Valero Energy Corporation:

Analysis & Recommendation for International Expansion


Table of Contents

Executive Summary                                                                                1

Introduction                                                                                         2

Recommendation                                                                                2

Valero Company Information                                                                3

        Product/Service Line                                                                        3

        

Technology                                                                                4

        Reason for Selection                                                                        4

Marketing Issues                                                                                5

Human Resources                                                                                5

        Talent Acquisition                                                                        5

        Talent Development                                                                        6

        Talent Retention                                                                            6

Risk and Opportunities                                                                        7

Business Issues                                                                                8

        Sustainable Development and the Challenges Associated                                8

        Dow Jones Sustainability Index                                                        10

Mode of Entry                                                                                10

        Valero’s Business Model                                                                11

        Turkey’s Demographic & Socioeconomic Status & Receptiveness                        11

        Porter’s 5 Forces, Porter’s Diamond and Applicability to Scenario                13

        FDI: Advantages, Disadvantages & Applicability                                        15

        REI and Relevance to Turkey                                                        17


        Global Market & Friction                                                                18

Conclusion: Most Advantageous Expansion Mode/Entry Vehicle                        19

References                                                                                        21

Appendix                                                                                        26

Team Wrap-up                                                                                26

Competencies                                                                                        27

Executive Summary

Team NoName has been researching the opportunities available for Valero’s potential expansion into Russia or Turkey.  In this project team NoName will explain why we believe that Turkey is the better option for expansion.

  • Russia’s government is too corrupt, infiltrated by the mafia and unfriendly to foreign companies to be the better option for expansion over Turkey
  • Turkey is strategically an excellent option due to their proximity to both the Middle-East and Europe, their pending membership into the EU and their governments hospitable policies toward FDI
  • Valero’s marketing will be made easier due to the fact that all demographics have use for the energy that Valero is offering
  • Valero has won several awards for being an excellent place to work and that will help acquire and retain the best talent when expanding into Turkey
  • By expanding into Turkey, Valero has a chance to decrease their dependence on the US market
  • Valero’s technology must follow a model of  sustainable development innovation
  • Valero must stick to their core philosophy regarding modes of entry and expand during periods of market pullbacks that have been successful in the past
  • Today Turkey has a democratic government that is friendly toward foreign investment but they are in a region of the world that has been historically volatile
  • Valero must take into account the forces that Porter outline when entering Turkey
  • Valero’s competitive advantages in technology, processes, structure, culture, and recruiting would be best maintained in expanding via wholly owned subsidiaries
  • Expansion via wholly owned subsidiaries would guarantee strict control over its operations, and procedural and manufacturing quality control could be adequately over watched. 

Valero Energy Corporation:

Analysis & Recommendation for International Expansion

Introduction 

        Team NoName has been researching the opportunities available to Valero Energy for international expansion in Russia and Turkey.  After analyzing Valero’s business model, strategic mission and past financial performance along with the political, economic and foreign trade factors in both Russia and Turkey, Team NoName is now ready to present our findings and recommendation.  The recommendations made in this report are well researched and include perspective on the evolution of trade in developing countries and the impact on the energy industry in the upcoming years.  Team NoName’s recommendations are geared towards offering Valero Energy the best access to future markets and sustainable and exponential growth internationally.

Recommendation

        Team NoName recommends that Valero Energy expand its operations into Turkey.  Turkey is a more favorable location for foreign trade and international expansion, especially for companies in the energy industry because of the following reasons –

  • Turkey’s geographical location makes it key to foreign trade between the Middle East and Europe.  Valero could take advantage of energy resources in the Gulf countries and be a successful distributor in the European Union.  Due to its secular democratic Government, Turkey is viewed much more favorably by Europe as well as its neighboring Islamic countries (CIA World Factbook, 2008).
  • Turkey is also taking serious measures to improve its flow of inward and outward foreign direct investment.  These measures will benefit Valero Energy in their expansion (Turkey Business Forecast Report, 2007).
  • Turkey’s pending membership into the European Union is also a huge benefit that Valero Energy could capitalize on.  Turkey would be a key member of the European Union and this would open up other developed markets for energy resources.  There are still some pending measures for Turkey to achieve this status, but this gives the country an upper hand over Russia.

Valero Company Information

        Valero Energy Corporation is an independent oil refiner in the United States that operates 17 refineries in California, Delaware, Louisiana, New Jersey, Oklahoma, Tennessee, Texas, Aruba and Canada (Valero Overview, 2008).  Valero operates 5,800 retail gas stations and wholesale stores with names such as Diamond Shamrock, Stop N Go, Corner Store and Valero in 44 US States, Canada and the Caribbean (Valero Overview, 2008).  The primary source of Valero’s revenue is based on refining, while resale it is a small 9% as of 2007 (Valero9, 2008), this is based on foreign and domestic revenue.

Product/Service Line

        Asphalt and sulfur are two of the main products produced by Valero, they also use raw materials provided by their refineries to produce plastics that are used to build computers, medical devices and household items such as plastic wrap (Valero8, 2008).  Their service line includes wholesale gasoline stations, while their main source of revenue is refining (see Table 1 in Appendix).  Valero produces clean burning fuels that create two types of oils: lubricant base oil and process oils.  Valero paraffinic oils are lubricant based that are used in automotive, railroad and industrial lubricants (Valero8, 2008).  Process oils, called aromatic extracts are compiled under Occupational Safety and Health Administration (OSHA) standards and are used for plasticizers and extenders in rubber materials (Valero7, 2008).    

Technology

        The process for refining oil is tightly controlled by the government, specifically the Environmental Protection Agency (EPA).  The refining process separates crude oil, which begins with fractional distillations or a newer process called conversion.  The finished product is stored and then delivered through pipelines, trucks or marine transportation to various markets to be sold mainly at gasoline stations.  The waste is then carefully treated to minimize harm to the environment.

Reason for Selection

        Valero, although a Fortune 500 company, was selected because it does not have any operations outside of North America, Aruba or the Caribbean.  Its main business is located in Texas, where it is headquartered in San Antonio.  Valero is not at the top of their industry, but ranks high in producing clean burning fuels.  By not having operations outside of North America, Aruba and the Caribbean, Valero is a superior selection to provide an analysis on for global expansion into Turkey.

Marketing Issues

        Oil companies as a whole have an advantage for trying to enter a new country because everyone uses it; there are little influences on sex, age, income, race, education and social factors.  Oil is a product that is popular mainly by brand name and strategic pricing, marketing for oil companies’ focus on keeping the customer and doing what is right for the environment.  Valero’s best interest is to provide the best product and use advanced technical standards that meet the preferences of the consumer (Hill, 2008, p. 480).      

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        Turkey is geographically close to major shipping routes and is placed strategically between Europe and the Middle East nations, which is helpful as a distribution strategy to bring it quicker to the consumer.  This distribution channel is exclusive to the area and will provide quality service.  Valero has opened many retail gasoline stations and this type of distribution will help build their brand name by delivering right to the consumer.  

        Due to a high volatile state of the economy and the war on terror make marketing issues a sensitive subject.  It is Valero’s duty to be successful in their ...

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