Strategic Management on Sapura Kencana
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A core competency by definition is a unique ability that a company acquires from its founders or develops that can make a significant contribution to perceived customer benefits of a product or services and it is difficult for a competitor to imitated. Core competencies are what give a company one or more competitive advantages, in creating and delivering value to its customers in its chosen field (Anonymous). According to Fred (2013), core competencies define as a value chain activity that firm performs especially well. When a core competence evolves into a major competitive advantage, it will turn into distinctive competence. Core competencies may include any combination of skills, technologies, processes, knowledge or expertise and are often achieved as a result of long-term development processes and/or experiences (Mayhew, 2010). Competitive advantage on the other hand is defined as a measure relative to rivals in a given industry. Competitive advantage happen when a firm can do something that rival firm cannot do, or owns something that rival firm desire (Fred, 2013). For example, Nestlé core competency is food and beverages that is full with nutrition, health and wellness.
By defining own core competencies and SWOT (strength, weaknesses, opportunity and treats) the company will be able to focus on its organisation uniqueness. In this study, I will focus on the core competency for Company SapuraKencana Petroleum Berhad. This study is organised as follows; section 2.0 will be informing the background of SapuraKencana Petroleum Berhad. Section 3.0 is regarding SapuraKencana Petroleum general environment analysis which divided into five broad categories; economic force, social, cultural, demographic, and natural environment forces, political, governmental and legal forces, technological forces and competitive forces. Section 4.0 is about the SapuraKencana Petroleum competitive analysis: Porter’s Five-Forces Model. Section 5.0 is about Sapura Kencana SWOT, TOWS and ratio analysis in Section 6.0 and Section 7.0. Along with other relevant information regarding the competitive advantage in Section 8.0 and conclude in Section 9.0
2.0 SAPURAKENCANA PETROLEUM BERHAD PROFILE
SapuraKencana Petroleum Berhad (SapuraKencana) is one of the world’s largest integrated oil and gas services and solutions provider. The Group’s principal business include providing endto-end solutions and services to the upstream petroleum industry, and covers activities such as installation of offshore pipelines and structure, fabrication of offshore structures, accommodation and support vessels, drilling vessels, hook-up and commissioning, topside maintenance services, underwater services, offshore geotechnical and geophysical services, project management, diving services, offshore support services, infrastructure and specialised steel fabrication works. With a workforce of over 9,000 people, the Group’s global presence can be seen in over 20 countries ranging from Malaysia and China to Australia, Middle East, America, and Brazil and beyond. SapuraKencana visions are to be the best entrepreneurially led technically competent and most trusted global oil and gas organisation in the eyes of their customers, shareholders and most importantly, their empowered people. SapuraKencana will be guided by their honesty, trust and respect for all.
They will achieve the business objectives by being safe, alert and professional to continuously strive to meet all of stakeholders’ expectations. “The People of SapuraKencana Petroleum” is SapuraKencana slogan. On the other subdivision which is Health, Safety & Environment (HSE), SapuraKencana use a critical practice to achieve operational excellence for continued business success and sustainability. SapuraKencana has established a reputation for quality service, high HSE standards and adherence to stringent international standards. Experienced quality control and assurance team to ensure product quality conforms to required specifications, external quality standards and safety requirements. Key initiatives in SapuraKencana include implementation of Health, Safety & Environment Management System (HSE-MS), in accordance with international standards to eliminate or minimise HSE risk to SapuraKencana employees, subcontractors, vendors, other stakeholders and the environment. Exhibit 1 shown SapuraKencana’s subsidiaries have received, among others, certifications such as ISO 9001:2008, ISO 14001:2004, and OHSAS 18001:2007. (Corporate Overview, 2012)
3.0 GENERAL EXTERNAL ENVIRONMENT ANALYSES
External forces divided into five broad categories; economic force, social, cultural, demographic, and natural environment forces, political,
governmental and legal forces, technological forces and competitive forces. External factor will leave an effect to the suppliers and distributers, affect in the type of products developed, the nature of positioning and market segmentation strategies, the type of services offered and the choice of business to acquire or sell. Change in external force will lead to a change in consumer demand for industrial and consumers’ products and/or services. Exhibit below is shown how SapuraKencana performance in each external forces. Exhibit 2 SapuraKencana Petroleum Berhad external environment analyses Economic Forces Economy suggests that global oil prices did not decline. This will have a direct impact on the company that provides oil and gas exploration. Seen as positive in terms of growth as based on projections, SapuraKencana gains profits as compare to the previous financial year.
Social, Cultural, Demographic, and Factors such as social, demographic, cultural Natural Environment Forces and natural environment less directly affect the company because it is more focused on the end users of the public. Nevertheless, companies should examine these factors as changes may give an impact to the company. Political, Governmental and Legal Stable political situation also play a role and Forces have an impact on the company and the industry. In addition, the government policy is also an important factor that contributed to the company’s performance. Fixing the rate of tax imposed by the government among the factors that contribute to the company’s revenue. Technological Forces Technology is the most important element in the process of oil and gas exploration. New technologies such as drilling machine can help simplify, facilitate and accelerate the process of exploration.
Innovation is highly demanded in the industry. Competitive Forces although there are competitors that operate the same, SapuraKencana remains as one of the world’s largest integrated oil and gas services and solutions provider. This is because they are able to maintain performance, provide quality and have all the necessary expertise and facilities in the industry. This can be seen by SapuraKencana operation beyond 20 countries worldwide. Furthermore, oil giant companies have also been recognized Sapura Kencana Petroleum. From the Exhibit 2 above, SapuraKencana has shown an excellent performance to each force in the external environment. With this outstanding performance, SapuraKencana will receive many request from clients, investors would willing to invest in SapuraKencana due to the possibility of high return high.
4.0 GENERAL INTERNAL ENVIRONMENT ANALYSIS
Internal environment analysis will be analyse by competitive analysis: Porter’s Five-Forces Model; rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers and bargaining power of consumers. Porter’s Five-Forces Model can indicate whether competition in oil and gas industry can make an acceptable profit or not to the SapuraKencana Petroleum. Exhibit 3 is presenting SapuraKencana Petroleum internal environment analyses as shown below. Exhibit 3 SapuraKencana Petroleum Berhad internal environment analyses Rivalry among competing firms Potential entry of new competitors Potential development of substitute products Bargaining power of suppliers Bargaining power of consumers High Low Low High High From the Exhibit 3 above each of the element under the internal environment will we elaborate as below:4.1 Rivalry among competing firms – Since SapuraKencana is one of is one of the world’s largest integrated oil and gas services and solutions provider, competition between other competitors still being high because of the growing petroleum industry.
This is because oil-producing companies increasingly active in finding new locations of oil wells and increase production capacity based on current market demand. However, SapuraKencana seen to have a distinctive competitive advantage. SapuraKencana has a workforce of 9000 operating in over 20 countries. Besides, the expertise and facilities owned by the company is also a major advantage. 4.2 Potential entry of new competitors – As we know, the oil and gas industry requires a significant amount of funds for setting up a company. In addition, the industry also requires individuals with expertise and experience in the relevant field. This of course is something that is difficult. Therefore, the potential for entry of new competitors is low. Besides, SapuraKencana has also been known as one is one of the world’s largest integrated oil and gas services and solutions provider; this will make it difficult for competitors or other companies to challenge the position of SapuraKencana.
4.3 Potential development of substitute products – Potential development of substitute products can be considered low because, as a company that is based on oil and gas, there are no products that can replace the function of the oil and gas industry itself. Most likely is the production of new technology to assist in the exploration of oil and gas as a drilling machine, oil well detection system. 4.4 Bargaining power of suppliers – The bargaining power of suppliers would be high because the provider wants to use the pace of oil and gas industry to make a profit. Equipment suppliers to SapuraKencana as a drilling machine, pipeline and GPS tracking system would want to use this opportunity to enhance their importance. This of course is something positive to the supplier because not many companies have the expertise to produce the equipment needed for the purpose of oil and gas but this is seen a threat that must be addressed by SapuraKencana. 4.5 Bargaining power of consumers – The users here does not mean the end users like us but rather a user or customer of SapuraKencana of oil and gas companies such as Shell & PETRONAS. The bargaining power of customers is high because oil producers definitely want to get the ideal price for the purpose of minimizing operating costs and production of oil and gas.
5.0 SAPURAKENCANA PETROLEUM SWOT ANALYSIS
In this study SWOT is necessary for the reason that it will give a clear view in detailed of internal and external controls under SapuraKencana Petroleum. The key purpose of SWOT is to identify the strategies that will create a firm specific business model that will best bring into line an organization’s resources and capabilities to the requirements of the environment in which the firm operates. In other words, it is the grounds for assessing the internal potential and limitations and the probable or likely opportunities and threats from the external environment. It views all positive and negative factors inside and outside of the firm that affect the success. A reliable study of the environment in which the firm operates assistances in forecasting the changing trends and it also helps in including them in the decision-making process of the organisation. SapuraKencana Petroleum resources, competencies and capabilities are shown in a SWOT matrix below:- Exhibit 4 SapuraKencana Petroleum Berhad SWOT Strength S1- Integrated EPCIC capabilities.
The merged entity, SapuraKencana, will have full-fledge EPCIC capabilities. This will give the group the competitive advantage to bid for large contracts in Malaysia and abroad. S2 – Large asset base. Extensive range of vessels makes it the only player to be able to provide services across the entire O&G value chain in Malaysia. S3 – Solid balance sheet. Financial strength to expedite global expansion plan that typically requires huge capex. S4 – Established track record. Dominance in deepwater pipelaying services after securing the first two deepwater contracts in Malaysia for Kikeh and Gumusut Kakap deepwater fields S5 – Synergies from merger. Cross-selling and operating synergies will grow the business further. Opportunity Threats Weaknesses W1- Needs to constantly replenishment contracts. SapuraKencana has to replenish RM34bn worth of new orders annually because its business is project-based. W2 – Capex intensive. SapuraKencana has to incur billions of ringgit in capex to further grow its asset base.
W3 – Long construction period for new vessels. The long lead time to complete vessels exposes the company to subdued earnings growth during the construction period. O1 – Riding on PETRONAS capex. May see more large T1 – Volatile oil prices. Low oil prices contracts due to Petronas’ record high capex spending over could stifle O&G development around the new few years to increase oil production O2 – Overseas expansion. Robust O&G offshore capex the world. T2 – Intense global competition. New bodes well for SapuraKencana to offer its full range of penetration beyond Malaysia’s shores services. could lead to stiff competition from O3 – Strong relationship with global peers. Partnerships more established and larger O&G with established players such as Seadrill, Subsea7 and companies. Larsen & Toubro offer job opportunities beyond Malaysia.
6.0 SAPURAKENCANA PETROLEUM TOWS
Once SWOT for SapuraKencana are done, TOWS analysis will be conducted to identify possibilities for strategy direction to happen in the company that makes the company has a core competencies within them. Exhibit 5 below shown the TOWS analysis for SapuraKencana:- Exhibit 5 TOWS for SapuraKencana Petroleum Berhad STRENGTH S1- Integrated EPCIC S2 – Large asset base. S3 – Solid balance sheet S4 – Established track record. S5 – Synergies from merger. OPPORTUNITIES O1 – Riding on Petronas capex. O2 – Overseas expansion. Robust. O3 – Strong relationship with global peers.. 1- Increase investor to interest to invest. (S3, O2, O3) 2- Easy to do outsourcing. (S5, O2, O3) 1- Try to use joint venture for the project. (W1, W2 O3) 2- Can ask help from global peers. (W3,O2) WEAKNESSES W1- Needs to constantly replenishment contracts. W2 – Capex intensive. W3 – Long construction period for new vessels. THREAT T1 – Volatile oil prices. Low oil prices could stifle O&G development world. T2 – Intense global competition. around the 1- Competitive advantages. (S1, S5, T2) 2- Increase more deepwater pipelaying services. (S4, T1) 1- Develop the deep water pipelaying in the most place where people usually use.(W3, T1) 7.0 SAPURAKENCANA PETROLEUM RATIO ANALYSIS
i. Leverage Ratios Type of Ratio Return on Assets = Net income Total Assets 119,581 968,879 = 0.12 x 100% = 12% 2% 95,085 919,320 = 0.10 x 100% = 10% Year 2011 Difference (%) Year 2010 ROA of Sapura Kencana Petroleum showed the increasing in percentage which is 2% of increases compared to the year of 2010. It indicates that the company is very efficient in managing it assets to generate the income. Type of Ratio
Year 2011 119,581 672,013 = 0.17 x 100% = 17%
Year 2010 95,085
646,325 = 0.15 x 100% = 15%
Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. From the ratio, we calculated that the ROE has been increased from 15% in year 2010 to 17% in year 2011. This can be concluded that the company has managed its equity wisely. Type of Ratio
119,581 183,497 0.65 x 100% = 65%
95,085 146,066 = 0.65 x 100% = 65%
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Return on Sales (ROS) is the ability to control cost in relation to revenue enhance earning power. From the calculation, we can see that there is no different on ROS between these two years. ii. Market Value Ratio Type of Ratio Year 2011 119,581 255,344 = RM 0.46 24.3% Difference (%) Year 2010 95,085 255,344 = RM0.37 Earnings per Share (EPS) are the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability. EPS of the company showed the increasing of 67.8% compared to the previous year. This showed us that the company has managed it investment wisely. 8.0 OTHER RELEVANT INFORMATION
Beside the positive result from the analysis in the general and task environment, SWOT, TOWS, strategic direction and ratio analysis, SapuraKencana Petroleum Bhd is being listed under main market of Bursa Malaysia and it has been classified in the Trading & Services sector due to the increase 10% in the company’s existing shares in the proposed of placement of 587 million new shares to partially satisfy the payment for purchasing of tender rings from Seadril Ltd. The previous placement Shares was RM2.80 to RM3.04 and now the latest is RM3.20 each. Not only that, SapuraKencana Petroleum is being listed into the stock that needs to be watch in The Edge Malaysia where the news stated that in March 16, 2013, investor are more likely to make a profit whereas in US stock is dropping where the investor paused below S&P500’s which is a high record according to Reuters. This is because, SapuraKencana secured a second three-month extension worth RM29 million for the usage of its tender rig by Carigali PTTEPTI Operating Co Sdn Bhd and Carigali-Hess Operating Co Sdn Bhd. 12 | P a g e
From internal, external, SWOT and TOWS analysis results are made, it can be concluded that SapuraKencana Petroleum can use market development strategy for widening their business. Sapura Kencana Petroleum showed such an excellent core competencies against others firm. From the TOWS, it shows Sapura Kencana could use more market penetration through marketing effort of their services Sapura Kencana able to gain more market share. From the TOWS also Sapura Kencana are easy to do their outsourcing which can go toward market development. Besides, there are an increasing in the number of percentage of both leverage and market value ratio. If a comparison is made between earning per share in 2010 and 2011, it is seen that the earning per share increased from RM0.37 to RM0.46 which indicate interest from investors to invest in Sapura Kencana. Since the number of investor will increase in Sapura Kencana, they could use the money for product development especially in research in development area.
On the other hand, Sapura Kencana might use joint venture for the project. With the joint venture, Sapura Kencana will earn more profitability and at the same times gain competitive advantage in term of financial. For a company that has expertise in providing end-to-end solutions and services to the upstream petroleum industry, and covers activities such as installation of offshore pipelines and structure. SapuraKencana should use their competitive advantage to explore more new markets. This is because, for a company to enter the same field as SapuraKencana, it would require a very large amount of capital and skilled labour in areas related to oil exploration as pre installation and also operates a drilling machine. Basically, it is very difficult for a new company to enter this field let alone compete with companies that have a long and well established. In Conclusion, Sapura Kencana Petroleum Berhad is able to prove that the company had competitive advantages to go against other oil and gas companies. 13 | P a g e
(2012). Retrieved April 10, 2013, from SapuraKencana Petroleum: http://www.sapurakencana.com/home Anonymous. (n.d.). Core competencies. Retrieved December 18, 2013, from BusinessDictionary.com: http://www.businessdictionary.com/definition/corecompetencies.html Corporate Overview. (2012). Retrieved April 10, 2013, from SapuraKencana Petroleum: http://www.sapurakencana.com/content/view/22/15/ Fred, R. (2013). Strategic Management Concepts and cases (14th ed.). Edinburgh, Harlow, England: Pearson Education Limited. Kenanga ups SapuraKencana target price. (n.d.). Retrieved April 13, 2013, from Business Times: http://www.btimes.com.my/Current_News/BTIMES/articles/20130404144217/Article/in dex_html Mayhew, B. (2010). Core competencies working definition.