Building a joint venture in an emerging market
A Burmah Castrol case study

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Page 3: Market research

Burmah Castrol 4 Image 3Market research information available to Castrol in the 1990s estimated the automotive market (consumer and commercial) and the general industrial market at approximately 37 million litres each, giving a potential market of 75 million litres of lubricants. Market growth is estimated to be about 6% per year, so that in the early years of the next century, the market will be worth about 130 million litres. Demand in the consumer market is expected to rise rapidly, with market research indicating that the greatest part of the demand will be in Ho Chi Minh City and the nearby provinces.

Since the supply of lubricants from the USSR stopped in 1990, Vietnam has had to procure its own lubricants at world market prices. Foreign currency shortages have created considerable difficulties in buying lubricants from abroad. This situation has provided the joint venture with a tremendous opportunity to develop branded lubricants in Vietnam - a previously brandless market.

The markets

The car market in Vietnam is primarily made up of vehicles which are ten years old or more. In recent times, the Vietnamese Government has been very restrictive on the importation of new foreign cars in order to prevent the outflow of scarce foreign currency. Market research and test marketing show that a key requirement for success in the automotive market is a regular supply of quality lubricants. There is also a clear preference in Vietnam for well-known branded lubricants because of their perceived higher quality.

With the recent growth of incomes in Vietnam, there has been a large increase in motorcycle ownership. This country has a unique consumer channel of wash shops (Rua Xe) where motorcycle owners take their bikes for a wash and oil change. The vast majority of Castrol outlets are such establishments, which are the Vietnamese equivalent of a ‘Quick Lube’/automatic car wash. This clearly presents a strong market opportunity.

Commercial vehicle consumption counts for a large percentage of total lubricant consumption. The truck and bus population is predominantly old and poorly maintained and the operators, in general, use cheap, low quality lubricants. However, as the economy is improving, increasing numbers of operators are turning to higher quality lubricants.

Vietnam’s key industrial sectors include mining, fishing, sugar, textiles, shipbuilding, power generation, railways and cement. These industrial markets are likely to grow with the stimulus of increased overseas investment. The lubricants for these industries supplied previously by the USSR were of inferior quality and resulted in many inefficiencies – for instance, avoidable lubrication problems have cost the Vietnamese railways up to $40m in losses per year.

Burmah Castrol | Building a joint venture in an emerging market