the joint venture and Saigon Petroleum owns 40%. Both sides have a blocking vote.
Vietnamese law allows the setting up of joint ventures providing they can meet one of three success criteria:
• bringing about considerable improvement in the appearance and quality of the products and an increase in output
• creating products which Vietnam urgently needs or producing import substitutes
• achieving considerable savings in terms of raw materials and energy.
Castrol Vietnam clearly met all three of these criteria.
Stakeholders In circa 2000, Castrol Vietnam works with 7,000 retailers and employs about 160 people
in Ho Chi Minh City, Hanoi and Da Nang. The joint venture has worked hard to develop strong
relationships with local retailers and distributors by providing detailed technical assistance and
support. It has become standard practice to provide funds for upgrading petrol stations as well as
arranging trade loans. Marketing campaigns have been particularly successful, with Castrol Vietnam
offering gifts such as key rings and pens to encourage sales.
The joint venture has been particularly successful in changing customers’ perceptions about lubrication, whether the customer be a car or motorcycle owner or an industrial customer. Castrol Vietnam has played a major part in changing consumers’ buying habits, from low quality and regenerated lubricants, to oil blended to international standards.
After the lubricant blending plant had been operating successfully for several years, Vietnam’s first transformer oil processing plant was opened by Castrol in Ho Chi Minh City in March 1998. Constructed at a cost of US$1.5 million, the 3,000 tonne per year transformer oil plant utilises modern technology and equipment from the UK and will use raw materials imported from Singapore and other Asian nations for processing. The use of transformer oil produced by Castrol Vietnam will help save Vietnam money as its prices will be around 10% lower than imported oil. At full production, the plant will be able to meet around 80% of the local market’s demand and is part of an ongoing investment programme.
At the end of the day, running a successful joint venture is a matter of give and take. One disadvantage, of course, is that Castrol does not have 100% of the ownership and takes only a part share of profits and dividends. However, this is counterbalanced by the benefits of working in partnership with a local company – a better understanding of the culture, market and ways of operating in an emerging nation.
Castrol Vietnam is almost exclusively run by local Vietnamese people, who have the best understanding of the local market and of appropriate ways of dealing with local customers. The Vietnamese Government is also far more likely to favour business organisations in which the power and decision-making basis has a strong local flavour.