Oct 17, 2012

Vietnam - What’s behind the leaving of Shell Gas?

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VietNamNet Bridge – The leaving of the giant Shell group from Vietnam has been attributed to the mismanagement of the gas market, where there is no room for authentic investors.

The Dutch Shell Group has confirmed its decision to transfer all of its stakes in a gas joint venture in Hai Phong City and a 100 percent Shell invested company in HCM City to Thai Siam Gas.

This is the third global oil and gas brand leaving Vietnam. Following the US Mobile Unique Gas and the UK’s BP Gas. Why do the foreign giants leave Vietnam, if this is believed to be a potential market with the annual growth rate of 10 percent per annum?

In the document to distributors, Shell Gas Vietnam said the decision to leave Vietnam comes in line with the group’s strategy on focusing on key markets, under which, it would make investment in downstream sectors in fewer, but larger-scaled markets.

Gas has not brought the desired profits to Shell over the last decade. Though Shell is always considered a giant in the market, its investment costs proved to be much higher than the profits.

At first, Shell Gas developed its distribution network comprising of the retail shops where there were only Shell Gas products available. However, the network then got narrowed, thus forcing Shell Gas to allow the shops to sell the products with other brands as well.

However, the compromise of the group could not help improve the business. Two years ago, the offices in Hanoi were merged into the company in HCM City, a move to cut down the management costs. And now, it has decided to leave and give place to another player.

Tuoi tre newspaper believes that the big shell gas group leaves the market because of the unhealthy competition in Vietnam, where illegal gas trading of low quality products cannot be controlled. Foreign brands like Elf, Total, BP and Shell spent a lot of money to protect their brands, but the mismanagement could not ensure their success.

Some years ago, in the minds of Vietnamese people, red tank meant Elf Gas’ product, green tank meant BP, blue Shell and grey Saigon Petro.

However, the market got chaotic when all gas firms tried to print their tanks with green or blue colors. As a result, the big gas firms had to spend big money to persuade consumers to order products not in accordance with the color, but with the brands.

However, 40 percent of gas tank covers, about several millions, do not come back to their owners, which means that the foreign firms have to compete with illegal traders.

In October 2010, the Decree No. 107 on gas trade management took effect, which was hoped to restructure the gas market. However, the problems still have been existing. Prestigious gas firms have to send their staff to the market management agencies to get back their gas tank covers, which were once appropriated to contain the products of other manufacturers.

The problems not only make the gas market chaotic, but also discourage authentic companies, which according to Tuoi tre, is the main reason that prompts foreigners to say goodbye to Vietnam.

However, commenting about the leaving of Shell Gas, Nguyen Si Thang, Chair of the Vietnam Gas Association, said on VnExpress that the leaving of Shell Gas should be seen as a normal decision of a business.

Thang said the decision of one or several businesses should not be blamed on the bad business environment with unhealthy competition and illegal gas trading.

Compiled by C. V

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