Selkirk Case CompetitionSelkirk Case Competition

Group Members:Group Members: USAUSA AustraliaAustralia

Kenny LokeKenny Loke Nicole SeagerNicole SeagerDawn MartiDawn Marti Helen ZhuHelen ZhuBrent HeltonBrent HeltonAndrea BrownAndrea BrownBrian BarkerBrian Barker

Selkirk GroupSelkirk Group

Mission StatementMission StatementThe Selkirk Group of Companies intends to remain an The Selkirk Group of Companies intends to remain an

independent, reliable and efficient manufacturer of independent, reliable and efficient manufacturer of high quality products and services to the national and high quality products and services to the national and

international building industry.international building industry.

The Australian Clay Brick The Australian Clay Brick Manufacturing IndustryManufacturing Industry

GDP 0.09% (1997/98)GDP 0.09% (1997/98)– 70% new housing construction70% new housing construction– 15% renovations15% renovations– 15% commercial construction15% commercial construction

Market Share by regionMarket Share by region– 36.3% New South Wales36.3% New South Wales– 18.9% Queensland18.9% Queensland– 17% Western Australia17% Western Australia– 16.9% Victoria*16.9% Victoria*

*Selkirk’s base

The Australian Clay Brick The Australian Clay Brick Manufacturing IndustryManufacturing Industry

Market Demand and PricesMarket Demand and Prices– Industry Turnover Industry Turnover

$906 million (’92) - $780 million (’98) $906 million (’92) - $780 million (’98) – Clay brick production = 1,532 million Clay brick production = 1,532 million (1997/98)(1997/98)

» 87% housing construction use87% housing construction use

» Premium bricks $500 per 1,000 bricksPremium bricks $500 per 1,000 bricks

» Seconds $300 per 1,000 Seconds $300 per 1,000

» Pavers = 15% of production but < 10% sales Pavers = 15% of production but < 10% sales revenuerevenue

The Australian Clay Brick The Australian Clay Brick Manufacturing IndustryManufacturing Industry

Market Demand and Prices (continued..)Market Demand and Prices (continued..)– Expected outlook 1998/99 showed increased Expected outlook 1998/99 showed increased

sales to $880 millionsales to $880 million– Long term outlook showed market demand Long term outlook showed market demand

decreasing due to new cheaper materials decreasing due to new cheaper materials (concrete, steel) and construction techniques(concrete, steel) and construction techniques

» Steel-framed buildings (2/3 cost of brick-veneer)Steel-framed buildings (2/3 cost of brick-veneer)

The Australian Clay Brick The Australian Clay Brick Manufacturing IndustryManufacturing Industry

Market Demand and Prices (continued..)Market Demand and Prices (continued..)– Prices stable across markets based on product Prices stable across markets based on product

differentiation and distribution networksdifferentiation and distribution networks» Overhead, Wages and Salaries, Electricity and fuel Overhead, Wages and Salaries, Electricity and fuel

dominated cost structure in the industrydominated cost structure in the industry

CompetitorsCompetitors– National National – RegionalRegional– LocalLocal

Market Share of Brick Industry in Australia

37%

24%

15%

11%

9%4%

Boral LTD

CSR LTD

Pioneer INTL

Futuris LTD

Brickworks LTD

Selkirk

The Australian Clay Brick The Australian Clay Brick Manufacturing IndustryManufacturing Industry

International BusinessInternational Business– Australian bricks gaining export markets across Australian bricks gaining export markets across

Asia due to their natural colors and strengthAsia due to their natural colors and strength Global TrendsGlobal Trends

– Australian brick and paver products reputed as Australian brick and paver products reputed as having more durability, better water repulsion, having more durability, better water repulsion, and a wider display of vibrant color attributesand a wider display of vibrant color attributes

Domestic TrendsDomestic Trends– Cheaper Materials (steel,concrete)Cheaper Materials (steel,concrete)

Economic EnvironmentEconomic Environment

Internal VariablesInternal Variables AcquisitionsAcquisitions

– Phillips Bricks and Phillips Bricks and Pottery Ltd. (1982)Pottery Ltd. (1982)

– Hick Timbers (1987)Hick Timbers (1987)

– Shepparton Bricks and Shepparton Bricks and Pavers (1992)Pavers (1992)

– Stratblox (1998)Stratblox (1998)

External VariablesExternal Variables Currency Factors Currency Factors

(exchanges, controls,etc.)(exchanges, controls,etc.)

Asian crisisAsian crisis– Joblessness in JapanJoblessness in Japan

– Bitterness in KoreaBitterness in Korea

– Political opposition Political opposition rallying in Thailandrallying in Thailand

Currency ExchangeCurrency Exchangehttp://finance.yahoo.com/m3?uhttp://finance.yahoo.com/m3?u

1 Australian Dollar (AUD) = 1 Australian Dollar (AUD) = .39 British Pound.39 British Pound

.61 US Dollar.61 US Dollar2.33 Malaysian Ringgit2.33 Malaysian Ringgit4.79 Hong Kong Dollar 4.79 Hong Kong Dollar

5.08 Chinese Yuan5.08 Chinese Yuan21.30 Taiwan Dollar 21.30 Taiwan Dollar

73 Japanese Yen73 Japanese Yen743 Korean Won743 Korean Won

5387 Indonesian Rupiah5387 Indonesian Rupiah

Group Sales Estimates

05

1015202530

Year

Sa

les

Re

ven

ue

($A

mil

lio

ns)

Our ObjectiveOur Objective

To enhance the Selkirk Group’s sales position To enhance the Selkirk Group’s sales position within the international building industry.within the international building industry.

Distribution LocationsDistribution Locations

What are Selkirk’s Entry Options??What are Selkirk’s Entry Options??

ExportingExporting

In an attempt to combat In an attempt to combat new technology, Selkirk new technology, Selkirk can “strike while the kiln can “strike while the kiln is hot” by acquiring mini-is hot” by acquiring mini-kiln technology and kiln technology and exporting it abroadexporting it abroad

With its vast supply of With its vast supply of raw materials, Selkirk raw materials, Selkirk could also export raw could also export raw materials for assembly by materials for assembly by foreign operationsforeign operations

ExportingExporting

AdvantagesAdvantages Ability to realize Ability to realize

location and location and experience curve experience curve economieseconomies

DisadvantagesDisadvantages High transport costs High transport costs

especially if lower especially if lower overhead costs are overhead costs are available elsewhereavailable elsewhere

Trade barriersTrade barriers Problems/Cost associated Problems/Cost associated

with local marketing with local marketing agentsagents

Market price can equal Market price can equal A$12,000 to A$12,000 to A$17,500/containerA$17,500/container

Licensing/FranchisingLicensing/Franchising

With the possibility of With the possibility of future recovery in the future recovery in the Asian Marketplace Asian Marketplace comes the possibility comes the possibility of licensing or even of licensing or even franchising the Selkirk franchising the Selkirk Group’s processes, Group’s processes, designs, copyrights, designs, copyrights, etc.etc.

Selkirk

Licensing/Franchising Licensing/Franchising

AdvantagesAdvantages Low development Low development

costs and riskscosts and risks

DisadvantagesDisadvantages Lack of control over Lack of control over

technology/qualitytechnology/quality Inability to realize Inability to realize

location and location and experience curve experience curve economieseconomies

Inability for Selkirk to Inability for Selkirk to engage in global engage in global strategic coordinationstrategic coordination

Joint VenturesJoint Ventures

ChinaChina– Logistics Logistics

– Cheap laborCheap labor

– Availability of other Availability of other clay sourcesclay sources

KoreaKorea– LogisticsLogistics

– Cheap LaborCheap Labor

– Good local consumer Good local consumer marketmarket

Joint VenturesJoint Ventures

AdvantagesAdvantages Access to local Access to local

partner’s knowledgepartner’s knowledge Sharing development Sharing development

costs and riskscosts and risks Politically acceptablePolitically acceptable Creates possibility to Creates possibility to

establish a just-in-time establish a just-in-time (JIT) system with (JIT) system with supplierssuppliers

DisadvantagesDisadvantages Lack of control over Lack of control over

technologytechnology Inability to engage in Inability to engage in

global strategic global strategic coordinationcoordination

Inability to realize Inability to realize location and experience location and experience curve economiescurve economies

Culture Clash-diverging Culture Clash-diverging ideals can create conflict ideals can create conflict (i.e. quality specifications)(i.e. quality specifications)

Wholly owned subsidiariesWholly owned subsidiaries

Wholly owned subsidiariesWholly owned subsidiaries

AdvantagesAdvantages Protection of technology Protection of technology

and quality standards and quality standards Ability to engage in global Ability to engage in global

strategic coordinationstrategic coordination Ability to realize location Ability to realize location

and experience curve and experience curve economieseconomies

DisadvantagesDisadvantages High costs and risksHigh costs and risks

CountertradeCountertrade

Due to the financial crises in Asia, foreign direct Due to the financial crises in Asia, foreign direct investment could prove difficult, if not impossibleinvestment could prove difficult, if not impossible

Possibilities of CountertradePossibilities of Countertrade

BarteringBartering of Australian clay for mini-kilns of Australian clay for mini-kilns

CounterpurchaseCounterpurchase arrangement where Malaysia arrangement where Malaysia purchases bricks from Selkirk in AUD and Selkirk purchases bricks from Selkirk in AUD and Selkirk agrees to use the proceeds from the sale to purchase agrees to use the proceeds from the sale to purchase mini-kilns produced by Malaysiamini-kilns produced by Malaysia

A A CompensationCompensation or or BuybackBuyback arrangement in which arrangement in which Selkirk builds a plant in or supplies clay to China in Selkirk builds a plant in or supplies clay to China in return for a certain percentage of that plant or clay’s return for a certain percentage of that plant or clay’s output as partial payment for the contract output as partial payment for the contract

CountertradeCountertrade

AdvantagesAdvantages Can finance an export deal Can finance an export deal

when other means are when other means are unavailable unavailable – Difficulty raising the Difficulty raising the

foreign exchange necessary foreign exchange necessary for importsfor imports

– Cash deals are not preferredCash deals are not preferred– Governmental influenceGovernmental influence

Creates possibility of Creates possibility of export opportunity later on export opportunity later on through goodwillthrough goodwill

DisadvantagesDisadvantages Typically hard currency is Typically hard currency is

required for business required for business transactionstransactions

Can result in exchange of Can result in exchange of poor or defective goodspoor or defective goods

Can require worldwide Can require worldwide network of operations in network of operations in order to utilize or dispose order to utilize or dispose of goodsof goods

Criteria for selecting best optionCriteria for selecting best option

1.1. Identify ObjectiveIdentify Objective

To enhance the Selkirk Group’s sales position To enhance the Selkirk Group’s sales position within the international building industry.within the international building industry.

Criteria for selecting best optionCriteria for selecting best option

1.1. Identify ObjectiveIdentify Objective

2.2. Identify critical factors influencing that Identify critical factors influencing that objectiveobjective

Critical Factors of EntryCritical Factors of Entry

Source(s)/Quality of Raw Source(s)/Quality of Raw MaterialsMaterials

Knowledge of Foreign Knowledge of Foreign MarketMarket

Political RiskPolitical Risk Asian CrisisAsian Crisis New TechnologyNew Technology Cost of ExportingCost of Exporting Exchange RatesExchange Rates StrategyStrategy

Criteria for selecting best optionCriteria for selecting best option

1.1. Identify ObjectiveIdentify Objective

2.2. Identify critical factors influencing that Identify critical factors influencing that objectiveobjective

3.3. Pros and ConsPros and Cons

4.4. Narrow down to two best optionsNarrow down to two best options

5.5. Always have a contingency planAlways have a contingency plan

Recommendation ARecommendation A

ExportingExporting– In an attempt to combat new technology, In an attempt to combat new technology,

Selkirk can “strike while the kiln is hot” by Selkirk can “strike while the kiln is hot” by acquiring mini-kiln technology and exporting it acquiring mini-kiln technology and exporting it abroadabroad

– With its vast supply of raw materials, Selkirk With its vast supply of raw materials, Selkirk could also export raw materials for assembly by could also export raw materials for assembly by foreign operationsforeign operations

Recommendation BRecommendation B

Joint VenturesJoint Ventures– ChinaChina

» Logistics Logistics

» Cheap laborCheap labor

» Availability of other clay sourcesAvailability of other clay sources

– KoreaKorea» LogisticsLogistics

» Cheap LaborCheap Labor

» Good local consumer marketGood local consumer market

ContingencyContingency

CountertradeCountertrade– BarteringBartering of Australian clay for mini-kilns of Australian clay for mini-kilns

– CounterpurchaseCounterpurchase arrangement where Malaysia arrangement where Malaysia purchases bricks from Selkirk in AUD and Selkirk purchases bricks from Selkirk in AUD and Selkirk agrees to use the proceeds from the sale to purchase agrees to use the proceeds from the sale to purchase mini-kilns produced by Malaysiamini-kilns produced by Malaysia

– A A CompensationCompensation or or BuybackBuyback arrangement in which arrangement in which Selkirk builds a plant in or supplies clay to China in Selkirk builds a plant in or supplies clay to China in return for a certain percentage of that plant or clay’s return for a certain percentage of that plant or clay’s output as partial payment for the contract output as partial payment for the contract

Thank youThank you

Questions??Questions??