Solution of Colfax Corp Case
Colfax Corporation is one of the world’s best producers of industrial fluid handling equipment with the concentrated niche of the pump market also known as positive displacement technology. Unfortunately, the positive displacement pumps faced severe limitations from engineering and procurement groups across the world concerning that the PD technology is minimal because in many engineering universities’ centrifugal pump technology has been taught.
These are the highly specialized engineered pumps with no direct rival in the market for their performance under unusual conditions where only a very précised type of performance could deliver positive results. The brand was founded in late 1990 however; it received an immense popularity in a short span of time. Transport of thick fluid such as asphalt at extremely uniform rates of flow and low levels of energy consumption are the examples of the requirements for which Colfax products are excelled. The five major business units of Colfax were former leading independent and highly regarded pump companies from Germany, France, Sweden, Netherlands and the United States. 1. What problems Colfax faces in this case?
In the year 2008, all the heavy industrial manufacturers faced an important business development issue across the world, one of them was Colfax. The reason behind the issue was the rapidly rising thirst for oil from markets like Asia, Middle East, South America and other parts of the developing world to meet the increasing demands for energy and industrialized economies. This demand increased the pressure on oil extracting companies to hire vendors with high engineering skills, design and sales expertise as well as had attracted heavy industrial manufacturers from all around the world to cash the opportunity. To get advantage of the opportunity and to expand the business, the Senior Vice President of the corporate marketing, Joe Niemann and the head of Colfax EMEA, the Company’s Europe/Middle East/Africa regional branch, Michael Matros made a presentation at the top management of Colfax Corporation Convened in Dubai for its semi-annual strategic update in summer 2008.
The session was attended by all the CEO’s and Executive committee members of Colfax geographic regions. Here they raised the issue that how to give an effective and impressive proposal to Aramco, to cash the opportunities in Middle East Oil and Gas. Leading companies in the Middle East for oil are Kuwait Oil Company, ADNOC and Saudi Aramco notorious for their great hold in the oil and gas market in and around the Middle East. Niemann and Matros were wondering how to tackle the possible risks? How to justify sizeable investment and how to create a win/win relationship between the oil and gas arena.
2. What can it suggest to Aramco?
Niemann and Matros chose the Saudi Aramco to get advantage of the opportunities from the Middle East oil and gas market. The Saudi Aramco was immensely more powerful compared to the ADNOC and Kuwait oil company because the company has been facing a high pressure to meet the needs of its own as well as of lots of other countries. To lighten the pressure/burden, the Aramco needs to have high quality equipments, effective work team to meet the high operational demands with an ability to extract and deliver oil at a level their government and customers are expecting from them. Colfax had suggested the Aramco that they can deliver a diverse workforce as they have their offices in different geographic regions.
For the Aramco, it was a supreme technological challenge to get the complex engineering solution because the oil pumped out from one place could be different from the oil pumped out from another place. For years, the Aramco had a strategy to hire only their country nationals, but Colfax suggested them to change their tradition and should recall the era of 1931-1981 when western companies worked together with the oil companies of the Middle East and had enjoyed a time of mutual benefits. They can even hire Saudi locals to work with foreigner engineers which will in turn help the locals to learn something new from them.
They also suggested that instead of hiring a number of inexperienced newly graduated engineers from the universities of India, Pakistan and Korea they should save their resources by hiring only few numbers of skilled engineers from the west. This will not only save their resources but will give them expertise in producing more and more oil to meet the shortfall of high operational needs. Colfax had suggested that they are the only heavy industrial manufacturers with the unique positive displacement or DP pumps that are able to work in conditions in which other pumps are unable to deliver the required performance. They also had suggested a powerful and quick distribution plan with the help of their experienced sales person to work with Saudi locals to help them in Saudization policies.
3. Pros and cons of the solution from the marketing prospective.
The solution helped both the companies, Colfax and Aramco in their business development and expansion as it made both the companies to sign contracts with other companies for market recognition. From Aramco’s perspective, working with a western company made it able to give an exposure to its local work team to observe their working style as a learning opportunity. There were lots of growing opportunities for a quiet young company Colfax for working with such a big oil refinery in the Middle East. Aramco had an intense and aggressive plan of expansion for the next five to ten years, meaning that working with such a quick and mature company could open doors for the growth and expansion of Colfax. In case of the success of the plan Colfax could enjoy a good return on investment.
The solution was very expensive on behalf of Colfax because they were in need to make a huge investment to design and support a highly technical system and to offer a complex team of engineers. Moreover, Aramco had the right to cancel the agreement at a time when they feel that Colfax is not working impressively which means no return on investment.
As the project was connected to a higher risk, the failure of which could result in a number of other issues for Colfax and could really disturb its overall balance and operating system. Oil and gas companies demanded extremely detailed documentation, particularly concerning how the products would be replaced or repaired. The oil company could, in theory misuse this very rich data for their own benefits.