F1 gives international exposure to Petronas

Petroliam Nasional Bhd has been a sponsor of Formula One for over a decade and its association with the sport has paid off handsomely for the company. In an interview with StarBizWeek, chairman and CEO Tan Sri Mohd Hassan Marican talks about the benefits and challenges, and how F1 has accelerated its branding efforts and helped position both the company and Malaysia on the global stage.

StarBizWeek: Can you give us an overview of the impact of Formula One (F1) in Malaysia?

Tan Sri Mohd Hassan Marican: People who come to Malaysia for F1 actually come back for a vacation because they fall in love with the country. They go to Langkawi, Sabah and other places.

The F1 teams themselves (during the gap between the Australian and Malaysian Grand Prix) spend their time in Malaysia. In the early days, they would go to Phuket or Bali but after the first couple of years, they prefer to park themselves here.

The F1 spectators are also varied. You get the well-off, the middle-income group and the back-packers but these are people who are dedicated to F1. There is a lot of unseen economic activity and airlines, such as SIA, have additional flights during F1.

What made Petronas decide that being involved in F1 was a good thing?

Even before F1, motorsports has always been an integral part of our business development, and this started with local rallies, motorbikes, saloon touring cars, whether it was at Batu Tiga or Pasir Gudang. We have been involved in motorsports since the mid-1980s.

Over the years we migrated from the low-level to the high-level of motorsports. We have been very involved in motorsports and used it as a platform to promote our lubricants for motorcycles and cars.

Than, as we plotted our global strategy, we needed an avenue to market our brand. The exposure we get from F1 is great. About 350 million viewers tune in for each race and the viewership is only behind the World Cup and Olympics.

F1 is also recognised as a high-technology-driven sport. You can learn a lot from the technology and teamwork that you see on the track.

But initially it was for branding. We needed a vehicle to promote the Petronas brand and Malaysia, and it has become a huge extension of our involvement in motorsports. It fits into our lubricant business. And it creates acceptability of our products in the market and that is important because we are competing with the premium brands of the other oil companies.

How successful has it (F1) been for Petronas?

It’s been very successful. It has brought us to the same level as our global partners and competitors. F1 has a large following in Africa and when they see the Petronas logo, they immediately link it to F1. It helps reduce the learning curve for other people to know about us. It’s the same in Europe, Latin America or Asia. When we introduced our lubricants in China, we did it at around the same time as the F1 race in Shanghai and we were immediately recognised.

The shortening of the learning curve reduces the entry point of advertising and promotion cost for a particular market you’re going into, because F1 re-markets our brand. From the audit numbers, our annual cost of sponsoring F1 is less than 5% of what it would have cost us to gain similar exposure.

What has F1 done for Petronas’ lubricant business?

Apart from the Synthium brand that you get in Malaysia, we also own a company called Selenia. Before we owned it, it was the second largest independent lubricant company in the world. It operates out of Italy.

When we first entered F1, we were with an independent team, Sauber, and was linked with Ferrari. After that, we moved out and needed to be linked with a car manufacturer to get greater exposure. Since 2006, when BMW took over Sauber, the exposure has been greater. Over the last 10 years, our market share of the lubricant business has grown by 10% to 18% currently.

There’s also a business relationship with BMW for our lubricants. We started it in Malaysia and we’re looking at expanding that.

Our Primax 3 fuel is also used by the touring cars in Asia. We also use the Petronas Adventure Team, which travels thousands of miles in all weather conditions and terrain, to test our lubricants.

What’s next for Petronas in this arena?

In terms of branding, we have achieved the objective that we initially set out to do. Now we want to expand our business strategy with BMW.

F1 has seen teams, such as Honda, pull out and with a global slowdown, will that affect your involvement?

We need to look at Honda’s situation differently. They are both an engine developer and racing team, and they made a decision to leave F1 because of the cost. The cost of running a F1 team is a lot.

Honda has different objectives and cost commitments. We are not a car manufacturer and our strategy is very different from them.

Each party will have different reasons for joining F1. But like any business, it has to adapt to the environment. F1 is a business and it would need to adapt to the present times.

Every year there are initiatives put forward to ensure cost is brought down and to reduce the gap between the top-tier and lower-tier teams.

What do you say to people who question Petronas’ involvement in F1?

For us, it is a business expense. It is not about being part of the elite and it is not a waste of money. The annual cost for us is about 5% of what it would have otherwise cost us to achieve global brand exposure. And 40% of our revenue comes from international operations. It is a justifiable expenditure.

Domestically, we have created a lot of awareness. We have our CSR (corporate social responsibility) work like the Petronas Tech Tour that goes to visit rural towns and schools all over the country to promote awareness of F1.

We bring about 300 children from all over the country through an educational competition to Kuala Lumpur to spend a week when the F1 is here. These kids are from the most remote villages in Malaysia and we expose them to science and technology, and F1, at a young age.

What are the challenges for Petronas in F1?

If you want to be involved in something, you want to be a major player in it. You need to have a strategy to see how it fits to your overall game plan. We have an independent audit that tells the number of minutes our brand is exposed and the value it generates. (Last year, the value of exposure Petronas received from its sponsorship of F1 was worth RM1bil).

How much do you spend on F1?

That’s not important. It’s what you get out of it. After the 1999 race, University Malaya did a study that says that the economy benefited by about RM1.5bil during the F1 week.

What is F1 doing to put the next Malaysian behind a F1 drive?

We have a programme with BMW, called PFX (Petronas Formula Xperience), to develop a Malaysian F1 driver. It will take time, discipline and sacrifice to develop them and to achieve what we want.