Abstract
Valero Energy Corporation operates under the oil and gas industry, being both a local and international petrochemical product, power as well as transportation fuel manufacturer, and also a marketer. It markets its products in the form of wholesale terms across the United States, United Kingdom, Caribbean, Ireland, and Canada. Currently, Valero Corporation does not operate in Pakistan. Pakistan is a suitable market that Valero should expand to. Valero Energy Corporation is viable to expand to Pakistan due to its excellent performance in its domestic country. The company is financially good and has proper management that can enable it to expand to Pakistan smoothly. Pakistan’s business environment seems to be lucrative and very attractive for Valero to move into the Pakistan market. Valero is evident to have a viable internal business environment that can sustain it as it ventures in Pakistan. Valero’s objective is to grow and expand to new markets. Given the external and internal business environments found to be conducive for Valero to expand to Pakistan, the company should make its move to expand to Pakistan, considering the appropriate international business strategy suggested.
Introduction
Valero Energy Corporation operates under the oil and gas industry, being both a local and international petrochemical product, power as well as transportation fuel manufacturer, and also a marketer. It was founded in 1980 and its headquarters in San Antonio, Texas, United States (Valero Energy Corporation, n.d.). Valero is one of the biggest independent petroleum refiners in the world. Its activities are mainly based around crude oil refinery as well as selling these products via its total of 6,800 retail outlets in various countries. It markets its products in the form of wholesale terms across the United States, United Kingdom, Caribbean, Ireland, and Canada. Currently, Valero Corporation does not operate in Pakistan (Valero Energy Corporation, n.d.). Therefore, this paper will evaluate Valero’s internal and external environment it might face as it expands from its domestic market, the United States, into Pakistan.
Analysis of Valero Energy Corporation in its Domestic Market
Valero Energy Corporation seems to be doing well in its domestic country, the United States. The company has taken a large market base in the country, which has contributed to its success. This is evident in the large number of 5,880 outlets that it has only in the United States (Valero Energy Corporation, n.d.). This indicates that it has a large customer base making the company be strong economically. Essentially, the refining sector of Valero reported a $1 billion operating income in 2019. The company is independent, therefore making it flexible to expand to other countries. It has been notable that the company has been progressively performing well economically, beating its target profits from time to time. Valero’s quarterly revenue, the company achieved $24.26 billion, superseding the expected $21.51 billion (Sorin-George & Cătălin, 2017). This indicates the company is profitable and is capable of thriving in international business. It gives the company morale and strength to expand to new markets internationally. The company also has viable leadership and management, which is more focused on making investments aimed at increasing the company’s system flexibility as well as team relentless emphasis on safety, allowing the company to perform well and also put it in a position to venture into new markets efficiently.
Analysis of Pakistan’s business environment
Strengths
The availability of natural wealth is the main strength of the Pakistan nation. They include gas reserves, water, and arable land, which is under irrigation systems. Pakistan, 22% of its GBD, is accounted for by agriculture alone. Another high strength is the availability of a large user market with a large population of over 179 million people (Leonidou, Fotiadis, Christodoulides, Spyropoulou, & Katsikeas, 2015). The majority of the population is concentrated in the city, and their living standards of income and living substantiality have increased; thereby, they spend more to sustain their needs. This will become a great advantage to business within Pakistan nation due to increasing population that go along with a better living standard which will sustain the rise of a business. A large labor force is available, and the majority have better access to education in this becomes more critical for investors in oil companies.
Weaknesses
Corruption in Pakistan has long affected business, and it is being ranked among the top corrupt nations in the world. Some of these forms of corruption are kickbacks and bribes and are too costly for the business (Leonidou et al., 2015). Besides this, the level of illiteracy has prevented the nation’s possibility of performing an activity; the majority of this illiterate are mostly women being the most affected, and this has negative effects on investors and other companies. The shortage of electricity has become one of the main challenges to attract investors, and this has contributed to a lack of power.
Opportunities
Pakistan is rated among the best nation in ease of doing business primarily in Asia Pacific nations. Some of the procedures, such as banking, tax policies, and liberalization of foreign exchange and FDI laws are friendlier for doing business. There are some of the trade initiatives under USAID, and this is better opportunities for Pakistan nation to take advantage of (Asif, Asghar, Younis, Mahmood, & Wang, 2018). Some of these initiatives are coming up with a portal for electronic trade to be used for accessing business statistics in real-time. Furthermore, due to being a Muslim nation, halal products are highly demanded, and it is the leading nation for these products. Another opportunity is the growth of Islamic banking, which will assist in financial challenges due to the financial crisis affecting all globe.
Threats
Inflation has remained high due to huge floods that destroyed large farmlands of Pakistan and destroyed storage facilities for grains (Asif et al., 2018). This will lead to rising in the price of products, an increase in fuel prices and depreciation of their currency against the dollar.
Analysis of the Valero’s internal business environment when expanding to Pakistan
Strength
Valero has a strength in its domestic market it operates in, and it is a source of new ideas and roadblock to its growth. Valero can focus on its local market without coming up with such ideas and will only require development in entering other markets. It also has a brand and product portfolio that enables the company to target some of the segments within the internal market at the same time. Valero can grow different profit mix and profits source (Sorin-George & Cătălin, 2017). Another strength is that Valero Energy Cooperation has some charge premiums, unlike their competitors. This is a source of resources to reduce pressure due to competition and invest in development and research.
Weakness
There is no efficient management of cash cycle and inventory in Oil Valero energy. Lot has to be done to improve inventory management. Besides that, Valero’s organization culture is controlled by disputes from various unions forcing some of the managers to keep data secretly (Sorin-George & Cătălin, 2017). This will prevent the Valero in future development as data may lead to missing significant opportunities. Furthermore, there is customer dissatisfaction among the client of Valero Energy Cooperation. It should put into consideration some of the areas to increase clients’ purchase and purchase experience.
Opportunities
The increase of disposable income by consumers can be used to grow a new model in business by Valero to enable consumers to start paying for the use of its products. This may be used in making changes in areas such as economy, workspaces, sustainability, demography, and globalization (Sorin-George & Cătălin, 2017). Furthermore, accessing global talent is among the problems undergone by Valero energy cooperation due to a limited budget. The business model of e-commerce and social media businesses assist the company in interacting with logistic and supplier providers in the external market.
Threats
Valero performs in an industry where a culture of sticky values is available. This will prevent the organization from increasing prices is deserved by its premium price (Imtiaz, Khan & Shakir, 2015). It should also evade the risk of protectionism, such as storing data sources into the external market. There are also New Entrants Treats because of efficient increase and reduction cost as low cost for reaching its clients can be leverage by Valero (Sorin-George & Cătălin, 2017). International geopolitical factors have increased protectionism since Trump was elected. Some of these developments are inflation in Venezuela, low oil prices, Russian sanctions, crisis on foreign exchange, Brexit, and many more. All these are affecting the external business surrounding. Valero should focus on these events in making them essential in making strategies.
Reasons for the attractiveness of Pakistan
Pakistan is an attractive country for Valero to expand due to the booming car market. The country has a lot of cars owned by local citizens. The passenger car sales have reached 200,000 units sold on an annual basis. To add to it, automakers in the country are focusing on increasing their production to satisfy the domestic demand. New players in the automotive industry are moving into the country (Leonidou et al., 2015). This creates a business opportunity for Valero. Vehicles need oil and fuel for their operations, and due to the high number of cars in Pakistan and the gradual increasing demand for vehicles in demand creates a market opportunity for Valero. Moreover, there are few oil and gas companies in Pakistan, meaning that the competition is low (Shah, Javed & Syed, 2013). Valero, therefore, should take this advantage to capitalize and work on maximizing its profits. Low competition is healthy in its business (Leonidou et al., 2015). Therefore it is necessary that Valero ventures into Pakistan. Another reason is that Valero has never operated in Pakistan earlier before. One of the objectives of Valero is to grow and expand its business to various markets worldwide. Therefore, expanding to Pakistan is appropriate.
Ethical issues that should be considered and how to manage it
Valero should ensure the confidentiality of its customers and suppliers must be maintained except only when the regulation or laws require to be disclosed. This may include all data that might be useful to its competitors and have been entrusted to Valero. This is achieved by a requirement for workers to sign invention and confidential agreement immediately before beginning the employment, and the human resource department of Valero keeps copies(PONIATOWSKA-JAKSCH & Pakulska, 2015). Proper use and protection assets are being used for the accepted purpose in business. This is achieved by ensuring that equipment for a company should not be used for activities that are not part of the company. Valero’s approval authority policy should do all the disposal and acquisitions of assets by consulting the authority in charge. Technology being made available for Valero and other associated systems such as software are the property of Valero.
Relevant strategies that apply to Valero as it expands to a new market it
To achieve a successful expansion into the Pakistan market, Valero needs to choose suitable market entry modes as well as expansion strategies. Therefore, it is likely that Valero will encounter a different situation. Valero needs to apply different market entry modes based on various conditions.
Joint ventures
The joint venture will play a vital role in Valero’s international expansion to Pakistan, especially in the early stages of development. Essentially, the structure as a joint venture helps in distinguishing Valero from other transnational corporations. It should retain its joint ventures with Magellan Midstream to expand Pasadena Marine Terminal (PONIATOWSKA-JAKSCH & Pakulska, 2015). It should also focus on establishing a joint venture with transport companies in Pakistan that will help in supplying its products to various outlets in the country. Valero should also consider forming a joint venture with one of the ethanol producers in Pakistan or any neighboring country around Pakistan. Valero will benefit from this joint venture by establishing a business within the bio-fuel field, which will increase its product base and profitability.
Wholly owned subsidiaries
Another vital strategy is for Valero to build wholly-owned subsidiaries in its expansion process to Pakistan. The company should focus on making a positive impact on the Pakistan economy. It should ensure that its operations are covering oil and gas production by tapping into the oil resources in the local land and swaps in Pakistan and also exploring and detecting oil in deep water at an affordable cost (PONIATOWSKA-JAKSCH & Pakulska, 2015). This form of production will help in meeting the needs of the Pakistan population and also exporting to other parts of the world. This will improve the company’s reliability and cleaner fuel. This will contribute to the economic development in the country, and consequentially, Valero will get a favorable political environment and a more significant customer base.
Licensing
Valero should also consider expanding its business in terms of licensing. It should try to be an organization providing support for the customers through the use of licensing advanced technologies (Subhan, Mehmood & Sattar, 2013). With a license granted by Valero, the client could obtain specific technical assistance or even operations consultancy in upgrading its business performance (PONIATOWSKA-JAKSCH & Pakulska, 2015). Valero should shape their services to range from initial as well as primary consultation to full guidance throughout every phase in its project as it expands to Pakistan. Being among the top oil company in the oil and gas industry, Valero should ensure that it provides various lead-edge technologies for other refineries like thermal conversion, hydrocracking, distillation, and fluidized catalytic cracking.
Conclusion
To sum it all, Pakistan is a suitable market that Valero should expand to Pakistan. Valero Energy Corporation is viable to expand to Pakistan due to its excellent performance in its domestic country. The company is financially good and has proper management that can enable it to grow to Pakistan smoothly. Pakistan’s business environment seems to be lucrative and very attractive for Valero to move into the Pakistan market. Valero is evident to have a viable internal business environment that can sustain it as it ventures in Pakistan. Valero’s objective is to grow and expand to new markets. Given the external and internal business environments found to be conducive for Valero to expand to Pakistan, the company should make its move to expand to Pakistan, considering the appropriate international business strategy suggested.