Revamping a commercial strategy for a global engineering company: Analyzing the attractiveness and ability to win in Chinese and Indian cooling tower and air quality system markets

Abstract

Hamon is a global engineering company, active in many industries and offering a variety of products to its customers. Thanks to acquisitions and a longstanding history, it managed to build an unquestionable reputation across the world. Originally, Hamon was active in cooling towers for the mining and steelworks industry. This has since been expanded to other activities such as air quality systems (AQS), Deltak boilers and chimneys across numerous segments such as the power industry, pulp & paper, oil & gas, … This expansion stared reversing roughly 10 years ago. Since, many actions have been taken to fight this downturn. The latest actions taken were to elect a new CEO as of January 2017. Major restructurings, cost cuttings and strategic initiatives enabled the company to become profitable again. The next phase for the company is to start growing its business again by developing a new commercial strategy. We have been assigned to help the company with the first steps of this commercial strategy development. The purpose is to analyse each market across all segments worldwide to understand what markets are attractive and in which of those markets Hamon could win from its competitors. Subsequently, the company needs to allocate the right resources to the right markets to gain a competitive advantage. At last, it is important set up a methodology to maintain and monitor market trends and it should embed intelligence to improve strategy planning and its daily sales and marketing activities. Since this whole project is too large to execute with three students in two months, the scope has been narrowed down to the Indian and Chinese markets covering six segments, namely power, food & beverages, oil & gas, chemicals, mining & metals and cement over two product lines, cooling towers and air quality systems. Overall, both the Indian and Chinese markets are highly demanding infrastructure development. However, the potential business for Hamon depends on many factors and is not always that straightforward and easy to achieve. The Indian market seems to be attractive for three out of the six segments: power, mining & metals and oil & gas. For chemicals, experts sense a potential business for Hamon, but research remains intangible since Hamon possesses no in-house market intelligence nor experience in this segment. Within the food & beverages market, only sugar needs cooling. This market, however, is so small that return on investment would be very tough to achieve. Cement is both a small market and Hamon is competing against two major companies benefiting from a low-cost structure that Hamon cannot mirror. By looking more in detail to each potential subsegment, AQS in oil & gas is placed the highest for both market attractiveness and ability to win. Cooling in the power and mining & metals segment score slightly above average on ability to win, which make them still attractive. These subsegments score well on market attractiveness too, although cooling in power scores slightly higher here than cooling in mining & metals. AQS for power scores very high on market attractiveness but extremely tough competition makes it very difficult for Hamon to win in this market. AQS in mining & metals, AQS in cement and cooling in oil & gas score below average, which makes these subsegments unattractive for Hamon. Overall, the chinse market seems to be less attractive on all levels. Except for the Power segment, all other segments score low on both attractiveness and ability to win. The dry cooling market for metals, which is the second most attractive segment, scores average for ability to win and below average for market size. Export from China, however, has more potential. It makes sense that the Indian market looks more attractive from a growth perspective too, since real GDP growth published by the IMF is forecasted at 7,7% for India, while this is only 5,5% for China. Hamon thus has several options for the future. Firstly, we suggest that Hamon focusses on the Indian market while maintaining activity as it is today in China. In India, it would be advisable to focus on one of the major demand driver, the price, while maintaining an unquestionable quality and outstanding reputation. To do so, Hamon could acquire a local player that has a lower cost structure. This would profile Hamon as an original equipment manufacturer with would class technology at an accessible price. Alternatively, since quality in India seems to be less appreciated than elsewhere in the world, they could invest less in design and performance to internally achieve more competitive prices. This, however, might harm the global reputation of Hamon. Consequently, if Hamon decides not to acquire a local player, it might advisable to divest in the Indian market and orient towards quality-focussed markets. Hamon could leverage its position for power and oil & gas in two ways. Firstly, they should drastically improve their sales strategy by proactively approaching customers, increase market visibility and focus on total cost of ownership. Secondly, they should take part in backward integration by acquiring a Chinese parts producer such as Fengtai. This would create cross synergies that would enable Hamon to achieve a lower cost intensive production, while Fengtai would benefit from world-class technology and a long-standing reputation.