Vitol: A Global Energy And Commodities Sector Company

About Vitol

Vitol is a private company and was established during 1966 in Rotterdam. At present, they have 40 offices all over the world and widely operate in Singapore, London, Houston and Geneva. It is a commodities and energy sector company and placed in the heart of energy sector flows globally. They use their wide spread logistical network and expertise for distributing the energy all over the world responsibly and efficiently. For more than last 50 years Vitol served the energy market of the world and trading fir more than 7 million crude oil barrels and products per day while delivering the energy products to various countries in the world. Their customers include multinationals, national oil companies, chemical companies, leading industrials and the largest airlines from the world. They provide various products to the customers as per their requirement and specification through managing and sourcing the energy movement through the relevant infrastructure (Vitol.com 2017).

The significant portion of the company is owned by its employees that offers stable and diverse base for the shareholders, which in turn enables the company to have a long-term outlook and the considered approach towards the risk. They operate the business globally and the employees are from diverse sectors from all over the world. They employ more than 60 nationalities within their team that gives them diversity in thinking process and transform them into greater understanding for their customers to take more informed and better decisions.

Joint venture marketing is very common for the big businesses specifically for the oil and gas companies. The oil and gas companies go for joint venture generally for the purpose of drilling. Various reasons that motivates the companies for involving into the joint venture are as follows –

Internal reasons

• Opening access to the financial resources – the company and its JV partner together can have more assets or better credit to access the big resources for the purpose of grants and loans as compared to the single company
• Spreading costs – the company and its JV partner may share the costs with regard to the product development, marketing and any other expenditures which in turn reduces the burden of finance (Yan and Luo 2016)
• Assistance in the economies of scale – both the companies together can develop services or products that can reduce total production expenditures. This helps in bringing the product in market at cheaper rate and at the same time the customers can enjoy savings in cost.
• Improves the access to the new markets – both together can combine the customer contacts and can develop a joint product to access into the new market (Larimo,  Nguyen and Ali 2016).
• Connection to the technological resources – access to the technological resources can be afforded jointly that cannot be afforded individually. Sharing of proprietary technology and innovations can improve the product specification and technological processes.

External reasons

• Strategic movement against the competition – the JV is able to compete efficiently against another leader company through combination of innovation, technology and markets (Lai, Chen and Chen 2017).
• Development of innovative and stronger product – both the company together are able to share their ideas for developing a product that will be more competitive in the market.
• Improve speed to the market – with sharing for the access to the technological, distribution and financial resources both the company can get the product jointly for making entry to the new market faster and efficiently (van der Meer-Kooistra and Kamminga 2015).

Strategic reasons

• Diversification – various diversification reasons are there such as access to the diverse market, diversification of the innovative force of workings and development of the diverse products and services.
• Synergistic reasons – synergy can be created with the JV partner that produces greater result together as compared to doing individually (Monios and Bergqvist 2015).
• Improve and share the skills and technology – two innovative organizations can share the technology for improving each other’s skills and ideas.

VPI Immingham and the fund for renewable investment in Low Carbon Ltd launched the joint venture for investing 250 million pounds in the energy storage and distribution for the power generation over Britain. They planned to build two storage plants for battery initially, one in Glassenbury, Kent and another in Cleator, Cumbria for connecting to the electricity grid of Britain by the closing of the year. Renewable energy plays important role in UK’s energy mix and with the increase of its role the development for the energy plants will be the central for UK’s future success (Vitol.com 2017).

Various benefits associated with the joint venture are as follows

• Capital intensity – for an individual company project may be too big for financing from its own with regard to fund access as well as exposure to cost in case of overrun.
• Mitigation of risk – an individual organization may not prefer to assume the full exposure for the speculative investment or the investment into new region or technology or unproven reserve
• Access to the resources – the developer of the project may require the assistance of the JV participant for skills or capital for developing the limited resources to the maximum potential (Hearn 2015)
• Access to the technology – the owners for the proprietary technology may limit or restrict the access to the projects where they are called for participating within the agreement with JV style. In the same way, the developer of the project may look for the partner with the owners of technology where the success of the project and the competitive advantage is forecasted on accessing the expertise or technologies
• Political sensitivity – as compared to mergers, acquisitions or takeovers, JV options are sometime more pleasant to the government, communities and labour groups (Daniel, Pasquire and Dickens 2016).
• Regulatory requirement – various countries require the foreign companies for working with the local entities for participating in the markets
• Market scale and positioning – leveraging the political influence and pooling the assets of the participants may enable the JV for developing the market lead position into particular geography which in turn will provide advantages that cannot be achieved by individual company.
• Supply chain optimization – the supply chains are optimized all over the disparate geographies through pooling off the asset of the participants. For instance, the cost of distribution can be reduced significantly, if the participants with the same manufacturing requirements can contract the manufacture for each other in the geographically dispersed regions (Ertug et al. 2013).

Vitol’s services and customers

Various challenges associated with the joint venture are as follows

• Structure of JV – JV structure is framework for the success of the capital projects. Failure in engaging and selecting the right partners or developing the sufficient commercial structure is the immediate indicator of the troubles for the process. Further, for the purpose of joint venture, priorities, capabilities, culture and strategies of both the companies shall be matched with each other. Finding the appropriate partner is the biggest challenge. Further, the organizations shall anticipate the dynamic future market that can influence the JV (Yeniyurt and Carnovale 2017).
• Effective integration – JV integration from very beginning of the operation is important. As integration lack can lead to the immediate disruption. Specifically this is crucial in the sectors where the relationships are not driven by regulatory forces. Organizations can avoid the material damages through setting the priorities that construct the trust among the partners. Further, it includes development of joint cross party in case of business and performing the scenario planning for understanding the expected decisions of the partners for investing the independent and external assessment of the major decisions and the calls for cash.
• Exit timing – any of the company under the JV may decide to leave anytime for various reasons, however, the timing may not be beneficial for another. It is not possible to forecast the market forces and that may affect the company (Monios and Bergqvist 2015).
• Resolution of disputes – it is not necessary that all the JV relationships will be on good terms. Disagreements or conflicts can arise among the companies. Prioritizing the investment for the agreement of dispute resolution allows the companies for reaching the resolution more quickly without much damage
• Organizational or project leadership – the participating companies shall dedicate the required time for defining the responsibilities and roles jointly and appointing the key management personnel together. These personnel are engaged with the management of crucial factors for operating the JV projects. Assuring best possible resources are utilized for managing the relationship that shall be for ongoing consideration (Shah 2015).
• Alignment of strategy and goals – it is very general for the JV partners for disagreeing on joint strategies and goals for the activities and project. This leads to disjoined investment and planning activities. However, insufficient planning causes to lack of disruption and preparation during the life cycle of the project. Companies shall communicate and align the strategies and goals to fulfil the project needs effectively.

Through the joint venture named Valt Asphalt, Vitol delivers the customers worldwide through the widest specialist asphalt fleet for the vessels in the world. Various refineries in which they invested are in Belgium, Antwerp, Vohburg and Germany and Geelong, Neustadt, Australia and manufacture bitumen. Further, they work with their own refineries and production for sourcing the required bitumen grade for their customers. The CHP division of Vitol and Low Carbon entered into the joint venture for developing the storage of energy. The new JV was established for funding the early stage of the energy storage and the projects in renewable energy all over UK that started with two winning projects from the National Grid’s EFR (Enhanced Frequency Response) tender.

Low Carbon has been awarded with g2 Energy recently for the contracts of civil works and the high voltage electrical for the projects that will start working in March and the projects are expected to get connected with the electricity network by the closing of the year. They are planning to use the technology of lithium-Ion battery from the LG chem. And the system of energy management from the NEC solutions for energy for providing the responses of lower than 2 second for surging in the energy demand and supply. The CEO of Low Carbon, Roy Bedlow said that, renewable energy is playing the crucial role in UK’s energy mix and the development of the plants for energy storage will be central for the future success of the energy network of UK. Low Carbon is delighted to get into partnership with Vitol for accelerating the development of the new renewable and energy storages at scale and they are considerably challenging the reasons for the climatic changes and at the same time helping for meeting the increasing demand for the renewable energy in UK (Vitol.com 2017). The reason behind new JV is accelerating the implementation of renewable energy related projects while complementing the VPI Immingham’s capabilities of CHP generation. The VPI Immingham chairman, Russell Hardy and the member of the executive committee of Vitol stated that they are happy to enter into the strategic and executive partnership with the Low Carbon that are expected them to grow their investments in various alternative energies in UK. Further, batteries will complement the gas and renewable perfectly and together will offer more efficient, cleaner energy future for UK (Vitol.com 2017).

Joint ventures for energy storage and distribution

Conclusion 

It is concluded from the above discussion that joint venture is a good approach for the expansion of the existing business as compared to the merger, acquisition and restructuring. The business has good potential for future growth and the participating firms may come up with innovative products and ideas. Further, the joint venture assists in obtaining more resources, increased expertise for technologies, greater capacity and access to the distribution channels and established markets.

Various marketers are missing out for the huge profits as they are not involved into joint ventures. If they consider creation of joint venture they are expected to be profitable in the long run. The recommendations for successful joint venture projects are as follows

• Long-term consideration – it is very important that the companies must think about the long-term aspect before entering into the JV. The JV shall be created for the long-term purpose and shall be advantageous for the long-term otherwise it will not be worthy for the time being spent on it.
• Never give-up approach – through sometimes it may be frustrating when any organization does not get positive feedback from the expected partners in the joint venture. However, the main thing is to keep trying as giving up will surely lead to failure.
• Cultivate relationship – it is very crucial to cultivate the relationship. The potential partners are comparatively more important for the success. The organizations must build the relationship that will form courtesy and sincerity.
• Clear communication – communication is very important when the organizations try out in the JV and when the companies get involved in JV. Further, the organizations shall communicate with the venture in simple way and then the communication line shall be kept open for the future success.
• Building trust with the partner – once the companies enter into JV, it is crucial that they start building trust. Trusting the partners will assist them to trust back. Trust is a crucial thing for the JV to work smoothly and successfully.
• Searching for new opportunities – it is obvious that the organizations must keep their eyes open to grab new opportunities. It is not that they will always propose the opportunities to others but they can always find great JV partners that can be worked with through checking the forums and other networking
• Do the research – the research shall be carried out ahead of time. The research shall not only include the details about the partners but it shall include all legal aspects with regard to the JV as well.
• Choose the partner carefully – it is very crucial that the partners shall be chosen carefully for the proposed venture. If the organization and its JV partner have exceptional reputation
• Have professional proposals – at the time of drafting the proposal the partners shall make it professional. If the top partners are to be attracted in the venture, the proposal is required to be exceptional.
• Make the proposal irresistible – if the partners are to be attracted in the joint venture that will lead the JV towards success, it is required to ensure that the proposal is irresistible. If the proposed partners have great reason for entering into the joint venture. They will not be able to refuse it.

Reference   

Daniel, E.I., Pasquire, C. and Dickens, G., 2016. Exploring the factors that influence the implementation of the Last Planner® System on joint venture infrastructure projects: a case study approach.

Ertug, G., Cuypers, I.R., Noorderhaven, N.G. and Bensaou, B.M., 2013. Trust between international joint venture partners: Effects of home countries. Journal of International Business Studies, 44(3), pp.263-282.

Hearn, B., 2015. Institutional influences on board composition of international joint venture firms listing on emerging stock exchanges: Evidence from Africa. Journal of World Business, 50(1), pp.205-219.

https://www.vitol.com/. (2017) Available from: https://www.vitol.com/ [Accessed 25 July 2017].

Lai, J.H., Chen, L.Y. and Chen, C.R., 2017. Agency hazard, managerial incentives, and the wealth effects of joint venture investments. International Review of Financial Analysis.

Larimo, J., Le Nguyen, H. and Ali, T., 2016. Performance measurement choices in international joint ventures: What factors drive them?. Journal of Business Research, 69(2), pp.877-887.

Monios, J. and Bergqvist, R., 2015. Using a “virtual joint venture” to facilitate the adoption of intermodal transport. Supply Chain Management: An International Journal, 20(5), pp.534-548.

Monios, J. and Bergqvist, R., 2015. Using a “virtual joint venture” to facilitate the adoption of intermodal transport. Supply Chain Management: An International Journal, 20(5), pp.534-548.

Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L., 2016. Applying international financial reporting standards. John Wiley & Sons.

Shah, K.U., 2015. Choice and control of international joint venture partners to improve corporate environmental performance. Journal of Cleaner Production, 89, pp.32-40.

van der Meer-Kooistra, J. and Kamminga, P.E., 2015. Joint venture dynamics: The effects of decisions made within a parent company and the role of joint venture management control. Management Accounting Research, 26, pp.23-39.

Yan, A. and Luo, Y., 2016. International joint ventures: Theory and practice. Routledge.

Yeniyurt, S. and Carnovale, S., 2017. Global supply network embeddedness and power: An analysis of international joint venture formations. International Business Review, 26(2), pp.203-213.