Size matters. Specially if you happen to be at the helm of a Rs 1,30,000 crore company. And, Indian Oil Corporation (IOC) chairman M S Ramachandran, in the driver's seat of the largest company in India and the 19th largest petroleum company in the world, undoubtedly needs more grit than a Michael Schumacher. With daunting statistics -- a combined rated refining capacity of 54.20 million tonnes spread over 10 refineries, 22,000 sales points, 7,500 km of crude and product pipelines,167 bulk storage terminals and depots, 94 aviation fuelling stations and 87 LPG bottling plants, a cooking gas customer base of massive 37.5 million household -- figures surely mean a lot more than curvaceous numbers to Ramachandran. But the gargantuan scale of Indian Oil Corporation's operations is, ironically, both its tragedy and its triumph. Phantasmal as its output may be, Indian Oil Corporation may
well be a victim of attendant inertia, somewhat sluggish when it comes to meeting the impending challenge of cold and calculated competition.Indeed, Indian Oil Corporation's 8500 outlets command a 45% share of the overcrowded retail market, but this share is under threat as a clutch of highly competitive players -- Reliance Industries, Shell India and Essar Oil and new public sector entrants, MRPL and Numaligarh Refinery -- get into top-gear by setting up another 10,000-odd outlets in the near future, adding to the already overcrowded market of 22,000 outlets. And it's not just the retail segment which is under threat from competition; Indian Oil Corporation's dominant market share in the industrial and bulk sales categories are also under fire. What's more, the sale of naphtha -- a byproduct in the refining process -- is sharply on the decline as power and fertilizer companies have begun the process of switching to the more economical RLNG.
It's not that Ramachandran doesn't have his own gameplan to counter this situation; he has been attempting to exploit the very size of his company which, Albatross-like, now hangs heavy across the neck of this ancient mariner: Ramachandran has been intently, albeit inaudibly, re-engineering Indian Oil Corporation's retail outlets, segmenting the market, introducing premium brands and furiously adding more outlets to grab whatever extra space is left in the retail segment. The so-far neglected bulk consumer market is also getting the necessary attention it deserves. In addition, Ramachandran has undertaken a real-time wire-up of all Indian Oil Corporation's manufacturing, retail and sales outlets under what is Asia's biggest SAP programme.
This revamp of Indian Oil Corporation's marketing infrastructure may or may not be able to keep Indian Oil Corporation's market share from eroding given the fact that competition has only just set up its infrastructure, but the effort is valiant nonetheless. Besides, holding on to Indian Oil Corporation's market share is only one dimension of Ramachandran's dilemma. As increasing competition brings margins under a tight squeeze, he has started chalking out diversifications into newer areas. Fresh capacity additions in refining does not appear to be a viable option immediately given the over-capacity in the domestic market.
Looking outwards at the export market is one way out, and a case in point is the proposed Paradip refinery complex which is now being reconfigured as an export-oriented petrochemical hub which will require investments of up to Rs 20,000 crore. Value-addition is the buzzword and venturing into petrochemicals is a natural avenue for further growth since it allows the company to step up the value chain by cracking the now-redundant naphtha to produce a range of products. Getting into the area of transportation and marketing of gas is yet another avenue of growth, besides a foray into the retail markets abroad. Indian Oil Corporation has already set base through a network in Sri Lanka and and is now in the process of anchoring in Mauritius. It is also on the lookout for more such opportunities in other countries around Asia and Africa.
In an attempt to make Indian Oil Corporation a vertically-integrated company, Ramachandran has set aside a $2 billion fund to acquire a mid-sized E&P company. But grand diversificationn plans notwithstanding, in reality, the company has spent a relatively small amount: Rs 9100 crore in the first three years of the Xth Plan from a five-year plan outlay of Rs 25,000 crore. Think Big may be the mantra of the moment for Ramachandran, but the need of the hour may lie in coming up with the Big Idea to ensure effective implementation of the projects. Clearly, the company has to step up its pace of investments. For, when the heat is on, what is required is determination and a firm resolve. Perhaps, in its new enthusiasm in diversifying, Indian Oil Corporation should not lose out in the area of its core competence -- the manufacturing and marketing of petroleum products.
The middle-path, a fine-balance between restraint and aggression -- between consolidation and diversification -- may be just the strategy required to win the next lap of the approaching Grand Prix . A lesson Schumacher could perhaps learn from Indian Oil Corporation.
well be a victim of attendant inertia, somewhat sluggish when it comes to meeting the impending challenge of cold and calculated competition.Indeed, Indian Oil Corporation's 8500 outlets command a 45% share of the overcrowded retail market, but this share is under threat as a clutch of highly competitive players -- Reliance Industries, Shell India and Essar Oil and new public sector entrants, MRPL and Numaligarh Refinery -- get into top-gear by setting up another 10,000-odd outlets in the near future, adding to the already overcrowded market of 22,000 outlets. And it's not just the retail segment which is under threat from competition; Indian Oil Corporation's dominant market share in the industrial and bulk sales categories are also under fire. What's more, the sale of naphtha -- a byproduct in the refining process -- is sharply on the decline as power and fertilizer companies have begun the process of switching to the more economical RLNG.
It's not that Ramachandran doesn't have his own gameplan to counter this situation; he has been attempting to exploit the very size of his company which, Albatross-like, now hangs heavy across the neck of this ancient mariner: Ramachandran has been intently, albeit inaudibly, re-engineering Indian Oil Corporation's retail outlets, segmenting the market, introducing premium brands and furiously adding more outlets to grab whatever extra space is left in the retail segment. The so-far neglected bulk consumer market is also getting the necessary attention it deserves. In addition, Ramachandran has undertaken a real-time wire-up of all Indian Oil Corporation's manufacturing, retail and sales outlets under what is Asia's biggest SAP programme.
This revamp of Indian Oil Corporation's marketing infrastructure may or may not be able to keep Indian Oil Corporation's market share from eroding given the fact that competition has only just set up its infrastructure, but the effort is valiant nonetheless. Besides, holding on to Indian Oil Corporation's market share is only one dimension of Ramachandran's dilemma. As increasing competition brings margins under a tight squeeze, he has started chalking out diversifications into newer areas. Fresh capacity additions in refining does not appear to be a viable option immediately given the over-capacity in the domestic market.
Looking outwards at the export market is one way out, and a case in point is the proposed Paradip refinery complex which is now being reconfigured as an export-oriented petrochemical hub which will require investments of up to Rs 20,000 crore. Value-addition is the buzzword and venturing into petrochemicals is a natural avenue for further growth since it allows the company to step up the value chain by cracking the now-redundant naphtha to produce a range of products. Getting into the area of transportation and marketing of gas is yet another avenue of growth, besides a foray into the retail markets abroad. Indian Oil Corporation has already set base through a network in Sri Lanka and and is now in the process of anchoring in Mauritius. It is also on the lookout for more such opportunities in other countries around Asia and Africa.
In an attempt to make Indian Oil Corporation a vertically-integrated company, Ramachandran has set aside a $2 billion fund to acquire a mid-sized E&P company. But grand diversificationn plans notwithstanding, in reality, the company has spent a relatively small amount: Rs 9100 crore in the first three years of the Xth Plan from a five-year plan outlay of Rs 25,000 crore. Think Big may be the mantra of the moment for Ramachandran, but the need of the hour may lie in coming up with the Big Idea to ensure effective implementation of the projects. Clearly, the company has to step up its pace of investments. For, when the heat is on, what is required is determination and a firm resolve. Perhaps, in its new enthusiasm in diversifying, Indian Oil Corporation should not lose out in the area of its core competence -- the manufacturing and marketing of petroleum products.
The middle-path, a fine-balance between restraint and aggression -- between consolidation and diversification -- may be just the strategy required to win the next lap of the approaching Grand Prix . A lesson Schumacher could perhaps learn from Indian Oil Corporation.
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