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IIFT EPGDIB 2012-14


v  Critically evaluate IOCL Internationalization expansion strategy in the present context

v  Identify challenges and provide suitable strategy


International Marketing Management


Indian Oil Corporation

Indian Oil late but a sound globalization strategy using various entering modes as part of its International Market Entry Mix has been quite successful so far. It has helped IOCL achieve economies of scale in the marketing of its various products, especially its flagship Servo products. It has helped IOCL achieve production capacity by gaining potential customers and new markets.

IOCL has been able to capitalize on its global recognition at 83rd in world by making substantial investments in Sri Lanka and Mauritius and its other overseas investments. With its investments in Africa and South America, it is on the path to identify and acquire new source of oil and gas. It has employed a host of different entering modes on account of various external factors like Market Size, Growth, Local Govt.

Regulation, Political/Economical/Operational risk and its own internal factors of globalization as its key strategic objectives and availability of a highly matured R&D center, together with the advantages of being a state owned enterprise.

With its vast experience in Domestic Marketing, IOCL started with Export Marketing in Sri Lanka due to the proximity and location advantages. It made a strategic move to form WOS in Sri Lanka due to the tax benefits and special agreement with Sri Lanka government and Ceylon Petroleum Corporation (CPC).

Also, Trincomalee plant is the largest fuel storage facility between the Gulf countries and Singapore and thus would further give IOCL a location advantage.


Though we have ISLFTA in place, Sri Lanka is a politically high risk country due to the armed ethnic conflict in the past and resultant tensions between India and Sri Lanka. A stable India-Sri Lanka relationship is very important for its ongoing commercial success. To diminish any risk in the untoward incident of souring of relationship or political instability in Sri Lanka, it would be advisable on part of IOCL to start a Joint Venture in some area in Sri Lanka with a local company there to consolidate its position and ensure long term commitment.

This will help gain local support in times of crisis. It will also give advantages to IOCL to make it easy for Sri Lanka to give more unutilized storage tanks in the China Bay oil tank farm.


In Contrast, IOCL Mauritius investment has been seen to have a very intense focus to local markets. IOCL has used a mix of WOS, JV, SA and Turn Key Operations to get a strong foothold in Mauritius Market and become a household name. This has given a strong base to IOCL from where it can start marketing and supplying its products to other parts of Africa and expand its operati.....[read full text]

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Unconventional gas resources are also natural gas deposits but in a different and difficult environment from the exploitation point of view. Success of the recent specialized techniques in the United States such as horizontal drilling combined with hydraulic fracturing of the rock has led to path breaking development of shale gas as an unconventional or alternate gas resource and has considerably enhanced gas supply prospects across the globe.

IOCL views unconventional oil & gas as an area of considerable prospect. India plans to launch its first auction of shale gas block by 2013. Oil India Limited (OIL) and Indian Oil Corporation Limited (IOCL) have jointly acquired stakes in Carrizo Oil & Gas liquid rich shale assets in the Denver - Julesburg Basin in Colorado in 2012 through their own WOS and by forming a JV with Carrizo.

This is OIL and IOCL's first shale acquisition in the United States. The transaction provides a platform to the companies for additional acquisitions in North America. This acquisition will also give Indian Oil Companies a firsthand exposure to operations of shale/tight oil and gas fields and technologies deployed for the same.

IOCL is also in talks to buy Malaysian oil firm PETRONAS’ 10 per cent stake in Canadian shale gas assets, which are touted to be worth at least $ 1.5 billion.

China is believed to have largest shale gas reserves in the world. However they continue to make large investment in US Shale plays. US carry the technology to extract the shale gas. Hence China is looking for more investments in US and more importantly wants the access to technology. Russia, Britain, China, Argentina, U.S., Australia and some other countries are believed to have largest reserves for shale gas.

Key news update on Indian Oil in recent past::

ü  IOC-DBT and LanzaTech sign agreement for development of micro-algae technology - Aim to boost biofuel research in India -
IOC-DBT Centre for Advanced Bio-Energy Research has signed an agreement with LanzaTech, USA, to further develop IOC-DBT's micro-algae technology

ü  Indian Oil achieves technological breakthrough - Develops technology for Co-processing Non Edible Oils in its Refinery for the first time in India  - major technological breakthrough that can be a game changer for advancing use of bio-diesel in the country and ensuring ready acceptance of the fuel by the automobile industry; Indian Oil has successfully developed and commercialized a technology to co-process non-edible vegetable oil in the existing Diesel Hydro treating (DHDT) units of a petroleum Re.....

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Their first ever upstream acquisition in the USA, the two Public Sector companies today executed definitive agreements with Carrizo, a company based in Houston, Texas to enter into a joint venture. Under the terms of the deal, OIL and IOCL will acquire 30% (OIL – 20%, IOCL: 10%) in the Niobrara asset via their respective subsidiaries. Carrizo has 61,500 gross acres in the basin out of which the OIL – IOCL consortium will have 18,450 acres, spread across three counties in Texas.

ü  IOC launches 100% synthetic engine oil for cars - Indian Oil’s latest top-end offering,
SERVO
Futura Synth, a 100% synthetic premium lubricant for use in the cars, was launched here by Indian Oil’s Director (Marketing), Mr. M Nene, in the presence of a large gathering of customers from the automobile industry, OEM representatives, trade partners, resellers and stockiest. 

ü  IOC launches engine oil with advanced synthetic chemistry - To meet the growing needs of new-generation two-wheelers hitting the Indian market, Indian Oil (IOC) has now launched a new engine oil SERVO4T SYNTH with advanced synthetic chemistry, for use  by two-wheelers

ü  Indian Oil and BP sign MOU to explore potential for a 1 million tonne per annum Acetic Acid Plant - BP and Indian Oil have signed an MOU to work together to explore the potential for establishing a 50/50 JV to invest in a 1 million tonne per annum Acetic Acid plant in Gujarat together with associated gasification facilities for production of Synthesis Gas

Key Observations:

With almost all the major national oil companies venturing into the areas of shale gas and exploration and production IOCL’s move in the direction of acquisition of shale assets is the right move as this investment provides an early entry into a prolific unconventional gas play and will help enable the technology transfer from futuristic perspective.

However following the production of the shale gas, it challenges the current industry in a way that gas transportation from US to India is a huge incremental cost compared to other nearby countries. This might mean that the next move in the direction of shale gas sector would be to get into strategic low cost alliances with countries so as to optimize on the g.....

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·         IOC launches engine oil with advanced synthetic chemistry -


IOLC should continue to work with other major oil companies of India to continue to convince Indian government to provide more flexible arrangements to them and garner state support where they need to do investments as part of their globalization strategy. Another important angle which IOCL and other Indian oil companies must worry about is how to have a synergy between India’s overseas energy acquisitions and Indian national security strategy.

As we have analyzed so far, Indian Oil has formed now six different WOS. While WOS provides distinct advantages of developing foreign market, overcoming import barriers and taking advantage of incentives provided by local governments and finally having complete control, IOCL need to be aware of the challenges associated with the same.

Especially in countries with political and economic risks, it may make more sense to form more Joint Ventures as it has done in Venezuela (as part of Consortium) and Nigeria and USA. By looking at the strategies being followed by other big Oil companies both within and outside India and the current market prospects, following are some of the key suggestions which IOCL should make use of as part of their internationalization strategy.

·         Increasing its downstream assets overseas—with aim toward serv.....

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·         Continue to look for E & P and ventures in Korea and other countries.

·         Disinvestment strategy to invest more - 10% disinvestment in 2013 seems to be right move in that direction. They have appointed 5 bankers fo.....

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