Hindistan Petroleum Corporation Limited India is the sixth largest lubes(Lubricants) market in the world and it is the third largest in the Asia-Pacific region. Also, it is the most vibrant and growing market in the world with a growth rate of 5 per cent vis-a-vis world lubricant market growth rate of 2 per cent per annum. Total Indian lubricants market is 1.2 million MT per annum and it is worth Rs 10,000 crores in value terms. There are more than 30 big market players including public sector undertakings (PSUs) such as Indian Oil, HPCL and BPCL, and MNCs such as Shell, Castrol, Exxon Mobile, Total Fina Elf, Idemitsu, Gulf Oil, etc.

HPCL has the biggest lubricants base oils manufacturing refinery with a capacity of 3.34lakh MT per annum. It has therefore, certain advantages in the lube market. HPCL has two big grease manufacturing plants in Mumbai and Kolkata.

The company makes variety of greases in its plants: (i) Automotive greases (wheel bearing greases, chassis greases, and multipurpose greases) (ii) Industrial grease (lithium-based, calcium- based, and non-soap greases) HPCL has a long tradition of quality greases which is the outcome of many years of technical and scientific experience. Also lubricants and greases are the most profitable business line of HPCL, which in 2003-04, contributed almost 20 per cent of profitability with 2-3 per cent revenue share. Greases While lubricating oils are best suited products for lubrication of any machine element, their use is not feasible in a situation where the product is likely to leak out, and not remain in bearing over extended period of service.

To lubricate in such situations satisfactorily, solid to semi-solid materials of dispersions of thickening agents in liquid lubricants and containing other ingredients for imparting special properties have been developed, and these are called lubricating greases. Application of Greases The application of greases lies in a wide spectrum of industries.

i. Automotives ii. Ships

iii. Steel plants iv. Power plants v. Cement plants

vi. Railways vii. Ports, ship building

viii. Mines ix. Defense equipments x. Oil corporation

Core Competency of HPCL The competitive strength of HPCL in grease manufacturing till 1990s were the following.

i. Biggest lube refinery in the country. ii. Big grease manufacturing unit in Mumbai.

iii. Rich tradition, R&D backup of ESSO in grease manufacturing. iv. Competitive edge in cost effective manufacturing in greases. v. Established network, brands in the sales/ marketing network of the country.

vi. Grease makers with long and wide experience in manufacturing plants. The background reasons for outsourcing of grease by HPCL were the following.

(i) It faced competition in lubricants/grease manufacturing and marketing by many

MNCs and private players during 1992- 2000. (ii) There are more than 30 players in the market now. (iii) The lubricants market had shifted from traditional retail outlet network to the

'bazaar' trade and the lube shops. (iv) HPCL ignored R&D in grease manufacturing, and slowly it had nothing new to offer

to the customers. (v) It ignored the hard fact that grease making is an art and the grease makers were getting old

and were nearing the retirement age in1992. The new generation of staff and executive were not trained enough to learn the art of making greases. The batches of greases were failing in quality very frequently.

(vi) While HPCL slept over the years in this field, others made inroads in the grease market. The private players focused competitively in the profitable automotive market where the lube shop-owners and the mechanics were the chief decision-makers in the buying process of greases.

(vii) Private oil companies introduced 'white' grease which was presented as superior than HPCL's yellow multipurpose greases, and black coloured wheel bearing greases.

HPCL steadily lost market due to the following reasons.

(i) There was lack of aggressiveness during the period 1994-2000. (ii) The HP greases were not manufactured in the required quality, therefore customers shifted

more or less permanently. (iii) HP lost the war in the lube shop market and the mechanics recommended white grease

instead of HP greases. (iv) People were very cost conscious and they failed to see the quality aspect. They prefer- red

cheaper greases. (v) HPCL with the inherent weakness of a PSU, maintained and manufactured the greases at a

higher cost and price. Therefore, it started losing market share in greases. (vi) The loss of market share was also com- pounded by the non-availability of greases in time.

The plants were incapable to produce the required quantity.

Therefore HPCL decided to outsource the grease manufacturing. The factors that favoured out- sourcing of grease at HPCL were the following. (i) Product was produced and made available at a faster rate, and as per schedule. (ii) Cost of grease was less than the cost of manufacturing at their own plants. (iii) Less industrial relations problems and loss in bargaining power of the unions. (iv) Product was readily available as per schedule and demand. (v) 'White grease' for automotive segment was made available at the price which is

competitive, and in attractive packaging and size, as per the customers preference. (vi) Pricing and the dealer/shopkeepers' incentive (commission) was kept very aggressive

which was possible only due to the outsourcing of the manufacturing of grease. (vii) Assured supplies helped in building back the customer confidence, shopkeepers

confidence, and the confidence of the sales force in their capabilities. This aspect is extremely important in lubricants sales.

(viii) Sustained aggressive marketing helped in building the strong brand - HP All Purpose (HP AI Grease). The product sells like a hot cakes. There are no inventories. The moment it is available, it is sold to the distributors, who in turn sell it to shops.

(ix) Aggressive pricing, attractive dealer incentives has helped the sales, and the quality same as that of the global players such as Castro I and Shell.

The strategic outsourcing of grease manufacturing has helped HPCL to regain the lost market and is an important contributor to the company's profitability. Discussion Questions

1. What is the market potential for lubricants in Asia, particularly India? How can HPCL exploit this potential?

2. Assess the various core competencies of HPCL which it can use in the business of greases.

3. Cite the reasons why even a giant such as HPCL had to outsource the manufacturing of grease.

4. What have been the measure advantages of strategic outsourcing of grease manufacturing at HPCL?