Case Study Solution: Indian Oil Marketing Corporation's International Strategy
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Indian Oil Corporation (IOC) has expanded internationally through various entry modes to access new markets and mitigate risks. IOC entered markets like Mauritius through strategic alliances and joint ventures with companies like Caltex to gain expertise. It established a wholly owned subsidiary, LIOC, in Sri Lanka to avoid conflicts with other foreign players. While LIOC provides economic benefits, the recent political tensions between India and Sri Lanka could impact LIOC's operations if relations deteriorate further. Overall, IOC's international expansion was driven by opportunities for growth and profit as well as risk diversification.
Case Study Solution: Indian Oil Marketing Corporation's International Strategy
- 2. Executive Summary Indian Oil Corporation is the largest commercial undertaking of India and the only company featured in the Fortune Magazine’s ‘Global 500 Listing’. IOC has entered into various foreign markets by the following ways: Strategic Alliance in Mauritius Wholly owned subsidiary in Sri Lanka Joint venture with Caltex in Mauritius Export to Bangladesh Turnkey projects in Mauritius The IOC has been expanding very aggressively. Q1. Identify the main reason behind IOC’s expansion into global market These are the major reasons for IOC to expand globally 1. Growth and Profit: This is the driving force behind IOC’s decision to venture out of India. IOC saw an opportunity as mentioned in the executive summary of little competition in the international market and seized the opportunity. 2. Risk Mitigation IOC wanted to mitigate the risks by expanding into new markets. Also the balance sheet in India was always red due to subsidies. Thus IOC had to look towards other markets where profits would be better. 3. Access to imported technology: IOC had strategic advantages in collaborating with bigger oil firms like BP to learn better technologies 4. Spreading R&D costs The R&D costs that IOC incurred in R&D of say new exploration would be spread out to various geographies like USA and keep it sustainable in other markets. 5. Product portfolio expansion IOC wanted to explore more fuel types like gas which were in limited supply in India. 6. Competing against China
- 3. Q2. IOC has adapted a mix of entry modes for approaching international markets. Critically evaluate the factors affecting IOC’s selection of these entry modes IOC adopted the following entry modes: 1. Exporting(Bangladesh, Sri Lanka) Economic incentive: The profits in exporting are very high. As IOC had low cost operation, exporting oil and related products was economically effective. Operation considerations: IOC also exported to nations like Mauritius where there are no infrastructure for oil production. Also skills are absent in the local population Political considerations: The government and their policies must be favorable for exports. 2. Turnkey projects(Mauritius) Economic incentive: The profits in turnkey project are very high. As IOC had low cost operation, exporting oil and related products was economically effective. Operation considerations: Physical infrastructure is poor also the government wants to develop skill set in their nation with the help of outside companies Political considerations: The government and their policies must be favorable for turnkey project. The level of competition is also low 3. Strategic Alliance(Caltex, Shell‐ Mauritius) Economic incentive: Cost of investment is shared between the partners and IOC can use the distribution channel of its partners. Operation considerations: Expertise from reputed and established players like Caltex can be gained. This helped IOC to explore less profitable oil reserves. Political considerations: Government involvement is low. 4. Joint Venture(Caltex‐Mauritius) Economic incentive: Cost of investment is shared between the partners and IOC can use the distribution channel of its domestic partners. Also IOC could make use of the benefits of the local government extended to its partners. Operation considerations: Expertise from reputed and established players like Caltex can be gained. This helped IOC to explore less profitable oil reserves.
- 4. Political considerations: Reduce political risks by providing with information and skills to local population and company. 5. Wholly owned subsidiary(Sri Lanka‐ LIOC) Economic incentive: Avoid conflict with other foreign players. Also risks are mitigated for IOC into different markets and economies. Benefits also provided by host country. Operation considerations: Cheaper raw material. Political considerations: Government is helpful in building the facilities. Q3. In the view of emerging economic and political scenario, evaluate IOC’s entry into Sri Lanka as a wholly owned subsidiary. There are the following political and economic implications on IOC: 1. Fall out between India and Sri Lanka over the recent human rights violation can affect the operations of LIOC in Sri Lanka which would further hamper the growth. 2. Economically any bad sentiment between the two countries can result into economic losses for IOC. 3. Though this can be used as a cushion for leveraging the relation between the two countries as both countries have economic interests tied. 4. In the view of growing oil demand in India this is a positive step as it will compensate for CAD losses India is incurring due to high cost imports