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Anyone who watches Chinese TV will see repeated advertisements for Great Wall Oil. The brand has also placed large billboards along major thoroughfares in many cities and on supermarket shelves across the country.
Great Wall as an oil brand is a registered trademark of China Petrochemical Corp. (SINOPEC), one of China' massive state-owned enterprises, and among the world's top 500 businesses. Its annual production is about 1 million tons, or one fourth of the domestic market share. The sales of its medium and high-grade lubricants make up a cool half of China's total. Great Wall Oil was used in Shenzhou 5, China's first manned spaceship, launched last year. Increasingly stiff market competition has compelled the enterprise to focus on brand name promotion, including advertisements.
With the rapid development of China's auto industry, the country has become the world's third largest lubricant consumer after the United States and Russia, with market demand exceeding 4.4 million tons in 2002. It is estimated that this figure will exceed 5 million tons this year. In the next 10 years, lubricant demand in the Asia-Pacific region is expected to reach 15.5 million tons, with China's demand approaching 40 percent of the region's total. This will offer great commercial opportunities for lubricant producers. Experts say that a fierce battle is bound to take place in China's lubricant market, particularly among domestic oil producers such as SINOPEC and China National Petroleum Corp. (CNPC) as well as international giants like Exxon Mobil and Shell.
China's huge market demands have caught the interest of nearly all the global oil producers. They have entered China by supplying exclusive service to multinational automakers and virtually monopolize China's oil market for high-end automobiles. High-end oil occupies 30 percent of China's total market but its profits are much higher than that of medium- and low-end oil markets. Meanwhile, the increasing popularity of cars and upgrades in auto-related technology has greatly expanded the top-end. Insiders estimate that high-end oils will eventually constitute 50 percent of the total market of automobile oils.
However, it will not be easy for Chinese producers to get a piece of the pie. Though there are over 4,500 domestic oil producers in China, which accounts for less than 25 percent of the high-end oil market, many are small and insubstantial. They are incapable of immediately competing with the giants in the sector.
How will Chinese Oil Producers Compete?
Leading domestic oil producers are planning to compete with their foreign counterparts. Great Wall has stated that, if everything goes smoothly, it will launch a campaign in the high-end oil market against foreign oil producers, striving to raise its share from 5 percent to 30-40 percent. It has devised a four-step strategy. First, it will aggressively promote its high-grade oil series; second, construct three major production bases; third, take the lead in establishing a chain of oil stores throughout China; and fourth, cooperate with high-grade auto service centers to feature its high-end products.
Great Wall plans to take advantage of SINOPEC's extensive sales network of 28,127 gas stations nationwide to establish its oil service system.
Song Yunchang, Standing Deputy General Manager of the Lubricant Enterprise of SINOPEC, confirmed that his company's sales network of various oil brands would be effectively combined to facilitate sales, including Great Wall lubricants. Consumers will be able to buy genuine Great Wall products and enjoy standard maintenance services at SINOPEC outlets.
Great Wall's efforts have achieved initial success. Its oil sales rose 30 percent year on year, with a high-grade oil sales growing by 102 percent. A third party survey also shows that Great Wall is among the three most popular oil brands in China, the other two being Mobil and Shell.
Other Domestic Aspirations
Supported by CNPC, Kunlun brand oil is also up and coming, with extensive billboard advertising along highways and roads in Beijing. Meanwhile, their first franchised store has opened in Beijing. Kunlun's marketing team has established six regional sales centers nationwide. During the 2004 advertisement bidding invited by China Central TV (CCTV) last November, Kunlun threw down the biggest sum into the ads.
Kunlun believes it is vital to expand its market. A three-month market survey in Anhui found that workers in oil service centers who are well aware of lubricants technology play an important role in promoting a certain brand, since they can recommend oils to car owners according to the needs of the automobile. Kunlun organized service workers in the province to promote its products. Now they have become Kunlun's sales promoters. Kunlun oil accounts for 40 percent of the province's market share, and its lubricant produced for taxes make up 60 percent of market shares.
Liao Guoqin, General Manager of Lubricant Co. of CNPC, has iterated a philosophy that, since a battle with international giants is inevitable, Kunlun should actively promote itself. She hopes to develop Kunlun into China's premier oil brand within several years. Their goal is to secure 100,000 tons or 10 percent of the high-end oil market in China in around 2006.
Unlike Great Wall and Kunlun, Tongyi Lubricant Co. Ltd. is a private-run enterprise. Tongyi has a less extensive lubricant production line, but has a grabbed a share of the market, developing a seasoned sense of competition. It responds quickly to market demand. For example, a day after the outbreak of the war in Iraq, its "more lubrication, less friction" ads appeared on CCTV, illustrating its ability to spin witty advertisement. Also, it understands that foreign brands have less presence in China's relatively remote western region market, such as the Tibet Autonomous Region and Yunnan Province. Tongyi oil sales increase about 300 percent year on year, with annual production at 300,000 tons. The enterprise has established sales networks in all 31 provinces, municipalities and autonomous regions and plans to increase its number of distribution outlets from 13,000 to 30,000.
The Multinational Counteroffensive
Exxon Mobil serves as the exclusive oil supplier for Benz car service centers, which is run by a Benz agent in eastern China. Insiders say that, as important accessory product, the lubricants market will surely be influenced by China's auto (especially car) market, which foreign producers mostly control. Automakers, again, mostly foreign giants, will support foreign lubricant.
Nearly all joint venture car producers stipulate in their service cards that customers can only use those foreign oils brand products that they choose in certain repair shops. Otherwise, producers may not be liable to customers who get in an accident caused by the use of other oils.
Fortunately, an increasing number of domestic automakers and auto retailers, however, are diversifying oil choices. The practice of joint ventures suggesting to its customers to use only foreign oil is breaking down, with many automakers suggesting using domestic oils. Indeed, statistics from oil distributors and auto repair shops show that an increasing number of consumers are showing interest in domestic oils, even asking about domestic oils up front.
"Compared with foreign counterparts, domestic oil producers have the advantages to take China's national situation, climate, road and auto conditions into consideration and develop oil products with different functions," said an expert in CNPC who declined to give his name.
Foreign oils researched and developed in Europe and North America (which generally have better environments) may not function well in China. The frequent traffic jams in China's cities increase wear and tear on car engines. Sand and dust in the air may block oil channels when they enter fireboxes and crankcases, resulting adversely affecting engine performance. Oils used in China, therefore, should have higher resolvability. "Most of the world famous oils are mature products, but are not the best choice for Chinese customers if they do not change according to China's environment," he stated.
According to the same CNPC personnel, many international oil brands rely too much on brand recognition. He suggests that these companies advertisement has been lax, which may cost them Chinese consumers in the long run.
But it may also be merely a function of domestic oil producers' maturing. "As Chinese become more mature consumers and domestic oil producers promote their brands, it makes sense that the sales of international oils will drop," he added.
(Beijing Review June 25, 2004)
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