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Presented by: Goh Chuwen John Teo Chan Zhe Ying Nicholas Lee
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Introduction
Introduction
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Conclusion
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Introduction Company Milestones 1999
1989
1994
Founded as Hydrochem
Introduction
Entered China
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2001
Manufacture of proprietary membranes
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Listed on SGX
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Conclusion
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Introduction Company Milestones 2003
2007
2004
Singapore’s first SWRO plant
Entered Middle East
2006
Hyflux Water Trust established
Entered India
Source: http://hyflux.com/abt_milestones.html Introduction
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Conclusion
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Introduction Latest News Source: ST, 26 Feb 2011
Source: The Straits Times, 8 March 2011
Introduction
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Question 1a Assess the attractiveness of the water processing/treatment industry in which Hyflux operates.
Introduction
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Conclusion
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Question 1a LOW
Porter’s Five Forces
Bargaining power of suppliers
HIGH LOW
Threat of new entrants
Competitive Rivalry
Threat of substitute products
LOW
Bargaining power of buyers
MEDIUM Introduction
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Conclusion
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Question 1a 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 Introduction
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Conclusion
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Question 1a 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 Introduction
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Conclusion
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Question 1a 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
Introduction
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Conclusion
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Question 1a 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 costeffective Required more space and used more energy [pg3] Not in demand
Introduction
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Conclusion
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Question 1a Porter’s Five Forces
LOW
OVERALL, HIGH attractiveness for current big players to remain in the industry
Bargaining power of suppliers
LOW
LOW HIGH
Threat of new entrants
Competitive Rivalry
LOW attractiveness for startup firms
Threat of substitute products
Bargaining power of buyers
MEDIUM
Introduction
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Conclusion
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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. Introduction
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Conclusion
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Question 1b THREATS: RISK MATRIX
Likelihood
High
Technology
Economic
Medium
Legal
Low
Political
Low
Medium
High
Impact Introduction
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Conclusion
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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)
Introduction
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Likelihood (High) Impact (High)
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Conclusion
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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
Introduction
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Likelihood (Medium) Impact (Medium)
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Conclusion
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Question 1b 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 Introduction
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Likelihood (Low) Impact (High)
Likelihood (Medium) Impact (Low)
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Conclusion
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Question 1b OPPORTUNITIES Global, Economic, Demographics Increasing pace of economic and population growth
Source: United Nations Population Division, World Population Prospects, The 2008 Revision.
Introduction
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Conclusion
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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
Introduction
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Conclusion
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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]
Introduction
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Conclusion
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Question 1b OPPORTUNITIES
Technological Competitors were still behind in technology using conventional water systems Demand for water membrane technology
Introduction
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Question 2 Discuss the motives for Hyflux’s international expansion.
Introduction
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Question 2 Hyflux’s Motives for International Expansion
Introduction
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Demand from Overseas
Economies of Scale
Secure Resources
Diversifying of Risk
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Conclusion
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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
Introduction
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Conclusion
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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
Introduction
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Conclusion
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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
Introduction
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Conclusion
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Question 2 Diversifying Risk Business portfolio Different countries with different industries Less susceptible to changes in the respective markets
China: Pharmaceutical, Desalination, Industrial wastewater… Europe: Food & Beverage, Dairy & Milk, Chemical Industry,… S.E.A: River water, Brine Regenerant Recover, Sewage Treatment…
MENA: Seawater Desalination, Textile Wastewater…
Source: Hyflux Ltd. Annual Report 2008
Introduction
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Conclusion
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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/hyfluxidUSL3E7DN0UI20110223?feedType=RSS&feedName=utilitiesSector&rpc=43)
Introduction
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Conclusion
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Question 3 Is Hyflux’s international expansion considered a success or failure? Why?
Introduction
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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Question 3 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 Introduction
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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]
Introduction
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Conclusion
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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 Introduction
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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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]
Introduction
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Question 3 Return on Investment [-ve] Increased debt covenants (high gearing) Increased risk of default [pg18]
Introduction
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Successful, but need to be mindful of debtequity ratio
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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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]
Introduction
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Algeria: Biggest sea water desalination plaint in the world
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Conclusion
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Question 3 Location Advantages
Global demand for water remains unquestioned!
Introduction
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Conclusion
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Question 3 Location Disadvantages Political unrest in the Middle East 4th wave of democratization?
Introduction
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Question 3 Location Disadvantages Political unrest in the Middle East How did it begin? Tunisia 17 Dec 2010
Introduction
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Mr. Mohammad Bouazizi • 26 years old • Typical Tunisian • Sole breadwinner by selling fruits
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Conclusion
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Question 3 Location Disadvantages Political unrest in the Middle East
17 Dec 2010: Tunisia
5 Jan 2011: Algeria
22 Jan 2011: Yemen
25 Jan 2011: Egypt
Introduction
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14 Jan 2011: Jordon
30 Jan 2011: Sudan Q4
Conclusion
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Question 3 Location Disadvantages Political unrest in the Middle East
14 Jan 2011: Iran
13 Feb 2011: Bahrain
15 Feb 2011: Lybia 18 Feb 2011: Djibouti Introduction
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20 Feb 2011: Morocco Q2
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Conclusion
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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?
Introduction
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Source: FY2010 Financial Results
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Relative Success, need to expect volatility
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Conclusion
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Question 3 Hyflux’s International Expansion
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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Question 3 Economies of Scale & Learning R&D expenses kept low over revenue generated [pg31]
Introduction
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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
Introduction
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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
Introduction
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Conclusion
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Question 3 Hyflux’s International Expansion
Hugely Successful. Key success factor
Introduction
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Increased market size
Return on Investment
Economies of Scale & Learning
Location Advantages
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Conclusion
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Question 3 Hyflux’s International Expansion
Relative Success
Increased market size
Return on Investment
Successful
Hugely Successful
Economies of Scale & Learning
Location Advantages
Relative Success
Introduction
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Conclusion
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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 Introduction
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Question 4 Hyflux’s Core Business
Introduction
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Conclusion
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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
Introduction
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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 Introduction
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Question 4 Factors for Entry Modes Income maximization Control over resources Risk & Cost Localization
Introduction
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Question 4 Commitment of Resources
Exporting
Wholly Owned Subsidiary
Licensing Choices of Entry Mode
Acquisition
Introduction
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Strategic Alliances
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Conclusion
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Question 4 Commitment of Resources
•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
Exporting
Introduction
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Conclusion
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Question 4 Commitment of Resources
•Exposed to the risk of product imitation •No control over the resources •Knowledge exchange is not feasible •Limits their future development
Licensing
Introduction
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Conclusion
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Question 4 Commitment of Resources
•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
Acquisition
Introduction
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Conclusion
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Question 4 Commitment of Resources Wholly Owned Subsidiary
Introduction
•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)
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Question 4 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.
Strategic Alliances
Introduction
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Question 4 Commitment of Resources Strategic Alliances
Introduction
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Question 4 Commitment of Resources • •
Strategic Alliances
• • • •
Introduction
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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
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Conclusion
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Question 4 Commitment of Resources
Cons • Incompatible partners Saudi’s cultural and organisational differences • Trust is critical because of sharing of resources
Strategic Alliances
“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 usedoil recycling partner must exhibit strong used oil collection channels.”
Introduction
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Question 4 Cost
Benefits
Introduction
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Conclusion
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Question 4
•Porter’s Five Forces Model •General Environment Analysis
Introduction
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Understand the motives for international diversification
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Measure outcome to determine the success of the diversification
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Identify different possible modes of entry
Conclusion
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Presented by Goh Chuwen | John Teo | Chan Zhe Ying | Nicholas Lee