The Background
These are exciting times for the lube industry in India. Each one of the vast contingent of 22 Multinationals and a total of 80 big & small players are vying for a pie of Rs.5,500 Crore market. Worldwide established brands,some of them albeit new to India, like Shell, Mobil, Caltex, Elf, Pennzoil are fighting it out with established Indian brands like SERVO & others to establish their foothold in the 6th largest lubricant market in the World. Compared to the average World consumption of 35 Million tonnes per annum & Asia-Pacific region consumption of 7.5 million tones, the Indian lube industry with annual demand of 1 million tonnes is just behind Japan and China in Asia having a demand growth rate of 4% compared to the World growth rate ranging between zero to 2%. That is the lube industry in India today.
Prior to 1992 the lube industry in India was controlled by the 4 major Public Sector Oil companies namely Indian Oil, HPC,BPC & IBP and a handful of private companies like Castrol, Gulf, Tidewater & others. With the distribution & canalisation of base oil import being controlled by the Government of India, the PSU Oil Companies controlled 90% of the market share. The decanalisation of the lube base oil imports in 1993 by the Govt. of India followed by reduction of import duty on lube base oils from 85% to 30% and gradual scrapping of administered pricing observed the announcement of almost a new lube venture every month during 1994. Most of the new entrants formed associations with Indian companies both in the Private & Public sectors. All these new entrants are targeting for a very small share of the market considering that even 1% market share means a sale of Rs.55 Crores.
The Indian Oil controlled 54% of the lube market out of total PSU's market share of more than 90% during 91-92. The Government policy of deregulation followed by entry of multinationals through JVCs had its effect on the market dominance of PSUs. This has been followed by sudden entry of lot many players, each one claiming to have some international collaboration and a `foreign' brand name.This had its initial impact and illusions in the market and the market became more volatile. During these phases marketing channels of distribution had drifted from petrol stations to bazaar trade.
The Marketing Channels
The marketing channels for automotive lubricants in India consist of the following,

• Petrol Stations
• Wholesale Distributors
• Lube Oil Shops
• Auto Spare Shops
• Authorised Service Stations
• Garages
• Rural & Agricultural dealers
• Super Markets.

Till recently, the Indian consumers linked filling of lubricants to that of petrol & diesel in petrol stations. With the advent of deregulated market scenario & fierce competition, efforts are being made to position lubricant as a high involvement consumer goods. Hence, the resultant drift towards the bazaar trade i.e., outside the petrol stations. The sales of automotive lubricants through bazaar trade increased from a mere 10% prior to 1993 to a handsome present level of 40% compared to Worldwide Trend of more than 70%.In the developed World, because of high degree of customer sensitivity & awareness, D0-it-Yourself (DIY) concept has evolved for filling of engine oil. People buy from super markets & fill it themselves. In India, this job is still left to the mechanics & service stations.During these years this shift in trade had the following effects:

• Decline in Market Share of PSU oil companies.
• Market became heavily crowded & the industry got transformed into FMCG.
• Dumping of products in the bazaar.
• War of trade discounts resulting in rice war & lesser margins for dealers.
• Entry of spurious lubricants.

Lubricant Industry Segmentation
The lubricant industry can be divided into two major categories i.e., Automotive & Industrial brand of lubricants. The industrial segment basically comprises of Core Sector industries like Defence, Railways, State Transport Undertakings, Steel Plants, Coal Mines, Fertilisers, Power Houses, Chemicals & Heavy Engineering Industries. In the industrial segment, the PSUs could successfully maintain their stronghold due to the reasons that the requirement is most end use specific, customer focussed, productivity linked & service oriented. Here, price, quality, performance track record, R&D infrastructure for technology upgradation and product development for end use specific application & after sales service play the most significant role & FMCG techniques of promotion and creating illusions takes a back seat. Indian Oil virtually dominated and continues to dominate this sector through their proven track record of quality product and vast network of professionalised pre sales & after sales services. But the automotive segment which accounts for major share i.e, 67% of the lubricant market became soft target for new entrants and here private sector players could immediately consolidate their market share by adopting FMCG techniques. PSU oil companies in general and IOC in particular initially restricted their channel of distribution through their large infrastructure of marketing network i.e, petrol stations & distributor network. The focus happened to be on ensuring quality & customer accountability and restrict mushrooming of spurious trade in bazaar through the marketing channels where some kind of control could be exercised by the company. The major thrust put by Industry leader like Indian Oil at this juncture was to promote brand visibility and creation of brand image through endorsement, TV advertisements & image building at Retail sites.
Tie Up with OEMs
Among the PSU Oil Companies Indian Oil is one company who has all along given utmost importance on tie ups with Original Equipment Manufactures (OEMs) after signing agreements with major OEMs like Maruti Udyog Ltd,TELCO, Bajaj Auto, Kinetic Engineering,SKODA etc. Even initial fill & warranty fill agreements were also signed with TELCO & Hindustan Motors. In fact, the Japanese vehicle manufacturers prefer to tie up with one or two major oil manufacturers for use of engine oils as `Genuine Spare Part' of the vehicle whereas the American vehicle manufacturers prefer to follow the American Petroleum Institute who defines the performance parameters of engine oils. The Indian vehicle manufacturers follow a route which is combination of both.
These inner strengths of PSUs and the quality policy adopted by them, even attracted major multinational players like Shell, Mobil, Exxon & Caltex to enter into tie up with one or the other PSU to have access to their well established marketing network.
Strategic Business Plan
The PSUs initially could not resist the onslaught of dumping in bazaar channels and illusions created by FMCG practices but off late started regaining their lost ground and to some extent restrict & arrest their decline from a level as high at 90% to 65%. In this front Indian Oil after emerging as India's largest commercial organisation and being the only company in the country to feature in the Fortune Global 500 listing has adopted structured business plan approach to strike a balance between conventional marketing channels (petrol stations)/distribution network and parallel marketing channels (bazaar trade). The parallel marketing channels chosen by the Company also adopted the path of brand image, customer focus & customer accountability by way of putting up SERVO Premium Lube Shops in the bazaar trade. The petrol stations are also simultaneously undergoing major facelifts through implementation of the companies Vision-2000 modernisation plan. By way of this modernisation the customers will get the opportunity to pick up all their convenience stores in the `Convenio' (departmental store ) put up at the petrol stations while filling up petrol, diesel & lubricants.

WHAT ARE LUBRICANTS Lubricating oils are basically made of two components viz., Lube base oil which comes out from refineries after refining the crude oil and has some inherent lubricating properties like any other liquid. And the performance enhancing chemical additives which are added to improve different characteristics of the resultant mixture. When two solid surfaces are rubbed against each other heat is generated because of friction. If a thin film of any liquid is put between the two surfaces the friction is reduced and the heat generation also reduces. The lubricating oils basically perform this simple duty in the most complicated situations be it inside engine, in a machine tool, in a gear box or any other relevant machinery application. A lubricating oil is basically required to perform the following duties: Cooling,Sealing, Cleaning, Resist corrosion & wear & lubricate. These parameters are enhanced by the addition of chemical additives. Lubricating oils are broadly categorised in two categories - Automotive & Industrial. While Engine Oil, gear oil, transmission oil etc constitute automotive oils, turbine oil, bearing oil, hydraulic oil etc. are examples of industrial oils. Greases are mixture of a thickening agent like soap with oil. The soap may be metallic soaps like lithium, calcium etc. Greases are used where lubrication by oil is not possible. For example wheel bearings, chassis of vehicles.

IOC is also in the process of establishing certain strategically located modern petrol stations on the highways where apart from all way side amenities like motel, dhaba, restaurant, amusement parks, toilets, car parking slots, wash rooms, communication facilities (STD/ISD,E-mail) etc. also service & repair shops of major OEMs of the country will be put up to facilitate quality services at right price. The concept being developed in the Golden Jubilee year of India's independence,these outlets will be christened `Jubilee Outlets'.
The coming years will ensure availability of more effective & customer friendly channel of distribution and will have its impact in the long run on the short terms strategy presently being practised in the automotive lubricant market. The strength of a marketing company more so in the field of specialised lubricants definitely lies in their access to superior technology base. This is more so because the automotive sector is undergoing a major technology upgradation programme with entry of reputed international automobile manufacturers in the market. Moreover, stringent emission norms & eco-friendly devices are taking over old practices which will necessitate improvement in performance of lubricating oils. Such challenges can not be encountered with only technological collaborations but also input resourcing. Consistency of inputs and sound infrastructural base will play a significant role to combat competition. The thrust in the coming years will be more on adopting to Indian market & Indian road conditions and thereby it will be essential to develop indigenous lubricants technology keeping pace with international standards
Strength of an Oil Company
Manufacturing of quality lubricants is guided by two important parameters i.e, resourcing of consistent premium quality base oils and incorporation of cost & performance effective additive technology which is privy to the oil company and is an effective tool to establish superiority over competitors. In this area R & D effort plays a significant role as it has to be end use specific, location specific, environment specific & at the same time cost effective. Just bringing in imported technology without any own & defined resource of quality inputs like base oil may not be suitable for Indian road/market conditions. Today, technology has become so demanding and requirement is so stringent that leading institutes like API (American Petroleum Institute) gives performance approval on the basis of identification & sourcing of base oils. Their approval is on crude specific, Refinery specific & base oil specific considerations. Bringing in base oils taking leverage of decanalisation of imports & reduction of duty, putting up blending plants at Tax holiday locations to remain in the cut throat competition & dumping may or may not yield far reaching benefits. The need of the hour is long term commitment and not sheer opportunism and with more competition expected in the coming years, customers will also realise impact of such focussed approach.
The automotive lubricant trade is gradually becoming wiser today. The traders now understand the benefits of stocking fast moving & familiar brands instead of overcrowding the shelf space because there are very few companies in India, who can make the entire range of automotive products available. It has also been found by the trade that because of working capital constraints the new entrants are increasing cash discounts resulting in price war and reduction of dealer margins. For making all the products available at all times a company would need to keep a high inventory commensurate with the sales volume for which an additional working capital of at least 35% would be necessary. Among the oil companies in India,established companies like IOC have good financial resources, who can afford to keep such high inventories.
R&D efforts & pursuits for excellence
Technology was never in short supply in the field of lubricant market in India. In fact it is at par with the latest standards, thanks to the import of technology and the exceptional efforts made by companies like IOC in the field of Research & Development of indigenous products meeting World standards. The biggest & one of the best petroleum R&D in Asia accredited with ISO 9001 belongs to IOC. This R&D has developed over 1500 formulations through their scientists with state of the art technology and enjoys approval from competent bodies both at National & International level. Through development of bio-degradable, energy efficient  & eco-friendly lubricants, Titanium complex grease, Indian Oil's R&D won various laurels like prestigious DSIR award, NRDC award for best invention, ICMA & FICCI award & UN-WIPO award. It has also got over 75 National & International patents including the US & Australia. Over the years IOC's R&D has demonstrated its ability to develop World class lubricants suiting Indian conditions.
Quality & continuous technology upgradation is one of the key attention area in this competitive environment and here also IOC scored very high among all Oil Companies in India having secured ISO 9002 & ISO 14002 accreditation for all its refineries, lube blending plants & QC labs.
Conclusion :
Lubricant market, in the last 5 years has seen severest turmoil and this phase will continue for a year or two and then it is likely to stabilise. It is difficult to predict what path it will undertake but one this is sure & certain that oil companies owning refineries i.e,proven source of premium quality base stocks (an essential component for manufacture of quality lubricants), sound R&D set up with innovative business plan, wide distribution network with some system of control & accountability and wide infrastructure of professionalised technical services will continue to survive.

Contributed by
Sudeb Gupta
&
Subimal Mondal