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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

Introduction
 Company Milestones
1989 1999 1994 Entered China Manufacture of proprietary membranes 2001 Listed on SGX

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Founded as Hydrochem

Introduction

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Conclusion

Introduction
 Company Milestones
2003 Singapore’s first SWRO plant 2004 2007 2006 Entered India Hyflux Water Trust established

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Entered Middle East

Source: http://hyflux.com/abt_milestones.html
Introduction Q1 Q2 Q3 Q4 Conclusion

Introduction
 Latest News
Source: ST, 26 Feb 2011

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Source: The Straits Times, 8 March 2011

Introduction

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Conclusion

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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

Question 1a
Porter’s Five Forces

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LOW
Bargaining power of suppliers

HIGH LOW
Threat of new entrants

Competitive Rivalry

Threat of substitute products

LOW

Bargaining power of buyers

MEDIUM
Introduction Q1 Q2 Q3 Q4 Conclusion

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 Q1 Q2 Q3 Q4 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 Q1 Q2 Q3 Q4 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

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Introduction

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Conclusion

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

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Introduction

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Conclusion

Question 1a
Porter’s Five Forces OVERALL,  HIGH attractiveness for current big players to remain in the industry  LOW attractiveness for startup firms
LOW
Bargaining power of suppliers

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LOW
Threat of new entrants

LOW
HIGH
Competitive Rivalry
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 Q1 Q2 Q3 Q4 Conclusion

Question 1b
THREATS: RISK MATRIX
High

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Technology

Likelihood

Medium

Economic

Legal

Low

Political

Low

Medium

High

Impact
Introduction Q1 Q2 Q3 Q4 Conclusion

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)
Likelihood (High) Impact (High)

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Introduction

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Conclusion

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
Likelihood (Medium)
Impact (Medium)

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Introduction

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Conclusion

Question 1b
THREATS  Political  Exposure to political red tapes or instability (E.g. Libya unrest)  Mitigated by well-diversified portfolio

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Likelihood (Low) Impact (High)

 Legal  Threat of imitation of proprietary membrane technology  Mitigated by constant innovation
Introduction Q1 Q2 Q3

Likelihood (Medium) Impact (Low)

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Conclusion

Question 1b
OPPORTUNITIES  Global, Economic, Demographics  Increasing pace of economic and population growth

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Source: United Nations Population Division, World Population Prospects, The 2008 Revision.

Introduction

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Conclusion

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

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Introduction

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Conclusion

Question 1b
OPPORTUNITIES

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 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

Question 1b
OPPORTUNITIES

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 Technological Competitors were still behind in technology using conventional water systems Demand for water membrane technology

Introduction

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Conclusion

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Question 2
Discuss the motives for Hyflux’s international expansion.

Introduction

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Conclusion

Question 2
Hyflux’s Motives for International Expansion

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Demand from Overseas

Economies of Scale

Secure Resources

Diversifying of Risk

Introduction

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Conclusion

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

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Introduction

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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

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Introduction

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Conclusion

Question 2

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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

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…

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MENA: Seawater Desalination, Textile Wastewater…

Source: Hyflux Ltd. Annual Report 2008

Introduction

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Conclusion

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 *

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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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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

Question 3
Increased market size  Success in the Singapore municipal market enabled Hyflux to quickly secure China’s huge municipal water market [pg3]

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Source: http://hyflux.com/abt_presence.html
Introduction Q1 Q2 Q3 Q4 Conclusion

Question 3

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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

Question 3
Increased market size  Hyflux membrane products and systems installed in more than 400 locations across the globe

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Source: http://hyflux.com/abt_presence.html
Introduction Q1 Q2 Q3 Q4 Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

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]

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Introduction

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Conclusion

Question 3
Return on Investment [-ve]  Increased debt covenants (high gearing)  Increased risk of default [pg18]

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Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Successful, but need to be mindful of debtequity ratio

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

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]

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Algeria: Biggest sea water desalination plaint in the world

Introduction

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Conclusion

Question 3
Location Advantages

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Global demand for water remains unquestioned!

Introduction

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Conclusion

Question 3
Location Disadvantages  Political unrest in the Middle East  4th wave of democratization?

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Introduction

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Conclusion

Question 3
Location Disadvantages  Political unrest in the Middle East  How did it begin?  Tunisia 17 Dec 2010

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Mr. Mohammad Bouazizi • 26 years old • Typical Tunisian • Sole breadwinner by selling fruits

Introduction

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Conclusion

Question 3
Location Disadvantages Political unrest in the Middle East

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17 Dec 2010: Tunisia

5 Jan 2011: Algeria

14 Jan 2011: Jordon

22 Jan 2011: Yemen
Introduction Q1

25 Jan 2011: Egypt
Q2 Q3

30 Jan 2011: Sudan
Q4 Conclusion

Question 3
Location Disadvantages Political unrest in the Middle East

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13 Feb 2011: Bahrain

14 Jan 2011: Iran

15 Feb 2011: Lybia 18 Feb 2011: Djibouti
Introduction Q1

20 Feb 2011: Morocco
Q2 Q3 Q4 Conclusion

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?

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Source: FY2010 Financial Results

Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Relative Success, need to expect volatility

Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

Question 3
Economies of Scale & Learning  R&D expenses kept low over revenue generated [pg31]

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Introduction

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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

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Introduction

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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

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Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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Increased market size

Return on Investment

Hugely Successful. Key success factor

Economies of Scale & Learning

Location Advantages

Introduction

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Conclusion

Question 3
Hyflux’s International Expansion

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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 Q1 Q2 Q3 Q4 Conclusion

Question 4
Hyflux’s Core Business

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Introduction

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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

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Introduction

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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
Introduction Q1 Q2 Q3 Q4 Conclusion

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Question 4
Factors for Entry Modes  Income maximization  Control over resources  Risk & Cost  Localization

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Introduction

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Conclusion

Question 4
Commitment of Resources

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Exporting

Wholly Owned Subsidiary

Licensing Choices of Entry Mode

Acquisition

Strategic Alliances

Introduction

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Conclusion

Question 4
Commitment of Resources
Exporting

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•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

Introduction

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Conclusion

Question 4
Commitment of Resources
Licensing

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•Exposed to the risk of product imitation •No control over the resources •Knowledge exchange is not feasible •Limits their future development

Introduction

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Conclusion

Question 4
Commitment of Resources
Acquisition

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•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

Introduction

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Conclusion

Question 4
Commitment of Resources
Wholly Owned Subsidiary

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•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)

Introduction

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Conclusion

Question 4
Commitment of Resources
Strategic Alliances

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Joint venture – two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

Introduction

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Conclusion

Question 4
Commitment of Resources
Strategic Alliances

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Introduction

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Conclusion

Question 4
Commitment of Resources
Strategic Alliances

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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

Introduction

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Conclusion

Question 4
Commitment of Resources
Strategic Alliances

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 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 usedoil recycling partner must exhibit strong used oil collection channels.”

Introduction

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Conclusion

Question 4
Cost

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Benefits

Introduction

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Conclusion

Question 4

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•Porter’s Five Forces Model •General Environment Analysis

Understand the motives for international diversification

Measure outcome to determine the success of the diversification

Identify different possible modes of entry

Introduction

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Conclusion

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Presented by Goh Chuwen | John Teo | Chan Zhe Ying | Nicholas Lee

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