INTRODUCTION AND BACKGROUND
Castrol Petroleum Limited is an oil selling company registered in Zambia.
It has got a caput office in Lusaka and other offices located all over the state. This company markets and gross revenues the Castrol branded lubricators. Castrol Petroleum Limited has got portions in a local blending works where it blends its merchandises. It imports the blending natural stuffs ( basal oil and additives ) from South Africa. It is from this blending works where Castrol merchandises are made, packaged and distributed all over Zambia.
Castrol Petroleum Limited intends to spread out its concern into foreign markets where the Castrol merchandises are in short supply and on high demand. Apparently, there is free trade between Zambia and all these foreign states where Castrol Petroleum Limited intends to put up its concerns.As a Management Consultant, I have been requested to rede Castrol Petroleum Limited on free trade chances when looking to spread out into these foreign markets.
3.0. DEFINITION OF FREE Trade
Free Trade is an understanding between two or more states to extinguish duties and other barriers to merchandise in merchandises and services. The free trade country emphasizes the chase of a comparative advantage for a group of states instead than single provinces.
Harmonizing to the Philips Revised Kyoto Convention ( 1999 ) , “ Free Trade is a specified country within territorial legal power of a state where such a state allows minimal or no clients command on the entry or issue of goods. ”Zambia and other foreign states, where Castrol Oil Limited intends to put up its concerns, are all members of the Southern Africa Development Countries ( SADC ) , ( see appendix 1, page 12 ) where free trade was introduced to supply chances for concern development and growing, particularly for developing economic systems.The Southern Africa Development Countries ‘ rank consists of 14 African states ( see appendix 1, page 12 ) who have agreed to come together and extinguish trade barriers, promote sustainable and just economic growing and socio-economic development that will guarantee poverty relief with the ultimate aim of its obliteration among member provinces.
Harmonizing to the Times of Zambia Newspaper ( 2010 ) , the eventual consequence of the SADC administration is regional integrating where all its members seemingly need to hold the same criterion of life, people traveling freely from one state to the other within the part and hold policies that will non impede the motion of capital and labor.The integrating of the regional grouping will besides make a big market to vie favorably with Balkan markets on the international markets
Free Trade BUSINESS OPPORTUNITIES FOR CASTROL OIL PETROLEUM
4.1. Emerging markets from up-coming Mining IndustriesApparently, there has been a batch of excavation activities in the SADC Region originating from an inflow of Multinational Mining Companies who have been making a batch of mineral geographic expedition in the part. Deposits of Copper, Cobalt, Gold, Uranium and many others have been found.
These mines have provided markets for crude oil merchandises. Companies like BHP Billiton, Rio Tinto, First Quantam Minerals and Anglo American Corporation are all spread outing their activities in the SADC part.4.2 Favorable concern environments in other SADC Countries.Some SADC member states have better and favorable concern and commercial environments such as lower revenue enhancements, lower involvement rates, strong currencies, and fewer regulative demands associating to energy concern and labor Torahs.For illustration after the 2010 World Cup, the South African Rand has strengthened traveling from ZAR 7.9 to ZAR 6.
8 to US $ 1.00. This has made South African companies import Crude Oil from the Middle East cheaper than earlier. This has opened chances for Castrol Petroleum Limited to widen its concerns and take advantage of this favorable currency fluctuation.4.3. Competition with other Oil Selling CompaniesSome SADC member states have few oil companies as compared to others.
For case, the Congo DRC, has fewer reputable oil companies. This has attracted Castrol Petroleum Limited to put an operation at that place and take advantage of the less competition.4.4. Good international relationships in the SADC partFree Trade offers and provides affable and bilateral relationships which helps merchandise among member states. SADC Heads of State or their representatives run into on a regular basis to discourse trade relationships and conduciveness of concern environments. This has improved concern dealingss.
ADVANTAGES OF DOING BUSINESS IN A FREE TRADE AREA
5.1 Competition and High Quality Products.Free Trade in the SADC Region has brought about competition which has resulted into higher merchandise quality and other competitory advantages. Castrol Petroleum Limited has over the old ages improved in the criterion and quality of its merchandises, which has made it perforate the markets in the part.
The Blending Plant in Ndola, Zambia has been upgraded to run into international criterions. It is audited yearly by Total Technical Audit squads based in Paris, France.5.2 Economies of ScaleThe turning markets will do higher volume of merchandises to be blend at the blending works where Castrol Petroleum has portions, this will in bend bring about economic systems of graduated table, since production will be done at lower unit cost because of the high measures for many clients.5.3 Government Procedures and RegulationsGovernment processs and ordinances are reduced because of the riddance of trade barriers, which will besides assist in rushing up concern minutess.5.4.
Increased InventionFree trade will widen the crude oil markets and competition amongst member provinces. This will in bend encourage Castrol Petroleum Limited to seek ways of making a comparative advantage which will take to increased invention that will better its merchandises.As a consequence of this, Castrol Petroleum Limited has invested immense money in developing its staff to better selling and proficient competencies to outshine the competition.5.5 Employment and Economic Growth.Since there will be increased trade and concern activity between Castrol Petroleum Limited and its associated companies in the SADC part, Castrol Petroleum Limited will turn its concern to houses to run into the wider markets.
This tendency will be similar with other concerns and other sectors in the axis. This will in bend grow economic systems of member states and will make employment.6.0. CHALLENGES OF DOING BUSINESS IN FREE TRADE AREAS6.1 Trade DiversionAs trade barriers fall within the free trade axis, each member state tends to favor trade with states inside the axis over trade with states outside the axis. At the same clip, one time the axis is in topographic point member states will stop some trade with non member states, taking to merchandise recreation. The aggregative consequence is that national forms of trade are altered – more trade takes topographic point inside the axis, less trade takes topographic point with states outside the axis ( Cavusgil et al 2006, p.
21 ) .6.2 Competitive PressuresSince free trade encourages all investors to place markets and venture into them, Castrol Petroleum Ltd will happen stiff competition from other companies who are trailing for the same markets. Harmonizing to Cavusgil et Al ( 2006 ) , stiff competition brings about competitory force per unit area, which will in bend hinder a house ‘s market incursion schemes. For illustration, Engine Petroleum of South Africa is spread outing quickly into the part.
They are doing acquisitions of little oil concerns in order to gain their aims. Free Trade is every bit assisting them.6.3 Regulatory FrameworkDifferent regulative demands to put up concerns in different states differ and tend to be dearly-won, complicated and detain the procedures.6.4 Export Supply Capacity ConstraintsHarmonizing to TIPS Forum ( 2002 ) , ‘ Global Sustainable Development and Southern African Economy ‘ . hypertext transfer protocol: //www.
[ 12 November 2010 ] . “ Export supply capacities restraints are major restricting factors for the smaller states to work possible niche markets. The really fact that pockets of chances can non be taken advantage of, due to provide restraints, the capacity of the smaller regional states to bring forth foreign currency required to increase trade is besides limited. ”7.0 RECOMMENDATION TO CASTROL PETROLEUM LIMITED ON EXPLOITING OPPORTUNITIES IN FREE TRADE AREASTo to the full work the free trade chances in the SADC parts, Castrol Petroleum Limited should travel through the variegation channel, which entails traveling off from bing markets and bing merchandises. This move extends the range of the administration.Harmonizing to Penrose ( 1959/1995 ; Marris, 1964 who says, “ variegation has been an indispensable footing for the growing and endurance of houses in the last half of the 20th century, due to the exposure of the specialized house to the fast and unexpected alterations in the environment. ”Diversification refers to the addition by a house in the sorts of concerns which it operates, by traveling in into other merchandises and markets.
)The Ansoff Growth Matrix brings out the fact that variegation is a scheme best used for way and strategic development of a house.Castrol Petroleum Limited should hence, in add-on to the bing markets and merchandises within Zambia, diversify into the SADC states as follows:7.1 Tap into the new marketsCastrol merchandises are of high class with international specifications. They are non presently being sold in the SADC part, although there is competition with other trade names.
As a Consultant for Castrol, I will rede the company to present this strong trade name on the markets and acquire a good market portion. I know for certain that Zimbabwe, the DR Congo, Malawi and Botswana will turn even faster than Zambia due to less competition from other trade names.7.2 Introduce fuel concern in these other SADC marketsIt is my understanding that Zimbabwe, Malawi, Botswana, Lesotho and Swaziland are landlocked and do non hold fuel refineries with free trade in topographic point. I would hence, urge, fuel exports into these states from the Indeni Fuel Refinery, situated in Zambia.
Castrol Petroleum could therefore increase its crude oil concern by diversifying into fuel and take advantage of these markets.One other possible beginning of Diesel is the bio Diesel construct. This is Diesel from natural merchandises from a tree called Jayatroper. This tree grows over the old ages and produces some substances which is used to do Diesel. I would urge this to be considered as it can be a replacement to the Diesel from Crude Oil.
South Africa is already turning this tree7.3 The variegation scheme can be classified into four classs. One where new investings involve similar merchandises ; two when they lead to the perpendicular integrating of complementary activities ( matching to backward or send on integrating ) ; three, when houses internationalize by adding operations in foreign markets which involve similar merchandises ( even if these investings take topographic point in culturally and geographically distant markets ) ; and four when the new concern portions intangible assets such as selling cognition, patent protected engineering, merchandise distinction, superior managerial capablenesss, or modus operandis and repertories ( Nelson and Winter 1982 ) .Related Diversification is corporate development beyond current merchandises and markets, but within the capablenesss of the value web of the administration. Johnson et Al ( 2008 )An illustration of related variegation is that of Lyons who had a huge array of concerns non merely in bars, biscuits and other confectionery, where it owned houses such as Donut Corporation, but besides operated in food market and stop dead chilled nutrients. Williamson ( 1975 )Unrelated variegation is the development of merchandises or services beyond the current capablenesss or value web.
This is normally described as a pudding stone scheme.One good illustration of unrelated variegation is in the instance of Unilever who have diversified into the nutrient industry, where they have now included the production of Ice Cream into their merchandise portfolio.Some of the benefits of variegation include efficiency additions made through the applications of the administration ‘s existing resources or capablenesss to new markets and merchandises or services.Diversification besides increases the market power of an industry due to holding a diverse scope of concerns which can be used to back up or subsidise one or more concerns from the earned excesss in a manner that rivals can non copy.7.4 The other ideal market entry scheme is to entree the market through Acquisition or Mergers.
Acquisition involves the geting of another concern in order to better the market portion and growing of a house.Right now there is a command procedure taking topographic point for the acquisition of all the British Petroleum ( BP ) Outlets in the Southern Africa, this has come about after the gulf oil spillage that took topographic point sometime back, which has caused the British Petroleum Company to lose one million millions of money rectifying the job and counterbalancing companies or industries who were affected by this spillage. The highest bidder will be given a opportunity to get all the mercantile establishments. Castrol Oil Petroleum could take advantage of this chance.An illustration of an acquisition is that of the Chinese personal computing machine maker Lenovo who acquired IBM ‘s Personal computer concern, which accounted for two-third of its gross in 2005 The acquisition helped Lenovo to quickly widen its market range and go a planetary participant. Cavusgil et Al ( 2008 )Recently, here in Zambia Engen Oil Marketing Company had acquired Caltex Oil Zambia mercantile establishments, a move which has increased the market portion for Engen, which will now give so higher net income borders.
Amalgamations involves two houses coming together to organize a larger house. One typical illustration of a amalgamation is the coming together of Lucent Technologies in the United States and Alcatel in France. Their amalgamation resulted in the creative activity of the universe ‘s largest company in the planetary telecommunications equipment concern. Cavusgil et Al ( 2008 ) .
Finally, looking at the potency in the SADC part for Castrol Petroleum Limited to increase its concerns, diversifying and puting will be the best scheme for growing.The absence of duties and other trade barriers will heighten the incursion into these foreign markets. Many multi-nationals, such as Coca Cola, Colgate Palmolive, Toyota and many others are what they are today because they took advantage of a similar enterprise.Castrol Petroleum Limited, traveling by the benefits of international markets outlined above can one twenty-four hours fall in the list of these successful multi-nationals who have grown internationally.As a Consultant for Castrol Petroleum Limited, I will press my client to instantly set schemes of puting in the SADC part.