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Presented by: Goh Chuwen
John Teo
Chan Zhe Ying
Nicholas Lee
1
Introduction
2
Introduction Q1 Q2 Q3 Q4 Conclusion
Introduction
Company Milestones
3
Introduction Q1 Q2 Q3 Q4 Conclusion
1989
Founded as Hydrochem
1994
Entered China
1999
Manufacture of proprietary membranes
2001
Listed on SGX
Introduction
Company Milestones
4
Introduction Q1 Q2 Q3 Q4 Conclusion
2003
Singapore’s first SWRO
plant
2004
Entered Middle East
2006
Entered India
2007
Hyflux Water Trust
established
Source: http://hyflux.com/abt_milestones.html
Introduction
Latest News
5
Introduction Q1 Q2 Q3 Q4 Conclusion
Source: The Straits Times, 8 March 2011
Source: ST, 26 Feb 2011
Question 1a
Assess the attractiveness of the water processing/treatment industry in which Hyflux operates.
6
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 1a 7
Introduction Q1 Q2 Q3 Q4 Conclusion
Porter’s Five Forces
Competitive Rivalry
Threat of new
entrants
Threat of substitute products
Bargaining power of suppliers
Bargaining power of buyers
HIGH
LOW LOW
LOW
MEDIUM
Question 1a 8
Introduction Q1 Q2 Q3 Q4 Conclusion
Rivalry among competitors (High)
Numerous international and local competitors
Many of the world’s international water treatment firms were waiting to move into the Singapore market. [pg9]
Faced considerable opposition from two entrenched conglomerates, Keppel & Sembcorp, each possessing extensive expertise. [pg9]
High industry growth
Question 1a 9
Introduction Q1 Q2 Q3 Q4 Conclusion
Threat of new entrants (Low)
Barriers to entry
Capital requirements
Substantial resource investments required (E.g. equipment, R&D costs)
High knowledge requirements
Cost disadvantages
Proprietary product technology
Credibility Government support
and grants
Question 1a 10
Introduction Q1 Q2 Q3 Q4 Conclusion
Bargaining power of buyers (Medium)
Generally large number of firms
Tendering process
Mitigated by product customization
Expertise to meet the needs of buyers
Decrease price sensitivity
Question 1a 11
Introduction Q1 Q2 Q3 Q4 Conclusion
Bargaining power of suppliers (Low)
Industry firms are a significant customer group for suppliers
Backward integration
Threat of substitute product (Low)
Conventional water systems less cost-effective
Required more space and used more energy [pg3]
Not in demand
Question 1a 12
Introduction Q1 Q2 Q3 Q4 Conclusion
Porter’s Five Forces
OVERALL,
HIGH attractiveness for current big players to remain in the industry
LOW attractiveness for startup firms
Competitive Rivalry
Threat of new
entrants
Threat of substitute products
Bargaining power of suppliers
Bargaining power of
buyers
HIGH
LOW LOW
LOW
MEDIUM
Question 1b
Critically evaluate how threats and opportunities in the general environment may influence the attractiveness of the water processing/treatment industry from Hyflux’s perspective.
13
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 1b THREATS: RISK MATRIX
14
Introduction Q1 Q2 Q3 Q4 Conclusion
High
Medium
Low
Low Medium High
Like
liho
od
Impact
Technology
Economic
Political
Legal
Question 1b
THREATS
Technological
Membrane technology may become obsolete if Hyflux is unable to keep up with R&D
Huge companies willing to invest in membrane technology (E.g. GE, Canada’s Pure)
15
Introduction Q1 Q2 Q3 Q4 Conclusion
Likelihood (High)
Impact (High)
Question 1b
THREATS
Economic
The impact of the 2008 global recession… affected Hyflux’s membrane sales to the various industries. [pg19]
BUT business will not be drastically affected Demand for water and government support
16
Introduction Q1 Q2 Q3 Q4 Conclusion
Likelihood (Medium)
Impact (Medium)
Question 1b 17
Introduction Q1 Q2 Q3 Q4 Conclusion
THREATS
Political
Exposure to political red tapes or instability (E.g. Libya unrest)
Mitigated by well-diversified portfolio
Legal
Threat of imitation of proprietary membrane technology
Mitigated by constant innovation
Likelihood (Low)
Impact (High)
Likelihood (Medium)
Impact (Low)
Question 1b
OPPORTUNITIES
Global, Economic, Demographics
Increasing pace of economic and population growth
18
Introduction Q1 Q2 Q3 Q4 Conclusion
Source: United Nations Population Division, World Population Prospects, The 2008 Revision.
Question 1b
OPPORTUNITIES
Global, Physical environment
Water scarcity due to uneven distribution of fresh water around the world
A crisis & an opportunity
Create water markets for Hyflux
19
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 1b
OPPORTUNITIES
Political
Singapore government was ready to embrace new forms of water technologies, set aside millions of dollars for water purifying technologies [pg8]
In municipal sector, governments are pump-priming the infrastructure sector to stimulate growth [pg4]
20
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 1b
OPPORTUNITIES
Technological
Competitors were still behind in technology using conventional water systems
Demand for water membrane technology
21
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 2
Discuss the motives for Hyflux’s international expansion.
22
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 2
Hyflux’s Motives for International Expansion
23
Introduction Q1 Q2 Q3 Q4 Conclusion
Demand from
Overseas
Economies of Scale
Secure Resources
Diversifying of Risk
Question 2
Global Demand
Singapore market was too small with competition from many large multinational firms [pg6]
Open another market
Rapid global industrialisation and population growth
e.g. China’s huge municipal water market & water-stressed regions in the Middle East & North Africa
24
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 2
Global Demand
In municipal sector, governments spending in the infrastructure sector will fuel its growth and support its operations [pg4]
Seeking Economies of Scale
High R&D expenses Increase output to lower fixed cost per unit
Singapore market is too small
25
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 2
Secure Resources
Ready pool of low-cost talent e.g. China [pg13]
Collaborations with foreign academia and research institutes to complement and strengthen membrane research [pg14]
Strategic alliances may bring forth new innovation
(e.g. Dutch CEPAration B.V., Zurich-based ABB) [pg15]
Signed MOU with Japan Bank (JBIC) for financing its projects
26
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 2
Diversifying Risk
Business portfolio
Different countries with different industries
Less susceptible to changes in the respective markets
27
Introduction Q1 Q2 Q3 Q4 Conclusion
China: Pharmaceutical, Desalination, Industrial wastewater…
S.E.A: River water, Brine Regenerant Recover, Sewage Treatment…
Europe: Food & Beverage, Dairy & Milk, Chemical Industry,…
MENA: Seawater Desalination, Textile Wastewater… Source: Hyflux Ltd. Annual Report 2008
Question 2
Diversifying Risk
Delay in Libya due to political unrest
Did not cripple Hyflux entirely
Hyflux reported an 18% increase in net profit for FYE Dec 31, 2010 *
Source: http://www.reuters.com/article/2011/02/23/hyflux-idUSL3E7DN0UI20110223?feedType=RSS&feedName=utilitiesSector&rpc=43)
28
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Is Hyflux’s international expansion considered a success or failure? Why?
29
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Hyflux’s International Expansion
30
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Question 3
Hyflux’s International Expansion
31
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Question 3 32
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Success in the Singapore municipal market enabled Hyflux to quickly secure China’s huge municipal water market [pg3]
Source: http://hyflux.com/abt_presence.html
Question 3
Increased market size
Success of Singapore desalination project allowed Hyflux to seize opportunities for similar projects in water-stressed regions [pg3]
Clinched water treatment projects in new markets such as China, Middle East and North Africa [pg4]
Emerged as the largest desalinated water supplier in Algeria providing more than 30% of the country’s total capacity [pg6]
33
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Increased market size
Hyflux membrane products and systems installed in more than 400 locations across the globe
Source: http://hyflux.com/abt_presence.html
34
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Hyflux’s International Expansion
35
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Question 3
Hyflux’s International Expansion
36
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Question 3
Return on Investment [+ve]
Revenue increased over 30 times since 2000 [ER 2010]
As of 2009: at least 15 contracts generating revenue for 20-30 years [pg3]
37
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Return on Investment [-ve]
Increased debt covenants (high gearing)
Increased risk of default [pg18]
38
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Hyflux’s International Expansion
39
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Successful, but need to be mindful of debt-equity ratio
Question 3
Hyflux’s International Expansion
40
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Question 3
Location Advantages
Ready pool of low-cost engineering talent in China [pg13]
Regulations in China requiring foreign firms to install water facilities [pg12]
Access to new markets entrance into the oil recycling industry in Saudi Arabia
Global demand for water [pg12]
41
Introduction Q1 Q2 Q3 Q4 Conclusion
Algeria: Biggest sea water desalination plaint in the world
Question 3
Location Advantages
42
Introduction Q1 Q2 Q3 Q4 Conclusion
Global demand for water remains unquestioned!
Question 3
Location Disadvantages
Political unrest in the Middle East 4th wave of democratization?
43
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Location Disadvantages
Political unrest in the Middle East How did it begin?
Tunisia 17 Dec 2010
44
Introduction Q1 Q2 Q3 Q4 Conclusion
Mr. Mohammad Bouazizi
• 26 years old • Typical Tunisian • Sole breadwinner by selling
fruits
Question 3
Location Disadvantages
Political unrest in the Middle East
45
Introduction Q1 Q2 Q3 Q4 Conclusion
17 Dec 2010: Tunisia 5 Jan 2011: Algeria 14 Jan 2011: Jordon
22 Jan 2011: Yemen 30 Jan 2011: Sudan 25 Jan 2011: Egypt
Question 3
Location Disadvantages
Political unrest in the Middle East
46
Introduction Q1 Q2 Q3 Q4 Conclusion
13 Feb 2011: Bahrain 14 Jan 2011: Iran
18 Feb 2011: Djibouti 20 Feb 2011: Morocco
15 Feb 2011: Lybia
Question 3
Location Disadvantages
Political unrest in the Middle East
Why should Hyflux be concerned?
MENA constitute to 60% of group revenue
Presence in Algeria, Lybia, Nigeria, Saudi Arabia, etc
Share price fall 15.5% since start of the year
Putting most of its eggs in one basket?
47
Introduction Q1 Q2 Q3 Q4 Conclusion
Source: FY2010 Financial Results
Question 3
Hyflux’s International Expansion
48
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Relative Success, need to expect volatility
Question 3
Hyflux’s International Expansion
49
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Question 3
Economies of Scale & Learning
R&D expenses kept low over revenue generated [pg31]
50
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Economies of Scale & Learning
Unique HR management ensures knowledge transfer among staff [pg17]
Sending staff overseas for seminars
Sending Shanghai staff to Singapore
51
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Economies of Scale & Learning
Strategic Alliances with overseas research firms & facilities [pg15]
Dutch CEPAration B.V. to develop InoCepTM membrane
Zurich ABB to research efficient technologies
Collaboration with NTU, Dutch Universities
52
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 3
Hyflux’s International Expansion
53
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Hugely Successful. Key success factor
Question 3
Hyflux’s International Expansion
54
Introduction Q1 Q2 Q3 Q4 Conclusion
Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
Hugely Successful
Relative Success
Successful Relative Success
Question 4
Based on the information in the case, critically evaluate the choice of a joint venture with SEDCO and LUBREC in 2007 to invest $45 million in a used oil recycling plant in Jeddah, Saudia Arabia
55
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 4
Hyflux’s Core Business
56
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 4
Reason for entering into the oil recycling business
Diversification
Opportunity to develop on existing competencies
Opportunity to enter into a new field
Build on competitive advantage
57
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 4
Choice of Saudi Arabia as a location
Abundance of oil (accounted for 75% of state revenues)
Market for oil recycling exists
Political situation in 2007 was relatively stable
Currently, number of minor incidents as compare to other surrounding nations
58
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 4
Factors for Entry Modes
Income maximization
Control over resources
Risk & Cost
Localization
59
Introduction Q1 Q2 Q3 Q4 Conclusion
Question 4
60
Introduction Q1 Q2 Q3 Q4 Conclusion
Choices of Entry Mode
Exporting
Licensing
Strategic Alliances
Acquisition
Wholly Owned
Subsidiary
Commitment of Resources
Question 4 61
Introduction Q1 Q2 Q3 Q4 Conclusion
Commitment of Resources
Exporting •Hyflux does not export its water treatment technology •Instead, Hyflux secures projects from other countries and builds plants •Involves customization to meet its clients’ expectations
Licensing •Exposed to the risk of product imitation •No control over the resources •Knowledge exchange is not feasible •Limits their future development
Question 4 62
Introduction Q1 Q2 Q3 Q4 Conclusion
Commitment of Resources
Acquisition •Quick access to new market •Greater control •Involves International negotiation Complicated •Non-realisation of synergy because of cultural differences •High costs despite the lower risk as compared to wholly owned subsidiary
Question 4 63
Introduction Q1 Q2 Q3 Q4 Conclusion
Commitment of Resources
•Highest risk •Highest cost of establishment •Full control •Potential of high returns •Unfamiliar with the new environment •Start from scratch (E.g. Build networks and infrastructure)
Question 4 64
Introduction Q1 Q2 Q3 Q4 Conclusion
Wholly Owned
Subsidiary
Commitment of Resources
Joint venture – two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.
Question 4 65
Introduction Q1 Q2 Q3 Q4 Conclusion
Strategic Alliances
Commitment of Resources
Question 4 66
Introduction Q1 Q2 Q3 Q4 Conclusion
Strategic Alliances
Commitment of Resources
Pros
• Gain further access to the Middle East oil recycling market
• Gain expertise of used-oil recycling from other parties in the joint venture
• Transfer of tacit knowledge because tacit knowledge cannot be codified must be learnt through experiences
• Share risk & resources to enter international markets
• Benefit of knowledge of competitive advantage, legal and social norms
• Improves the firm’s advantage to compete in uncertain environment
Question 4 67
Introduction Q1 Q2 Q3 Q4 Conclusion
Strategic Alliances
Commitment of Resources
Cons
• Incompatible partners Saudi’s cultural and organisational differences
• Trust is critical because of sharing of resources
“This JV is the first Hyflux joint venture in Saudi Arabia which will benefit from Hyflux’s membrane-based technology. The selection of the partners of JV is consistent with the Company’s philosophy that our used-oil recycling partner must exhibit strong used oil collection channels.”
Question 4 68
Introduction Q1 Q2 Q3 Q4 Conclusion
Strategic Alliances
Commitment of Resources
Question 4 69
Introduction Q1 Q2 Q3 Q4 Conclusion
Cost
Benefits
Question 4 70
Introduction Q1 Q2 Q3 Q4 Conclusion
Understand the motives for international diversification
•Porter’s Five Forces Model
•General Environment Analysis
Measure outcome to determine the success of the diversification
Identify different possible modes of entry
Presented by
Goh Chuwen | John Teo | Chan Zhe Ying | Nicholas Lee
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