Executive Summary
Drake and Scull is an engineering product and services provider in the construction sector. It works in wide-ranging areas like mechanical, electrical, water, power and plumbing solutions for realty constructions, rail road construction solutions, waste water infrastructure solutions, power sector constructions services and oil and gas offshore and onshore construction services. It is the largest company operating in the Gulf Region. However, it does have very little presence outside the Gulf region making its business more volatile to the local economies. India is country rapidly growing economically. The construction sector is growing at a phenomenal pace in India. Drake and Scull has a huge opportunity to expand its business in India where the company is likely to receive ample opportunities to increase its revenue. Drake and Scull has the required technical knowhow and the local knowledge of India. It just needs to get into the market and start competing with other players. The product portfolio and already established global brand name will definitely provide DSI competitive edge over others in the new market.
Introduction
United Arab Emirates has long been content with its own economic development. In last few decades UAE has taken a leading position among the Gulf countries in terms of economic activity. Most of the UAE based companies now lead their respective sectors in terms of business in the Gulf region. However, apart from few companies like Emirates, Emaar and so on very few companies based in UAE have been able to create a global name. Despite having strong cash situations and great product portfolio many of those companies due to being content in the Gulf region show no desire to expand beyond their current territory but with the global economy coming closer with every passing year it is now a necessity to go beyond a particular region. Drake and Scull is an engineering firm with operations mainly running in United Arab Emirates. It is a market leader in terms of providing solutions in the area of mechanical, electrical and water related construction. It has operations in the Gulf region and in some of the European nations as well. However, beyond Gulf the scale of operation for Drake and Scull is very limited. India is the largest economy in South East Asia growing at more than 6% YOY basis. The rapid growth of realty and other related sectors in India presents a huge opportunity for engineering firms in the Indian market. Drake and Scull has huge scope if it expands to Indian Market. This essay will discuss about the economic situation of India and how Drake and Scull can use its expertise to enter into the Indian market. Further it will also highlight the different market scenario in India and the appropriate marketing strategy to be used by Drake and Scull for entering into this new market.
Company Background
Drake and Scull international is a market leader in providing world class solutions via different projects. It provides solutions in the area of integrated design, mechanical engineering, plumbing, electrical engineering, water treatment, power related constructions, general contracting, oil and gas, rail and infrastructure development. Drake and Scull opened its office in Abu Dhabi in 1966 (Drake & Scull #1, 2014). Since then it has expanded its offices in Dubai, Egypt, Saudi Arabia, Qatar, Jordan, and Algeria. Recently it has started expanding in South Asian countries like India and Thailand. Drake and Scull has also offices located in UK and some other European nations but the scale of operation is limited.
Drake and Scull operates in 6 main verticals. Drake and Scull engineering is the largest vertical of the company and it provides solutions in Mechanical, Electrical, Plumbing (MEP), Water and Power area. Drake and Scull construction takes up projects in the areas of general civil construction (Drake & Scull #5, 2014). Drake and Scull railroads provide solutions in the areas of rail network and railway stations. Drake and Scull Oil and Gas focus on construction and maintenance of onshore and offshore oil facilities. Passavat-Roedigar, a subsidiary of Drake and Scull, caters to the needs of waste water treatment. Finally Drake and Scull Development create and facilitate public private partnerships in infrastructure projects. From a very small MEP company Drake and Scull has become a multi-billion entity in less than four decades. In 2008, Drake and Scull International (DSI) went public and more than 55% of the shares were offered via an IPO (Drake & Scull #4, 2014).
UAE (Cultural, Socio-Economic and Demographic Profile)
United Arab Emirates earned its independence from the British regime in 1971. It is a small country bordered by Qatar, Saudi Arabia and Oman. UAE has a huge shoreline. UAE is the 6th largest producer of oil in the world and 17th largest producer of natural gas (UNSCWA, 2012). Using oil and natural gas export, UAE has become one of the most developed economies in MENA region. In terms of per capita income, UAE is the 7th in the world. The country is ruled by hereditary monarchy. Federal Supreme Council consists of the head of the 7 emirs of UAE. These 7 emirs elect the president of UAE. UAE is an open market and it maintains a very good bilateral relation with France, USA and many other European nations. In fact, it has military protection ties with USA and France. UAE GDP is growing at around 2-3% for the past 4 years after it shrank by 4% in 2009 (UNSCWA, 2012). UAE government encourages a healthy business environment. However, the country does not encourage labor unions and the right to strike.
India (Cultural, Socio-Economic and Demographic Profile)
India is the second largest country in the world in terms of population. It has a population of more than 1.2 billion. Large number of that population is middle class and the average income of the middle class in India is growing at a very fast rate. The economic growth of India was 7.7% per annum over last 7 years which was only second to China’s growth (DIPP, 2012). India also has the largest number of people living below poverty line. Hopefully, the number of people living below poverty line will reduce with the thriving economy in the coming future. India has the 7th largest GDP in the world and is poised to become one of the top three economies by 2040 (DIPP, 2012).
India is a multicultural society. There are different religions, caste and creed across various parts of India. It is difficult to identify a single culture for Indian people. Diversity is a basic norm in Indian society. This poses a problem for many business houses as a single product or services may not appeal to all Indian population in a similar way. In fact in many cases product offerings may create cultural or religious conflicts causing early demise of the product.
India being a democratic country has some advantages and disadvantages. Entering into India as a new business house is often time taking process. Indian is ranked very poorly in the United Nations ranking in terms of “ease of doing business”. The political barriers and slowness in getting clearance from public offices for doing business and rising corruption in the Indian market pose challenge to business houses trying to penetrate the Indian market (PWC, 2013). However, some of the places in India are very congenial for business operations and knowledge of that is essential for doing business successfully in India.
After liberalization in 1991, India has shown huge growth in all sectors. Especially infrastructure, realty and telecom industries have grown exponentially. Realty and infrastructure market is growing at a good rate despite the global economic slowdown and poised to triple in size within next 15 years (DIPP, 2012).
Technological Situation
Drake and Scull is in the business of MEP, Water, Power and infrastructure for almost 47 years. It has huge experience in providing solutions to some of the best projects in the world. It has provided solutions as a part to the project for MEP, water and Power for infrastructure projects like Jumeirah Beach Residence, Meydan Racecourse in Nad Al Sheba and Dubai Motor City (Drake & Scull #1, 2014). It has won awards from international bodies for outstanding project deliveries. It has solid knowledge of residential construction projects as well as construction of specialty areas like supermalls, racecourses and public transit systems. Drake and Scull not only has a full range of offerings for value for money construction projects but also has huge expertise for super luxury construction projects. It has earned a good reputation in the market for finishing projects within deadline and within a given budget. Drake and Scull also has a huge technical expertise in the area of civil construction. In collaboration with Saudi Arabia government it has successfully completed many civil construction projects over the last decade or so. Drake and Scull is also the most preferred civil construction partner for UAE government (Drake & Scull #5, 2014). In this area Drake and Scull has shown that it can even deliver mega size projects within the assigned budget and time. Drake and Scull also has worked on complex rail construction projects. Especially it has expertise in the construction of railroads and rail platforms. It has worked in UK projects to deliver highly technologically advanced railway tracks and platforms. On the other hand it has worked in Thailand and some other East Asian countries to provide solution for value based railroad expansion projects. It also has extremely high level of expertise in the area of power plant projects in various countries in the MENA region (Drake & Scull #5, 2014).
Keeping in mind that Drake and Scull wants to expand in India in the coming decades, Drake and Scull Engineering will have the most favorable opportunity among all the DSI verticals. With its expertise in showcase building construction projects, it can easily collaborate with big Indian construction houses to provide MEP, water and power solutions to realty projects. This segment will continue to grow providing huge opportunity to DSI. Another sector which will provide great opportunity is the energy and water treatment. Energy sector, both thermal and other sector, will grow to fulfill the huge power needs of the country and this will open opportunities galore for DSI. DSI’s expertise in this area will prove extremely useful. Water treatment is also becoming a big issue as countries are becoming more and more environmental conscious. There are not many companies in the world with the potential to implement big water treatment projects globally. DSI has this expertise and it can collaborate with state governments, cities and central government to come up with water treatment projects.
Financial Situation
Drake and Scull has done exceptionally well in the last decade. It has won contracts across the Mena region and delivered it on time. However, in 2012 Drake and Scull has seen huge decline in its revenue and net profit owing to a dry pipeline and a sedate economic growth. A great many projects got delayed due to poor economic conditions and political unrest in the region. Gross profit for DSI came down from 432 million AED in 2011 to 380 AED in 2012 ((Drake & Scull #2, 2014). However, the company is in sound financial condition. It has around 730million AED in cash to support its operations and 363 million AED in retained earnings to invest in new operations, technologies and companies (Drake & Scull #3, 2014). As a whole Drake and Scull is in good shape to expand into new geographies. It will not only help improve the top and bottom line of the company but will also reduce the risk of doing business in only one region.
Product and Market Entry Strategy
India is a unique country to do business. It poses opportunities more than almost most of the countries in the world but also presents a lot many business challenges to overcome. Some of the big European companies have failed to operate successfully in the Indian market. First and foremost to do business in India local knowledge is absolutely essential. It can be gathered either through partnership or through acquiring employees of Indian origin. DSI does not have problem in both regards. With UAE being close to India geographically and a good many number of Indians working in UAE companies, there are lots of employees of Indian origin in DSI as well. Therefore, DSI has the required knowledge of the local market built into its system. Furthermore, in case of construction projects DSI will work with construction partners who will provide the required local knowledge and help DSI get the job done.
Secondly, DSI also needs to understand the politics and economic environment in India. Most of the residential projects in India are run by private parties but most of the big budget construction projects in power plants, civil and water treatment projects are totally operated by government agencies (DIPP, 2012). This may create problem for DSI in getting projects as lot of the current competitors in the Indian market offer very low rates for the projects and the quality of delivery is often ignored while awarding a project to the bidders. DSI in such cases need to create separate Indian entity in India and operate from the country for those local government projects. This way it will be able to provide rates which are at par with the local competitors.
Thirdly, it should not try to launch all the products in all business segments in which it operates to India. Realty construction and power plant related projects should be the first product offerings from DSI in Indian market. These are the two segments growing impressively in India offering huge opportunities for the new players. At a later date DSI can launch its water treatment product offering to Indian market.
Finally, as the relationship between UAE and India is getting better, DSI with the help of UAE government can get into government civil and water treatment contracts. This will require DSI to work with UAE government so that their case is taken forward in the bilateral talks. As India is dependent on oil from UAE, it may consider requests from UAE government to award projects to DSI on a preferential basis.
Marketing Situation
Indian construction sector is growing at a rapid pace. In fact it is slated that by 2017 the sector will see more than $1 trillion in investment (PWC, 2013). This makes it a hugely lucrative sector for companies. However, till now apart from domestic players like Hindustan Construction, Reliance, Hiranandani, Tata Constructions, RPG group and Pratibha Industries not many big international construction players are there in this industry. The only big international players in the construction industry which are present in Indian Market are DLF and Unitech (Equitymaster, 2013). With the given rate of growth there are still huge opportunities for any great construction player in this industry. Given the international exposure Drake and Scull has, it should not face any big problem in getting first few projects in the Indian market. Then once it establishes its footprint in the market it can start competing with the bigger players. Sterling and Wilson is the largest player in the Indian market in the MEP sector (Moneycontrol, 2013). However, Drake and Scull already has delivered projects of higher stature and size than what Sterling and Wilson has done and this keeps Drake and Scull competitive edge over its competitors.
Drake and Scull has a few things to work in its favor when it penetrates the market of India. Having worked in South Asian countries in different projects Drake and Scull has the basic knowhow of how projects work in developing economies. It also has experience in diverse areas. DSI has product offerings in realty constructions like MEP, water and power, railroad construction, power sector related projects, waste water treatments and oil and gas constructions. This huge capability is unmatched by most of its competitors and gives DSI a definite edge. It can provide a complete product and service offering which its counterparts may not have the capability of. For example, in case of realty projects it can provide solutions for mechanical, electrical, water, power and plumbing solutions under one portfolio whereas for all those product offerings the project may require different parties in the absence of DSI. DSI also has a great track record of delivering projects like Jumeirah Beach Housing and Dubai Motor City which will help it get projects and give a competitive edge over its competitors.
Pricing may be a problem for DSI. Although it has shown in the past that it can deliver projects with tight budget but Indian market is an even more price competitive. Most of the competitors offer low price quotes to win a project. To lower its cost of delivery DSI needs to start its Indian operation where it can tap the local pool of cheap labors and cheap skilled engineers. This will help DSI bid lower price for the projects and still finish it profitably.
Once DSI gets going in India, it can start marketing the brand. In the realty housing sector DLF and Hiranandani have already cornered the niche market segments. DSI can also employ this tactic as more and more luxury projects will come in future and those projects turn more profitable. It can promote the DSI brand as the premium engineering product provider. It can showcase its landmark projects to establish the brand. This way it will not only get attention from the big project partners but also will get the attention of Indian government projects. Indian government projects are the bigger chunks of all the construction projects that will help expand DSI enormously in Indian market.
Conclusion
Drake and Scull is the largest engineering services provider for construction industry in UAE and Saudi Arabia. It is one of the largest companies in the segment. However, the company has a scarce presence outside the MENA region. When the UAE economy tanked in 2009, Drake and Scull faced tough times as its revenue was largely coming from UAE and Saudi Arabia. With the capability Drake and Scull has in different business verticals it should look to expand into other regions. India seems to be a great location for Drake and Scull to expand. Indian economy is thriving and construction sector is slated to double in next 5-7 years and triple in next 15 years. The competition is still not very high making it much easier for Drake and Scull to enter into the Indian market. Product offerings like MEP will help DSI largely in establishing the brand in India. Then it can also get into other government projects like power plant construction, civil construction and waste water plant construction. Given the track record, technical capability and financial stability, DSI should be able to successfully expand into India.
References
Drake & Scull #1: About Us (2014). Retrieved on 4th January 2014 from <http://www.drakescull.com/PJSC/AboutUs.aspx>
Drake & Scull #2: Investor Relations (2014). Retrieved on 4th January 2014 from <http://www.drakescull.com/PJSC/IRHome.aspx>
Drake & Scull #3: Annual Report 2012. Retrieved on 4th January 2014 from <http://www.drakescull.com/PJSC/uploads/Reports/Annual_Report_2012/index.html>
Drake & Scull #4: Our History. (2014). Retrieved on 4th January 2014 from <http://www.drakescull.com/PJSC/OurHistory.aspx>
Drake & Scull #5: Business Streamlines. (2014). Retrieved on 4th January 2014 from <http://www.drakescull.com/pjsc/BusinessStream.aspx>
Equitymaster. (2013). India: Construction Sector Analysis. Retrieved on 4th January 2014 from <http://www.equitymaster.com/research-it/sector-info/construction/Construction-Sector-Analysis-Report.asp?utm_source=research-it&utm_medium=website&utm_campaign=sector-info&utm_content=sector>
Money Control. (2013). Sterling & Wilson - India's largest MEP Company. Retrieved on 4th January 2014 from < http://www.moneycontrol.com/news/business/sterlingwilson-indias-largest-mep-company_760045.html?utm_source=ref_article>
United Nations Social Commission of Western Asia (UNSCWA). (2012). Demographic profile of UAE. Retrieved on 4th January 2014 from <http://www.escwa.un.org/popin/members/uae.pdf>
EC Harris Research. (2011). Construction Sector Poised for further Growth in India. Retrieved on 4th January 2014 from <http://www.echarris.com/pdf/7992_International%20Focus%20on%20India%20FINAL.pdf>
PWC. (2012). Infrastructure in India: A Vast Land of Construction Opportunity. Retrieved on 4th January 2014 from < http://www.pwc.com/gx/en/engineering-construction/pdf/infrastructure-in-india.pdf>
ICRA (2013). Indian Construction Sector Update. Retrieved on 4th January, 2014 from <http://icra.in/Files/Articles/SH-2013-Q1-1-ICRA-Construction.pdf>
