Shell Slides v2
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Transcript of Shell Slides v2
Shell Case Competition 2011 Colfax Corporation IVEY CONSULTING
Colfax Market Penetration
Colfax
Market Penetration
Establishment in Middle East Oil Market
Why?
Play to Colfax s competencies Business opportunities Large and growing market
Colfaxs core competenciesCompetencies: Industrial experience and PD technical capabilities Global reputation as fluid transportation equipment manufacturer Strong financial position Challenges: Limited presence in Middle East Inability to compete with existing competitors Inability to compete in 9com system
Situation Analysis (Consumer Needs)Concerns
Reliability
Service Support Meeting oil demand from energy hungry markets Need to configure an optimal distribution structure
Quality
R&D
Speed
Situation Analysis (Middle East)Large Oil Reserves and Production Potential for Growth Oil sector as driver for GDP Focused on increasing production capacity
Economic
37.7% of world s oil reserve 50% of OPEC production
Transparency
Impartiality in Business practices Multi-bidder systems
PoliticalSaudization
Local employment
Colfaxs Challenge
Colfax
Quality Leadership
Different Directions Different Directions
Cost Leadership
Current Middle East Supply Chain
Colfaxs Challenge How can Colfax nail the middle east opportunity in a strategic manner, given the current supply chain conditions?
Adopt duo strategy of gradual entry and differentiated offerings
Key Issue
Factors for Success
Recommendations
How to address homogenous market?
Differentiated Offerings
Formation of Alliance Constellation
How to be penetrate the market strategically?
Gradual Entry into ME
Expansion into Regional Markets
Alliance ConstellationThe Strategy - Redesign vendor sourcing system - Collaborate with other supply chain partners within the fluid transportation segment - Achieve long term partnership with Aramco
Oil and Gas Transportation Sub System
Suction booster Mainline shipping Pipeline Reinjection
Colfax
Benefits - Leverages on different expertise - Differentiation through premium offering - Reduce barriers to entry
Chemical Injection Scraper Trap
Alliance Constellation (Selecting SC partners)
Present decision matrix
Value proposition of the Alliance Constellation
Intra-SCM Team
Centre for Research and Development
1. 2. 3. 4.
Intra-SCM team R&D Service Centre Service Centre Create Captive market Schools
Building labour supply pool
Value proposition
Reliability
Quality
R&D
Service Support
Speed
State Requirem ents
SCM Team Yes Centre for R&D Service Centre Labour Supply Yes
Yes Yes YES Yes YES Yes YES YES
Expansion to middle east regions Rationale for expansion
Achievable growth Reaping the benefits
Implementation2010 2011 2012 2013 2014 2015
Strategy 1
Strategy 2
Strategy 3
Situation Analysis
Strategy 1
Strategy 2
Strategy 3
Implementation
Current situation
Financial feasibility Cost/ money
Projections
Conclusion
Superiority of PD Over Centrifugal Technology
Lower cost outlay Replaces package of centrifugal components
Lower operating costs Improved energy efficiency of 29%
Higher speed and efficiency Higher flow rates at most viscosities
Higher reliability Longer mean time between maintenance and repair
Why Middle East?Future Potential Middle East Barriers to Entry Resource Cost Infrastructure
Europe
United States
Asia and Australia
Central and South Africa
Why Oil and Gas Applications?Profit Margin Future Potential
Growth
Competition
Oil and Gas
Power Generation
Global Navy
General Industry
Commercial Marine
PEST AnalysisPolitical Political Instability Internal stability over international relations, in particular US Monopoly over oil production Stringent environmental regulations for oil companies Transparency for equity Saudization for local employment Economical - Heavily dependent on oil and petroleum related industries. In 2006, oil export revenues accounted for around 90.2% of total Saudi export earnings, 89.7% of state revenues, and 54.1% of the countrys GDP.
Social High illiteracy rates, the deterioration of education, the slowdown of scientific research and development, poor production bases and competitive capacity and mounting unemployment. 15% Unemployment
Technological ?????
-
SWOT AnalysisStrengths - Possess niche technology - Stronger B/S and access to capital expertise - Extensive global sales and networks + strong branding - PD portfolio ?? - Good management with industry experience Opportunities - Growing demand for oil from developed and developing (China and India) markets - Industrial demand for manpower expertise in oil Weaknesses - Weak product awareness - Engineering and procuring groups were unawareness of PD technology and its products - Lack of trained personnel - Lack of establishment in Middle East - Competitive disadvantage (not on 9com list for Aramco) Threats - Entry of Alternative Energy Technology
Acquisition of EPC
Create business opportunity with Aramco
Increase adoption of pump technology
Gain control over refining system
Acquire EPC
Influence vendor selection of transportation system
Why not? Risky Acquisition does not guarantee the success of Aramcos tender for an EPC
Astronomical Cost (8 billion) Negative ROI (such thing ??) Cost does not justify future remunerations from acquisition
Manage Suction Booster section of transportation SC
Create business opportunity with Aramco bypass tender system form exclusive partnership with Aramco for it to use its PD technology Aramco focuses on business of delivering oil while entrusting responsibility of subsystem to Aramco
Why not manage risk of transportation distribution system?
Perpetuating culture of low innovation Use of tender system provides competitive advantage to cost leaders
Incremental improvements in SCM Colfax is merely part of a subsystem of the entire SCM
Risky Unfamiliarity with business climate of ME could result in liquidation losses if management fails
Colfaxs Financial PositionColfax's Balance Sheet2008 Assets Current Assets Cash AR Prepaid Expenses Inventory Others Total Current Long Term Assets Net plant and equipment Others Total Assets Liabilities Current Liabilities AP Notes Payable Others Total Current Long Term Liabilities Long Term Debt Total Liabilities Equity Owner's equity Common Stock Retained Earnings Total Equity Total Equity and Liability 2007
Colfax's Income Statement 2008 2,007 506,305 330,714 0 98,500 4,162 -50,346 123,275 19,246 104,029 39,147 64,882 2,006 393,604 256,806 0 80,103 3,336 33,816 19,543 14,186 5,357 3,866 1,491
28,762 101,064 9,632 80,327 75,072 294,857
48,093 84,430 7,676 68,287 78,581 287,067
Sales COGS IPO Costs SGA Expenses
604,854 387,667 57,017 125,234 5,856 12,391 16,689 11,822 4,867 5,438 -571
92,090 526,129 913,076
88,391 521,082 896,540
R&D Asbestos Liability EBIT Interest
52,138 5,420 96,728 154,286
48,910 2,640 96,824 148,374
Taxable Income Taxes Net Income
591,859 746,145
695,115 843,489
400,259 43 -233,371 166,931 913,076
201,660 23 -148,632 53,051 896,540
1. Colfax has a strong financial position 2. Net losses and in 2008 attributed to its IPO costs which in turn negatively impacted its cash flows
Colfax Financial Ratios1. Liquidity Ratios 2008 a. Current Ratio b. Quick Ratio c. Cash Ratio d. NWC to TA e. Interval Ratio 1.911106646 1.390469647 0.186420025 0.153953231 235.459837 2007 1.934752719 1.474517099 0.324133608 0.154698061 2. Long Term Solvency Ratios a. Debt Ratio b. Debt Equity Ratio c. Equity Multiplier d. Long Term Debt Ratio e. Times Interest Earned f. Cash Coverage Ratio 2008 0.817177321 4.469780927 5.469780927 0.78000369 2007 0.940826957 15.89958719 16.89958719 0.929091939
1.411690069 6.234647268 -
3. Asset Management Ratios 2008 a. Inventory Turnover Ratio b. AR Turnover ratio c. Fixed Asset Turnover d. Total Asset Turnover 4.826110772 5.984861078 0.978381447 0.662435548
4. Profitability 2008 a. Profit Margin b. Basic Earning Power c. Return on Assets d. Return on Equity -0.000944029 0.018277778 -0.000625359 -0.003420575
Targets for strategy Data for middle east oil and gas industry Aftermarket sale for Colfax Decision matrix of which partners to choose Competitors analysis Financial feasibility if strategy Timeline Clearer framework for strategies Cost benefit anaylsis List of priorities for aramco Why would aramco want to take up this strategy
Rationale for choosing 50% of gdp comes from oil and gas industry Industrial trends show doubling gdp rates (4.7%8.5%) Kuwait (8.4-13.%) Qatar