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