Building a joint venture in an emerging market A Burmah Castrol case study
Page 1: Introduction
Burmah Castrol is a leading international marketer of specialised lubricant and chemical products and services. With operations in over 50 countries, Burmah Castrol employs some 20,000 people world-wide.
Burmah Castrol’s organisation is based on a number of business streams which operate in the lubricants and chemicals sectors. The lubricants business, which operates under the name Castrol, supplies specialist products and services to the Consumer, Industrial, Commercial and Marine markets. Castrol is the world’s leading independent marketer of specialised lubricants and lubrication services.
The chemicals businesses are involved in the marketing of high value added speciality chemicals to industrial end-users. There are five principal businesses - Foundry, Construction, Printing Inks, Releasants, Steel – and a Specialities Group. Once again, the chemicals businesses are highly international with operations in over 40 countries world-wide.
In recent years we have seen the development of a truly global economy. We have moved forward from the days when the world was seen as being made up of First World (capitalist), Second World (communist) and Third World (less developed countries). Clearly, divisions continue to exist between the nations, particularly in terms of income per head, but new markets are developing and strengthening all the time.
The development of new market models in former communist strongholds in Eastern Europe and parts of South East Asia provides a tremendous opportunity to well-established companies in the West. There is great demand in these countries for the sorts of goods that we have taken for granted for so long, as well as a demand for advanced technology which will enable them to improve home-based production techniques greatly.
In order to take advantage of new market opportunities, many large Western companies are developing joint ventures with enterprises in the new emerging markets. This case study focuses on a joint venture between Castrol, Burmah Castrol’s lubricants business, and Vietnam’s Saigon Petroleum. It sets out the rationale for the joint venture and examines the benefits to the two parties.
What is a joint venture?
A joint venture means that two separate organisations work together on a specific project, for example, a well established Western multinational works with an established South East Asian producer. The joint venture will hopefully bring synergistic benefits to the organisations, i.e. the ‘sum’ of the two organisations working together will be of greater value than if each worked alone. The joint venture is based on shared ownership between the participants in the venture. For a joint venture to work effectively, there has to be agreement between the participants on how the joint venture will be managed.
Castrol seeks to expand its business by entering countries in which it has little or no presence but which offer good long-term potential. Vietnam is believed to be one of these countries. Castrol has been involved in the Vietnamese market since 1981 but this has been essentially confined to the marine sector. With the joint venture, Castrol aimed to broaden its presence in Vietnam.
Burmah Castrol | Building a joint venture in an emerging market