SWOT analysis: strategic position and analysis of Dresser Rand - Thesis Example

?Executive Summary The purpose of the SWOT analysis is to evaluate the strategic position and analysis of Dresser-Rand. In which, its strengths, weaknesses, opportunities and threats have been taken into account. The strengths include the use of technology, innovation and efficiency enhancement and safety. The weaknesses consist of heavy reliance on external suppliers, highly safety and occupationally regulated industry and risky industry. The opportunities include China market having cheap labour and conducive business environment. The threats are the presence of global economic downturn, currency fluctuation risk, environmental compliance cost and adverse consequences of regulations. The recommendations have been made and require Dresser-Rand to reduce reliance on the external suppliers, focusing on new markets such as Brazil and China, emphasizing on risk reduction strategies, increasing corporate social responsibilities practices. Name Professor Subject Date Introduction Dresser-Rand is one of the leading companies in the energy sector. It provides custom-engineered rotating equipment solutions for significant applications particularly in the chemical, gas, petrochemical, oil, process, power, military and environmental market space. Its products and services include oil and gas applications including gas export, gas compression, enhanced oil recovery, gas collection, liquefied natural gas (LNG), gas transmission, gas storage and processing as well. Dresser-Rand operates in many countries. Its manufacturing installations remain functional in the United Kingdom, the United States of America, India, France, and Germany and so on. Inside United States, the Company operates in 18 States and other 32 countries with 45 services and support centres, 13 manufacturing facilities and 76 sales offices including six research and development-cum- engineering centres. The clients coming from more than 150 countries, Dresser-Band has developed business relationships with the leading corporations including BP, Gazprom, Chevron, ExxonMobil, Royal Dutch Shell and so many others. The SWOT analysis represents Strengths, Weaknesses, Opportunities and Threats. In the strategic management and strategic analysis, the SWOT analysis is employed to entertain the strategic objectives of a company. The SWOT analysis provides a clear description strategically in which the company management looks into the strategic issues with a single glance. The strengths and weaknesses highlight the internal issues that the company management must take into account. After understanding the strategic internal issues, the senior management become in a position to take necessary steps in order to ensure achievement of the strategic objectives. On the other hand, the opportunities and threats represent and highlight the external issues and problems which normally do not remain the control domain of the senior management. Over the external issues, the senior management cannot exercise direct control over the issues but they have an opportunity to mould or change their business strategy in order to entertain the long term business objectives. The SWOT analysis of Dresser-Rand highlights numerous internal and external issues and opportunities. The strengths include technology, innovation and efficiency enhancement and safety. Dresser-Rand considerably relies on the use of technology; it is benefit of technology that has enabled the company to increase its range of products and services along with the range of customers. As technology opens new avenues, the clients intend to use these new avenues for the purpose of attaining business excellence. The Dresser-Rand weaknesses include heavy reliance on external suppliers, highly regulated occupational safety standards and risky industry. The Company substantially relies on the supplies provided by the external suppliers which affect the financial and operational performance of the company. Being a part of highly safety regulated industry; the Company faces numerous types of risks, penalties and sanctions that bring unfavourable effects on the business. It is followed by opportunities mentioning China market having cheap labour having conducive business environment. The threats include the global economic downturn, currency fluctuation risk and environmental compliance cost and adverse consequences of regulations. Before the conclusion part, recommendations have been included highlighting the advantages by implementing the steps such as reducing external supplies reliance, new market search- Brazil and China, risk reduction strategies and corporate social responsibility practices. Dresser-Rand- Company Profile Dresser-Rand is one of the largest companies in the energy and utility sector. Dresser-Rand supplies custom-engineered rotating equipment solutions for critical applications in the gas, oil, petrochemical, chemical, power, process, military and the environmental market space along within energy infrastructure (Dresser-Rand 2011 Annual Report 1). Dresser-Rand provides a wide range of products and services. The products and services include oil and gas applications encompassing gas compression, gas gathering along with gas export, gas lift and high pressure reinjection, enhanced oil recovery, CO2 re-injection including refrigeration compression and other practices for liquefied natural gas (LNG) plants, gas storage and gas transmission and processing; a wide variety of refinery services; methanol and ammonia synthesis gas and ethylene with other petrochemical services are provided. The custom-engineered products are also used in the environmental markets serving the purpose of renewable energy sources. By providing services in this industry, the Company is helping to reduce carbon footprint and recovering or enhancing the energy efficiency. Dresser-Rand operates in numerous countries. The manufacturing facilities have been established in the United States of America, United Kingdom, France, Spain, Germany, India and Norway. Currently, the Company has operational facilities in 18 U.S. states and 32 countries. There are approximately 45 services and support centres, 76 sales offices including six research and development and engineering centres along with 13 manufacturing installations. The Company deals with diverse and worldwide clients. It provides a wide range of services and products to the clients in more than 150 countries. The strategic and important clients include BP, ConocoPhiliphs, Chevron, ExxonMobil, Dow Chemical Company, Marathon Petroleum Company, LUKOIL, Gazprom, Petronas, PDVSA, Petrobras, Royal Dutch Shell, Statoil, Saudi Aramco, Repsol and Total. In 2011, ninety six percent of revenues were provided from the energy infrastructure encompassing gas, oil and environmental solutions (Dresser-Rand 2011 Annual Report, 4). In addition to that, forty seven percent of aggregate collective revenues were generated by the new units portion including fifty three percent of the total combined revenue were provided by aftermarket parts and services portion. The SWOT analysis Strengths Technology Technology is first and foremost strength of the Company. It is the fruit of technological investment and technological modelling that has really enabled the company to address and meet the dynamic needs of today’s business needs particularly in the energy sector. Globally, the energy is under-pressure as the energy reserves are dangerously depleting globally. Many global leaders are convinced that the energy exploration, energy conservation and efficient energy utilization are some of the key areas needing immediate focus to meet the long term energy needs of the global business world. DATUM ICS is one of the latest inventions supported by technology. DATUM ICS (Integrated Compression System) is a unique depiction of in-class platform for midstream, upstream and downstream applications. The biggest advantage of DATUM ICS is that it diminishes the total footprint necessitated by the traditional modules by as much as fifty percent while also reducing the aggregate weight by the same level of percentage. Moreover, the biggest advantage of DATUM ICS is that it remains functional under the subsea environment. As the global undersea exploration is intensively underway, the use of DATUM ICS would be a great strength for the Company. Innovation and Efficiency Enhancement The implementation of lean manufacturing has become a landmark innovation for the company. in addition to that, the Dresser-Rand STAR model brings sustainable improvements in the quality, safety, cost, delivery and the workforce as well (Dresser-Rand 2011 Annual Report, 6). Moreover, the Company management is convinced that the supply chain management owns colossal significance for the uninterrupted success of business. Keeping this view in mind, the management is applying the concept of lean methodologies in the supply chain. For this purpose, the Company management have implemented a supplier quality management organization assigned to include quality engineers into the supply chain. Also, efficiency improvement is being achieved with the enforcement of Global Singular Processes (GSP). It is an Oracle supported system designed to enhance the aggregate functionality of organization particularly with the support of Information Technology. Safety Safety is one of the significant principles of Dresser-Rand. Being a part of volatile and risky industry in which workers remain vulnerable to threats ranging from injuries to death, the Company management has put in place a strong safety measures for the workforce safety. The Company management has put implemented safety related measures: personal accountability, workplace assessment, centralized health policy and total recordable incident rate (TRIR) (Dresser-Rand 2011 Annual Report, 8). The concept of personal accountability denotes that each employee is responsible for own safety and at the same time must share responsibility for the others’ safety as well; this means the employees need to take into account all safety procedures provided by the safety and security manual of the Company. The Company management believes that workplace assessment is a part of discipline approach that they promote. The environment reporting and safe behaviour and highlighting hazards are the fundamental workplace assessment parts. In support this measure, the management has put in place a centralized functional health policy providing health safety cover to the employees. Further, the TRIR of Dresser-Rand, which is six to seven times better than the industry results within the same category, represents a commitment and discipline in the operational excellence of the Company. Weaknesses Heavy reliance on the external suppliers Dresser-Rand heavily relies on the external suppliers. For instance, in the new units segment, the Company considerably relies on the third-party suppliers for major pieces of equipment that are used to make part of the compression packages (Dresser-Rand 2011 Annual Report, 17). Under such circumstances, the possibility of late supplies delivery cannot be ruled out; at the same time, the required amount of quantity may also not be delivered. The consequences may appear in the shape of decline of expected amount of revenue and profits. In addition to that, the customers may be lost and this could also affect the existing market share. The effect of diminished revenue and profit would not make happy to the current and potential shareholders. Highly regulated occupational safety standards The majority of clients belong to the United States of America. These clients attach substantial significance to the occupational safety and health administration; they take into account the prevalent safety standards being provided by the Dresser-Rand to its employees. In addition to that, the occupational safety and health standards are strict and any violations would directly affect the Company’s relationships with the clients. Although the Company is maintaining standard based safety measures and records the incidents rates, the chances of unfavourable relationships with the current and the potential clients cannot be ruled out as the chances of occupational incidents remain higher due to the very nature of the industry. Risky industry The energy industry including its associated markets considerably experiences more than their due share of volatility (James, Viii). This volatility in oil prices remain a substantial risk (International Monetary Fund, 10).The energy and utilities industry remains highly risky. Dresser-Rand deals with oil, natural gas and other petroleum products. Consequently, the manufacturing services are to manage, generate, recycle, dispose of hazardous substances and wastes including thinner, solvents, waste oil, waste paint, sandblast material and wash-down wastes. In addition to that, the materials such as hydrocarbons or other hazardous wastes are released or disposed under or from properties either owned by the Company or from other locations. Being highly perilous to human health and life on this earth, these properties, undoubtedly, may be investigated. Upon knowing the breaches of environmental or material levels, heavy penalties are imposed without taking into account the legality of the original actions. The consequences could be in the shape of subsequent legal proceedings and the legal proceedings do not come to end without incurring a heaving sum of amount. Opportunities China Market By 2010, China has become the second largest economy after the economy of the United States of America (Sutter, 70). Till this point of time, the senior management of Dresser-Rand have not touched the China market, which is full of considerable business opportunities. At this point of time, the senior management is only concentrating on investing in India, Spain, the United States of America, Middle East and North America regions. Although these areas are not less than any attractive business destination, however current wave of economic downturn and the credit crunch have adversely affected the domestic market of these economies. In addition to that, China has not only become ideal business destiny but also a strong presence of middle class having powerful purchasing power. The significance of China market can be comprehended by the fact that from 2008 to till this point of time, the Chinese economy has remained financially and economically stable and has been generating strong economic results in comparison with other economies have been experiencing severe influence of the 2008 Great Recession. China Market-cheap labour China provides cheap labour (Moosa, 167).China’s cheap labour would substantially diminish cost of Dresser-Rand. Globally, many companies fail to sustain and become bankrupt due to mounting cost of doing business. This fact is widely accepted. For manufacturing and service industry, human resource and labour costs are some of the main sources of cost of doing business; they consume substantial amount of financial resources before producing or generating a final product or service. Numerous companies including many competitors of Dresser-Rand have opened up their businesses in China and some have gone further to this by completing shifting their business from other countries to China. The main reason manufacturing cost considerably reduces in comparison with the similar cost when manufacturing is carried out in other countries. Conducive business environment The business environment in China has become more conducive to entrepreneurs (Jiang and Stening, 332). Less stringent regulatory measures develop strong but conducive business environment. In the United States of America, occupational safety and environmental regulations and compliance remains highly conservative and stringent; heavy fines and sanctions remain a normal regulatory practice in the United States. The fines and sanctions considerably bring adverse challenges for the companies to meet their budgeted revenue and expenditure statistics. Recently, the growing concern of corporate social responsibility and issues relating to environmental regulations, environmental costs and compliance, have further complicated the business environment. Being a developing economy and strong thrust for the foreign investment, the Chinese Government imposes less stringent but more favourable business regulations; the Chinese Government gives special business incentives and packages to the foreign investors. These packages include diminished corporate taxes and other forms of taxes levied on the businesses. Threats The global economic downturn The global economic downturn stills hovers over the global economy. After the Great Recession of 2008, the global economy, particularly the economy of United States of America and the European Union, has been submerged into decline, recession, unemployment, a sharp decline in capital and stock markets. Under such circumstances, the decrease in oil and gas demand was an expected and obvious reality that is currently being faced by Dresser-Rand. The effects of the global economic downturn have declined the oil and gas demand; in its subsequent effect, it has lowered the oil and gas prices as well. for instance, Dresser-Rand’s new units and aftermarket bookings can be used to comprehend the gravity of the existing wave of global economic downturn; the new units and aftermarket bookings declined from the level of 49.1 percent in 2008 to 14.6 percent in 2009 (Dresser-Rand 2011 Annual Report, 16). Currency fluctuation risk The currency fluctuations and exchange rate volatility may adversely influence the financial position and condition of Dresser-Rand. Currently, the United States economy is undergoing a recovery phase and is trying to get momentum. However, the United States economy has been unable to meet the expectations of business leaders. In addition to that, the wide spread credit crises and bailouts in the European Union also affects the globally economy. These factors directly put pressure on the dollar. It is the impact of these adverse economic situations that have really increased pressure on the dollar that can be seen in the immoderate fluctuations in the dollar. Environmental compliance cost The environmental compliance costs and subsequent liabilities may negatively affect the financial condition of the Company. Globally, the businesses and business practices are coming under severe pressure from the civil society asking them to remain socially and environmentally responsible entity. The rationale behind this approach is that climate change, increasing global temperature, melting of ice belts are considered to be an outcome of green house gases being released by the multi-national corporations. In addition to that, Dresser-Rand is a part of a critical industry mainly dealing with oil and gas treatments which remain the major source of green house gases. Currently, properties and operations face stringent local and laws and regulations pertaining to environmental protection including regulations requiring the investigation and clean-up of contaminated air emissions, water management, water discharges. Moreover, the other risks include the pressure from the society may build up in case any issue receiving unusual media coverage could further negatively affect the financial condition of the Company. Adverse consequences of regulations The possibility of heavy sanctions or liability cannot be ruled out. As the Company products are used in systems handling toxic, volatile or hazardous substances, a possible failure or alleged failure could bring different liabilities for the Company including product liability, personal damage injury, property damage liability, wrongful death liability, environmental damage and pollution fines, the Company may face severe consequences of any such occurrence. Recommendations based on research Reduce external supplies reliance Dresser-Rand must reduce external reliance and begin its own supplies. Currently, the Company is considerably relying on the supplies provided by the external suppliers. There are many risks involved when depending on the external suppliers. First, the delayed shipments would affect the production and manufacturing process. When the products are not assembled or manufactured as per the production schedule, the on time delivery of products would not be sent to the desired markets. Consequently, the sales or market segment or customers would not remain and they would be lost. In order to avoid such strategic loss, the senior management must take steps to reduce external reliance. For example, instead of bringing a semi-produced material from the suppliers, they could be manufactured locally. Second, the Company management may directly purchase the directly material from the companies. The biggest advantage would be that the company may not be experiencing delays as the raw materials do not undergo any manufacturing process and they are available in their raw form. New Market search- Brazil and China Sales can only be increased by entering into new markets such as Brazil and China. The long range plan can only be achieved along with the sales objectives by entering to those markets where cost of doing of doing business comparatively remain smaller and the chances of sales growth should remain higher in comparison with the existing markets. The current economic phase is less investment friendly particularly in the United States of America and Europe as both are experiencing worst economic uncertainty in its entire economic history. The worst part of this reality is that the existing investment is unable to meet the required level of return as the markets still face the impacts of economic uncertainty. Dresser-Rand must invest or shift to new markets such as Brazil and China. Both Brazil and China are one of the fastest growing economies and markets. As both are undergoing a developing phase, they remain ideal investment destiny for number of multi-national companies. At this point of time, Brazil and China are attracting millions of dollars foreign investment due to their investment friendly policies and well-equipped business infrastructure that authenticate the investment advantages. Risk reduction strategies The purpose of risk reduction strategies is to ensure compliance with rules and regulations. The Company management must implement strong surveillance and reporting mechanism. The surveillance mechanism would ensure the related compliance almost on daily basis particularly in the manufacturing facilities. In addition to that, reporting mechanism would highlight and forward the information relating to the critical issues. The advantage of these mechanism would be that any issues would not reach to the regulatory authorities and they would be solved within due time. Corporate Social Responsibility practices Dresser-Rand must enhance the number of corporate social responsibility practices. As people around the world are more concerned about the role and contribution of the multi-national companies toward society and environment, the non-contributory role may adversely affect the existing sales performance of the company. For example, Dresser-Rand may arrange environment arrange workshops, seminars, and other activities to spread awareness pertaining to environment; the Company may give donations, charity to the needy communities. Many advantages would be achieved by the Dresser-Rand. First, the corporate social practices receive media coverage which may bring the advertisement costs; at the same time, the existing and potential client would consider that the Company is environmentally and socially responsible corporate entity. Moreover, these steps would bring a positive impact on the sales and corporate performance of the Company. The increase in sales would improve financial performance which would result in rise in the profits. The rise in revenue would increase confidence of the existing shareholders and they would be ready to put more investment in the Company. Conclusion The SWOT analysis highlights numerous strategic issues relating to Dresser-Rand. The strengths include technology, innovation and efficiency enhancement and safety. These strengths have played a substantial role in ensuring the financial success of the Company. The senior management has been focusing on the use of technology whenever any possibility supporting the use of technology. Innovation and efficiency enhancement highlights the significance its own. The Company also intends to use it for enhancing the performance of supply chain management. Safety of workers is of higher importance. The Company has put in place different mechanism to ensure the minimal injury incidents. The weaknesses highlight heavy reliance on the external suppliers, being a part of highly safety regulated industry. China market can be a best investment opportunity. The Chinese economy has become the second economy after the United States. There are many companies who have totally shifted their business structure due to investment friendly policies of the Chinese government. In addition to that, cheap labour and conducive business environment are also those factors that would enable Dresser-Rand to increase its sales revenue by keeping in view its long range plan. Dresser-Rand should decrease its heavy reliance on the external suppliers. It must take steps to ensure production of material locally or it could buy a raw material and convert it into semi-finished goods. Dresser-Rand must work on risk reduction strategies that could prevent any losses or fines that are normally levied by ensuring regulatory compliance. Corporate social responsibility practices must be increased. As the clients and customers have become more concerned about the role and contribution of the corporations, Dresser-Rand must arrange environment related programs, seminars and workshops and at the same time must donate to social activities. Works Cited Dresser-Rand 2011 Annual Report. Annual Report 2011. < http://files.shareholder.com/downloads/DRESS/1931507700x0x554759/21f92239-d6d3-4e44-afc8-fb8251ef0351/67863_DR_2011AR_web_FINAL031912.pdf> International Monetary Fund. World Economic outlook, September 2005: building institutions, issue 2. Washington: IMF Publication services. 2005. Print. James, Tom. Energy Markets: Price Risk Management and Trading. Chichester: John Wiley & Sons. 2008. Print. Jiang, Fuming. Stening, Bruce. W. The Chinese business environment: An annotated bibliography. Massachusetts: Edward Elgar Publishing. 2006. Print. Moosa, Imad. The US-China Trade Dispute: Facts, Figures and Myths. Massachusetts: Edward Elgar Publishing. 2012. Print. Sutter, Robert. G. Chinese Foreign Relations: Power and Policy Since the Cold War. 3rd ed. Maryland: Rowman & Littlefield Publishers. 2012. Print. Read More