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
1995 1996
1997 1998
1999 2000
2001 2002
2003 2004
2005 2006
2007 Năm
(%)
+ Vietnam’s GDP growth is above 7% on average for the last five years (2005-2010) and is seen to be quite stable, ranking 2nd in the Asia after China.
-Development of industries and the economy: Among industry, agriculture and service, 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. This transformation has increased the demand for petrochemical and lubricant products.
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 production costs lowering the profit and competion power of players, especially to players 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 businesses must 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 of trasport in Vietnam is motorbike (98% of Hochiminh’s families have motorbike while the figure is 87% in Hanoi). The growth in transport mean is 16.6% 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 to improve 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 also export 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 and international players can own and operate lube blending plants low entry barrier more severe competition.
- The Ministry of Science, Technology & Environment (MOSTE) sets stricter regulations on the lube business players have to invest better in equipments & 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 the economic 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, an increase of 12% compared to 2005. Vietnam has replaced Malaysia to be the 3rd 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 diesel engine 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 players with 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 existing refinery 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 excess capacity 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% in the long run. These suppliers of base oil (from Singapore, Middle East, Russia, South Africa..) play an important part in the success of these lube businesses.
As Vietnam, local blenders can not produce some certain high quality types of lube, 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) from hot markets such as Iran, Iraq and due to the economic-petroleum policy of such powerful countries as the U.S, the suppliers’ power is getting stronger ever Vietnam has to buy the materials at higher prices or have to lower its requirements on quality lowering the businesses’ profit affecting the local lube business.
b. The power of other material suppliers
Other materials include steel drums (217 liters), plastic cans (0.4, 4, 18 & 25 liters, carton boxes…). The materials of this type are not high in quality. At the same time, there are many suppliers in the industry at scattered locations
these supplier can not pressurize the local lube businesses opportunity for 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 can change 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 blending plants. There is still excess capacity difficult for new potential entrants.
However, the possibility is there may still be other international players buying over blending plants or hire blending capacity to join the market.
- In rural & remote markets, demand for low quality lube still remain some players may exit/ enter this segment due to low entry barrier.
- In high quality lube segment, the loyalty to international brands will be a strong barrier for any new entrants.
2.2.7. Substitutes:
- International brands follows international standards they can replace each other 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.