Caltex in Singapore

Shift will bring oil giant closer to customers: chairman. American oil giant Caltex Petroleum is moving its global corporate headquarters to Singapore from Irving, Texas – making it the first multinational ever to do so. The global HQ relocation, which will become operational by March next year, will involve its top brass, including group chairman David Law-Smith and other executive management staff, being based here.

“The move to Singapore will position us centrally in the area where we do most of our business and allows us to be closer to our customers and serve them more effectively,” Mr Law-Smith said in a statement out of Texas late on Tuesday.

Besides, many of the group’s key operations are already located in the Republic, he added. Caltex is a joint venture between Chevron Corp and Texaco Inc. Elaborating on the rationale for the move, a Caltex spokesman in Texas said that the company obtains about 75 per cent of its revenue from Asia, making Singapore a more practical, centrally-located base for the 15 executives and support staff that will be coming here by March next year.

Caltex decision is a significant feather in Singapore’s cap. A Caltex spokesman here told BT that the company had considered other Asian sites like Hong Kong, Manila and Sydney before deciding on the Republic. This highly significant shift of its world-wide corporate HQ to Singapore follows Caltex’s establishment of its global oil trading HQ here. In January last year, it also started increasing its Singapore Office’s Asia Pacific responsibilities by posting more of its key regional officials here.

As a measure of how much oil trading it does from here, latest available figures show that its world-wide trading HQ, Caltex Trading, based here, was Singapore’s largest oil trader in 1996 with sales of US$9.9 billion (S$16 billion), or equivalent to about 12 per cent of Singapore’s gross domestic product of $128.5 billion. Under the latest reorganization, Caltex’s world-wide business units for trading marketing, lubricants and new business development will also be based here.

Only two business units, refinery and aviation, will remain in Dallas, Texas, together with about 60 staff involved in treasury and tax, and supporting functions, the company’s Singapore spokesman said. The new global corporate HQ will be sited at Caltex House in Raffles Place, where Caltex Trading is located. Under its world-wide reorganization, which started in June, Caltex expects to save about US$50 million annually from the change in its operating structure, which will now focus on product types rather than geographical regions, the spokesman added.

Only about 20 of its 7,700 world-wide employees will be retrenched as a result. The reorganization comes as an oil glut continues to pressure prices, pushing many companies to cut back on expenditures. Shell, for instance, last month announced that it was merging its European refining and marketing operation with those of Caltex’s parent, Texaco, from next year, in a bid to save on expenses. A Shell spokesman said it expects this to result in cost savings of billions of dollars, similar in scale to that contemplated by British Petroleum and Amoco, which are merging in a US$54 billion stock swap.

In Thailand, Caltex and Shell are also in a similar refining alliance to save on costs. Reacting to the Caltex announcement, Economic Development Board chairman Philip Yeo yesterday said: “Caltex’s decision affirms Singapore as an excellent headquarters location.” “It means that the company’s world-wide corporate management and control will reside here,” the EDB said. “Board meetings will also be held here.”

Caltex’s other activities here include oil terminal operations, a retail chain operation of over 30 service stations, and also oil refining, where it is partner with BP and Singapore Refining Company’s Pulau Merlimau refinery. Last year, the Caltex group had gross sales of US$17 billion and commanded an 18 per cent share of the oil products market world-wide.

Points for Discussion:

1. Discuss the potential competitive advantages that accrue to Caltex from its new organization. 2. What kinds of effects might Caltex’s decision have on the host nation? 3. Outline the challenges Caltex will face in its reorganization.ouHO