A FEASIBILITY STUDY ON NEW ENTRY OF A MULTI-NATIONAL CORPORATION INTO RETAIL LPG MARKET IN SINGAPORE

Abstract

LPG (liquefied petroleum gas) is a mixture of propane, propylene, butane, butylene, etc. which are by-products of the crude oil refining process. Instead of being "flared" off, the gases are recovered and sold as domestic and industrial. fuel. LPG is also used as the raw material for petro-chemical production. Because it is stored in a pressurised state, it requires specially designed equipment and facilities for handling and transportation. LPG was first marketed in Singapore in 1965. The retail segment of LPG market, namely the domestic consumer and food outlet segment, has seen tremendous growth since then. Currently all 5 oil major operating in Singapore and 2 non-oil firms are actively competing in the lucrative retail market. In the oligopolistic situation, the product profit margin remains attractive. Today, the retail LPG market faces several challenges: Competition from P.U.B. town-gas, stricter government regulation on fire and safety, and increasing demand for customer service. However, such challenges may be looked upon as opportunities. ABC Co, (a pseudonym) of Italy is exploring the feasibility of entering the profitable retail LPG market. The new challenges provide an area where ABC Co. can compete with the existing LPG marketers on a equal footing. The various entry barriers are examined: Apart from the high initial investment outlay, ABC Co. expects to face the counter-measures by the competitors. ABC Co.'s marketing strategies will be geared towards providing effective customer service and promoting safe handling of product. Organisationally, ABC Co, has the resources to enter the retail LPG market. Based on conservative estimates of volume growth and full initial investment case, (i.e. with full capacity cylinder filling plant set up), it is shown that the proposed venture is a viable one. It is assumed that the volume will grow from an initial market share of 0.5%, to 5.0%, in 7 years' period. With an initial investment of S$l,060,000, the DCF rate of return is 26.7, or payback period of 4.9 year. There will be other benefits gained: Representation in wider product line will enhance the overall corporate and product image and will· increase market acceptance. The valuable experiences acquired in entering a new product market will broaden and upgrade the knowledge and expertise of ABC Co.'s staff, which are of vital importance in achieving the overall corporate objectives. In conclusion, ABC Co. should embark on the proposed venture, which is not only a feasible and viable, but also a desirable one.