January 27, 2015
Volume 7 Issue 3
Chinese Blenders Extend Their Reach
It is no secret that building an extensive sales network is essential for achieving significant sales in China, a massive yet highly fragmented market. However, is such a network enough? The answer probably is “no” for many Chinese lube suppliers, especially small and medium–sized ones.
Consider, for example, Longcheng Shiye. Founded in 1998, the Urumqi-based lube producer sells a variety of lubes in China under the brand Jin Xue Chi, including products for passenger cars, diesel-powered vehicles and motorcycles, as well as industrial lubes. Urumuqi, the capital city of Xinjiang in Northwest China, is not deemed an ideal sales base as it is geographically remote from the central part of the country and, more importantly, the affluent cities in the east.
Recognizing this, Longcheng set up offices in Nanjing and Guangzhou to serve clients in the wealthy Yangtze River Delta zone and Pearl River Delta zone.
“We are going to have an office and a blending facility in Tianjin in the near future to better serve clients in the Beijing-Tianjin-Hebei economic zone,” Zhang Yu, marketing director at Longcheng’s Guangzhou office, told Lube Report Asia.
Compared with the well-established Yangtze and Pearl river delta zones, the Beijing-Tianjin-Hebei economic zone is still in the planning stage, although its future is considered promising. According to China’s state council, the three regions will share collaborative development, and to achieve that there will be massive investment in infrastructure construction, including railways and roads to connect cities and counties in the zone.
To better supply these regional markets, Longcheng recently built a blending facility in Guangzhou and is building another in Nanjing, Zhang explained. The company has three existing facilities in Northwest China – two in Xinjiang and one in Lanzhou, near the middle of the country – with combined capacity to manufacture 150,000 metric tons of lubes per year. Most of them are made with API Group II and Group III base stocks purchased from major global suppliers, including Formosa Petrochemicals Group in Taiwan and SK Lubricants in South Korea.
“In this way, we will be able to cover all the major economic zones in China, and promote appropriate products to the local market,” Zhang said.
While Longcheng does sell all products in its regional operations, it focuses on different ones in different regions. For example, in Nanjing it makes more engine oils for automobiles, while in Guangzhou, it produces more industrial lubes, such as rubber oil.
Such differentiation has a reason. Industrial lubes will be in high demand in the south under China’s “Maritime Silk Road” strategy, which was initiated by Chinese president Xi Jinping to promote trade between China and members of the Association of Southeast Asian Nations. Under the plan, the route will begin at the coastal Fujian province in Southeast China, supported by new ports with advanced infrastructure, as well as logistics services.
There are also ongoing transportation construction projects in southern cities like Guangzhou, Shenzhen and Nanning, primarily subway lines and light rail transit.
“Regional marketing helps small and medium-sized enterprises (SMEs) integrate their limited resources efficiently, and stay close to local clients,” said Yu Feng, a Chinese independent consultant for lube marketing and a columnist for various Chinese lube and auto magazines. He added that this is also an important way for SMEs to compete with multinationals and large Chinese lube companies, which have resources for faster national expansion.
Longcheng’s rival supplier, Luroda Lubricants Wuxi Co., is following a similar strategy for geographical expansion. According to the Wuxi-based company, it has a blending plant in Guangzhou and is planning another in Tianjin, to target local clients with different demand.
While expansion is a must, challenges are inevitable, said Longcheng’s Zhang. Among them are how to quickly build an efficient local team and how to deal with price wars waged by low-priced local lube producers.
But most importantly, Zhang said, is how to change local consumers’ preference for foreign brands, especially in the wealthy regions.