evergreen holding group - international business consultancy

Brazilian Offshore Supply Vessels (OSV) Market Study

Report for: Evergreen Holding Group (EHG)

Report developed by: Phil Gray, Greg Jansz, Darren Fitzpatrick, Nicholas Flood

Business Plan | Evergreen Holding Group

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Contents

Section Title Page(s)

1 Background research on the business project 3

2 Background Research on Market, Industry

and Institutional Environment 6

3 Background Research on Sponsoring

Company 11

4 The MBA Consultant Team 13

5 Proposed Schedules for Discussion 15

6 References 18


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SECTION 1 | Background Research on the Business Project

Scope of Enquiry

As the world’s population increases and economies continue to grow, global energy

demand is forecast to significantly increase in coming years. OPEC, in their World

Oil Outlook 2013, predicts that energy demand will increase by 52% by 2035 and

fossil fuels will remain above 80% of supply (OPEC, 2013). As global demand for

energy increases, significant business opportunity exists for those enterprises who

best position themselves to meet the infrastructure, logistics and engineering needs

of the oil & gas exploration endeavours.

Those organisations that best understand and anticipate these needs will be those

who are best placed to respond to their client’s needs, and through doing so,

establish competitive advantage. To achieve these valued insights this analysis

defines its scope or enquiry across three dimensions, specifically; (i) organisational;

(ii) geographical and finally; (ii) market segment. An overview of each dimension will

now be supplied.

Organisational Scope

The analysis centres on Evergreen Holding Group (EHG). A global enterprise with a

particular focus on development and investment in the ship building, the oil, gas and

offshore engineering, natural resources and deep-water logistics industries, EHG

has come to be a dominant market player and a leading Chinese company (EHG,

2014). A more thorough overview of EHG is supplied in Section 3.

Geographical Scope

This report takes as its focus the Brazilian market. This is critical as, the largest oil

discoveries in recent years have come from Brazil’s offshore, pre-salt basins (OPEC,

2013, p123). This discovery of new energy reserves is paralleled by a rapid increase

in production and exploration within the region, as corroborated through the following

statistics:

Brazil’s crude oil and NGLs production grew by a yearly average of 100

thousand barrels per day (tb/d) between 2008 and 2011 from 1.9 million

barrels per day (mb/d) to 2.2 mb/d and is expected to continue its strong

growth over the medium-term (OPEC, 2013, p. 124).

Brazil has the highest number of projects among non-OPEC countries in the

top-ten project start-ups list for the next five years (OPEC, 2013, p. 124).


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A more thorough overview of the Brazilian market is supplied in Section 2.

Market Segment Scope

This report takes a specific focus on market demand for offshore supply vessels

(OSVs). These are vessels that regularly transport goods, supplies or equipment in

support of exploration or production of offshore mineral or energy resources (Marine

Wiki, 2014). A more thorough overview of the OSV market is supplied in Section 2.

Key Assumptions and Suggested Methodology

The report will draw upon a range of data accessible within the public domain and

will complement this with a series of client meetings and extensive consultation at

EHG’s offices in Shanghai, China. Upon return of the MBA consult team to Australia,

these inputs will be analysed through the application of a number of strategic

frameworks, broadly held to be best-of-breed.

Section 2 will incorporate; (i) A Pestel analysis to help describe the macroeconomic

environment factors that Evergreen will face as they seek to capture value within the

Brazilian market and; (ii) A Porter’s 5 forces analysis to understand the competitive

intensity of OSV segment in Brazil.

Section 3 will supplement the above with an analysis of EHG with (i) A Customer

Value Proposition Canvas; (ii) A Resource Analysis and finally; (iii) A Business

Model Canvas. Collectively, the analysis will provide a rich overview of EHG’s

capacity to create and capture value within this expanding market segment.

Section 4 will introduce the MBA consult team and the planned contributions of the

project.

Section 5 will provide an overview of the schedules for discussion throughout project

duration. Both of which will be critical in delivering to the client’s requirements.

Key Issues and Questions

The report will address the following four areas; (i) Market Opportunity; (ii) Market

Offerings; (iii) Barriers to Entry and finally, drawing upon the inputs of the above; (iv)

Market Entry Option(s). Key issues, relating to these areas are listed in the table

below and will be refined further in consultation with the EHG executive:


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Market Opportunity

What is the current and future state of the OSV segment and predicted future trends in Brazil?

Who are the key buyers and what are the key OSV features they seek?

How are OSV sold, delivered and serviced?

Market Offerings

What are the OSV products themselves?

What are the different types of OSVs and how do their various features meet the needs of buyers?

What differentiation exists, market trends (both volume and product segments)?

Competitive Environment

Who are the local OSV shipbuilders, their pros and cons?

Who are their main foreign suppliers, their pros and cons?

Competitors past success and failure case studies, what lessons can be learned?

Barriers to Entry

Brazilian local content requirements policy and its possible amendments for OSVs?

What are the tax implications of entering the OSV market?

Market Entry Options

What is the optimal way for EHG to capture the market opportunity? What business model is required (e.g. joint venture, M&A etc.)

What is the optimal cost structure for production?

How can the strategy be resourced (e.g. debt financing from Chinese policy banks) effectively?


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SECTION 2 | Background Research on Market, Industry and Institutional

Environment

Preliminary Market, Industry, and Competition Research Global OSV Market

Product: The majority of the global fleet of OSVs are Platform Supply Vessels

(PSVs) and Anchor Handling Handling and Tug Supply Vessels (AHTS). Together

these account for 58% of the global fleet. Below is a graph of the OSV world fleet by

type.

Source: ABS Offshore & OSVs – Market, Trends & Classifications

End Users: The primary end users of OSVs are oil and gas companies who require

marine transport to operate their offshore exploration and production environments.

The major drivers of OSV demand are exploration & production (E&P) spending, oil

price, global energy demand and offshore oil reservoir discoveries. Below are the

top 10 companies by exploration and production spending.


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Source: Clarkson Capital Markets

Geographical Breakdown: Brazil is a high growth area for OSVs, where Petrobas are aggressively exploring offshore pre-salt reservoirs. It has been estimated that production could be boosted from 2.1mn barrels per day (bpd) currently (BP Statistical Review, 2014) to 6mn bpd in 2020 (DOF, 2013, pg. 12). Below is a breakdown of offshore oilfields across the world.

Country Number of Offshore

Fields

Average Water Depths (feet)

Distance From Shore (km)

Brazil 30 3514 156

U.S. 25 4751 173

Norway 18 761 141

India 16 230 100

U.K 14 361 122

Angola 10 4970 156

Malaysia 8 1171 99

Nigeria 7 2054 63

Australia 7 499 149

China 7 226 38

Others 39 666 83


Brazil

EHG and Sinopacific are looking to enter the Brazilian OSV market. The chart below

highlights the leading operators (customers) of OSVs in Latin America.


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The two primary operators in the Latin American markets are Petrobas (Brazil) and

Pemex (Mexico/GoM) who account for 81% of the market. More specifically, of the

429 OSVs working in Brazilian waters approximately 87% are under Petrobas’

charter (Farstad, 2013). For Sinopacific these are key target customers for their

Brazilian aspirations.

As illustrated below, Sinopacific has a limited presence supplying in Latin America.

In the AHTS segment, Tidewater and Maersk Supply account for a quarter of

vessels. In the PSV segment, Edison Chouest and Tidewater account for 13% of the

market. An important feature of these charts is the small market shares without clear

monopolies or oligopolies. This possibly provides an opportunity for Sinopacific in

terms of market entry.



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Source: Farstad 2013 Annual Report

Institutional Environment

Some of the key institutional features and challenges for Sinopacific in entering the

Brazilian market include:

Local Content Policy: Protectionist policy such as “circularization” where each year contracts will be taken over by Brazilian flagged vessels if available.

Expensive labour market: labour in Brazil is twice as expensive as China. A key challenge for EHG is how to leverage their cheaper cost base in a protectionist market.

Technology and OSV infrastructure (i.e. suppliers/spare parts/repair shipyards).

Tax System: Complex Brazilian tax system.

Resources and funding: Sinopacific is a private entity and does not have access to vast SOE resources and funding.

Below is the World Economic Forum’s Global Competitiveness Index (filtered by

Institutional factors). Compared to China this highlights that Brazil is a complex and

challenging market to operate within.


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2013 GCI by Institutional Component

Indicator BRAZIL CHINA

Burden of government regulation 147 14

Business costs of crime and violence 124 62

Business costs of terrorism 22 98

Diversion of public funds 133 44

Efficacy of corporate boards 44 84

Efficiency of legal framework in challenging regulations 68 47

Efficiency of legal framework in settling disputes 101 43

Ethical behaviour of firms 87 54

Favouritism in decisions of government officials 89 29

Intellectual property protection 80 53

Irregular payments and bribes 72 68

Judicial independence 65 57

Organized crime 126 88

Property rights 51 50

Protection of minority shareholders’ interests 26 75

Public trust in politicians 136 26

Reliability of police services 64 59

Strength of auditing and reporting standards 31 80

Strength of investor protection 69 84

Transparency of government policymaking 112 46

Wastefulness of government spending 132 29

Institutional Rank 80 47

Source: World Economic Forum GCI Data Platform


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Limitations of Preliminary Research There are a number of limitations of primary research including:

Brazilian Local Content Policy: further research needed on how Sinopacific will operate and compete (i.e. setting up a base in Brazil, joint ventures or subcontracting to Brazilian shipyards).

Market Segments: current research on competition focuses on general PSV and AHTS. This may need to be enhanced if EHG are looking to operate in a more niche market with varied products.

Competition: current research focuses on existing competition. Need to predict and research future competition (i.e. from Asian shipyards) and understand their value proposition versus Sinopacific.

Sales and negotiation process: further research needed on how to obtain contracts (i.e. Petrobas tenders).

An understanding of Sinopacific’s resources, capacity and cost-structure as these will inform choice of market-entry strategy and relative standing to competitors.

SECTION 3 | Background Research on Sponsoring Company

Firm/Resources Analysis of Sponsoring Company

Background

Evergreen Holding Group is a diversified, privately owned company with investments

in the following industries:

Ship building.

Offshore and engineering.

Natural resources (e.g. iron, coal and potash).

Deep-water logistics.

Evergreen appears to conduct business in the aforementioned industries through

eight subsidiaries (EHG, 2014).

In 2013, Evergreen ranked No. 338 in China’s Top 500 Manufacturing Enterprises,

which was an improvement of eight places from the previous year. In 2012,

Evergreen reported approximately 25,000 employees, annual gross revenue of

21.3b RMB ($AUD3.7b) (EHG, 2014).


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Resource Analysis

The following resource analysis is focussed on the ship building subsidiary of

Evergreen: Sinopacific Shipbuilding Group (“SSG”). SSG operates a shipyard

through its subsidiary Dayang Shipbuilding Company, and builds offshore support

vessels through its subsidiary Zhejiang Shipbuilding Company. These are the two

major production arms of Sinopacific. SSG owns two brands for its ships: ‘Crown’ is

the brand for their bulk carrier range, and ‘SP’ is the brand for their OSV product

range. Under the SP brand, SSG has developed more than ten of its own OSV

designs (SSG, 2014).

As of the end of June 2014, Sinopacific has delivered more than 160 OSV’s to its

clients. This production output makes it one of the largest OSV manufacturers in the

world. Sinopacific is currently one of the few shipbuilding companies operating in

China that are entrenched in numerous elements of the shipbuilding value chain,

from initial design through to final production (SSG, 2014). These functional

elements within SSG allow it to directly control the entire shipbuilding process.

However, this amount of in-house activity implies a significant fixed cost base for

SSG which could cause financial distress in periods of weak demand.

Consultation with the host-company will inform development of a more

comprehensive resource analysis. A full view of the tangible and intangible

resources that EHG can draw upon as they enter this new market is not publically

available.

Capabilities of Company Relevant to the Project

SSG is one of the largest subsidiaries of EHG. The company has a specific focus on

the overall shipbuilding process, incorporating design, production and subsequent

trade of the end product. Dayang Shipbuilding Company has an overall goal of

becoming as efficient and effective as possible by focusing on a business philosophy

of “simple but perfect’ (SSG, 2014). Zhejiang Shipbuilding Company has become a

prevalent player in the OSV market through its “niche market leader” strategy (SSG,

2014).

Since its foundation, SSG has placed a specific focus on its OSV design team. This

focus allows SSG to specifically tailor ships to its clientele, equipped with high quality

hardware and sophisticated processes. Zhejiang Shipyard controls over 20,000 m2

of indoor slipway that facilitates a streamlined and effective shipbuilding process

(SSG, 2014).

With regards to PSV ship design, SSG has designed and produced a full range of

ships in varying sizes according to the demand from their clientele. SPP35 (a ship

designed by SSG) has been labeled as one of the most effective multifunctional


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PSV’s in the world. This is largely due to the safety features, operational efficiency

and environmental standards of the ship comparative to world standards (SSG,

2014).

Both SSG shipyards have a strong, process-driven approach to the overall

shipbuilding practice. This is evident through their valid ISO 9001:2008,

ISO14001:2004 and OHSAS18001:2007 Management System Certificates (SSG,

2014).

Perceived Limitations of Preliminary Research

As EHG are a privately-owned company, there is a limited amount of information

regarding their business freely available. This is expected to be overcome when

meeting the organisation and requesting further information, largely focussing on

their resources, how they differentiate themselves from their competitors and overall

winning aspiration.

SECTION 4 | The MBA Consultant Team

The team members & professional background and expertise of the team:

Nicholas Flood Online Commerce Leader at International Business Machines (NYSE: IBM) Summary: A charismatic market management professional, with strong cross-functional work

experience at one of the world's leading organisations. When I am around, targets are achieved,

timelines are met and teams work more efficiently. In my role as an IBM Chief Marketing Officer (CMO)

Ambassador for Australia & New Zealand, I am committed to the advancement of the CMO/CIO shared

agenda. It is this relationship which will define leading organisations in the years ahead.

Education: Master of Business Administration (University of Sydney – current); Master of Business Research (University of New England); Master of Commerce (University of New England); Bachelor of Education (University of New England) Key Achievements:

2014 Business Leader MBA Scholarship recipient.

2014 finalist B&T 30 Under 30 Media Awards.

Australian Financial Review BOSS Emerging Leaders program.

Australian Postgraduate Award

IBM Inferno Award, Global General Manager’s Award, Director’s Eminence Award

Phillip Gray Strategic Sourcing Specialist at Insurance Australia Group (IAG) Summary: A recent university graduate who has embarked on a journey into the corporate landscape. Commencing his career within the supply chain management discipline of one of Australia’s largest insurers, Phil’s role involves sourcing suppliers to service various business units across IAG. In his short time at IAG (less than 3 years), Phil has sourced networks of suppliers with whom IAG spend in excess of $1 billion annually. Education: Master of Business Administration (University of Sydney - current); Bachelor of Business (Finance, Banking and Financial Reporting) – University of Technology Sydney Key Achievements:

2013 Excellence Award for outstanding performance and achievement (IAG)

DI Excellence Award for Outstanding Team Achievement (Emerging Leaders Program)

2014 IAG Master of Business Administration (MBA) recipient


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Greg Jansz Analyst at UBS Investment Bank (NYSE: UBS) Summary: Sydney-based, investment bank operations specialist: Financial markets, economics, data

analysis, risk management, operations, negotiations, business migration, leadership.

Education: MBA (Usyd – Current); B.Economic & Social Sciences (Usyd)

Key Achievements:

Global Banking Experience – Goldman Sachs, Morgan Stanley, BNP Paribas, UBS

Outstanding academic record at top tier institution

Direct contribution to banking profit via identification and execution of trading opportunities & strategies

Darren Fitzpatrick Manager, Strategy and Business Development (Fitzpatrick Group) Previously Manager, Workplace Integrated Learning (University of Notre Dame Australia) Summary: A pragmatic and principled program manager that possesses significant experience across the full spectrum of learning dimensions and a proven track record in delivering world-class workplace integrated learning programs to achieve legislated and policy driven outcomes. Advocated by students and staff as an animator, Darren is able to inspire others and communities to believe they can be something great and transformational.

Education: Master of Business Administration (University of Sydney - current); Bachelor of Commerce

(International Business and Management) – University of Wollongong

Key Achievements:

Vice Chancellor’s Award for Teaching 2013

Workplace Integrated Learning Award for graduate satisfaction from the Hobsons Good Universities Guide (2012 and 2013)

Letter of Merit for Commendatory Teaching (2012 and 2013)

Planned contributions to project

All members of the MBA consultant team will contribute to the Business Plan and Client Report as below.

Business Plan

Member Parts Description

Nicholas Flood 1 Background research on the business project

Greg Jansz 2 Background research on market, industry and institutional environment.

Phillip Gray 3 Background research on sponsoring company

Darren Fitzpatrick

4 The Consultant Team and Proposed schedules for discussion

Client Report

Member Parts Description

Nicholas Flood 1 Overview of the Problem

Greg Jansz 2 Project Agenda

Phillip Gray 3 Approach

Darren Fitzpatrick

4 Results


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SECTION 5 | Proposed Schedules for Discussion

Schedule of Meetings and Communication in Shanghai

During our time in Shanghai, the MBA consultant team will meet with a number of key departments and employees to gather information and determine the best possible strategies to meet their needs. These departments and employees will include:

Simon Liang – Chairman and Founder – history and strategic direction of company (overview).

Dr James Shen – GM Shanghai Branch & Assistant President – strategic aims of OSVs in Brazil, market information, business modelling.

David Luan – Chief Marketing Office – understanding brand and market strategy.

Human Resources Department – understanding existing and future resource requirements and needs.

Operations Department – understanding operational capacity.

Finance Department – gather quantitative data on company.

Chief Risk Officer – understanding key risks, methodology and strategy.


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Friday 15 August

Saturday 16 August

Sunday 17 August

Monday 18 August

Tuesday 19 August

Wednesday 20 August

Thursday 21 August

Friday 22 August

Saturday 23 August

9.00am – 10.30am

Topic 1: China Economy and Society Overview

Topic 3: Professor Bruce McKern

Free Day

Bus to Goodbaby

Company Visit: Evergreen Holding Group

Company Visit: Meeting with Dr James Shen

Field work Preparation

of Presentations

Group Presentations

10.00am – 11.00am

Company Visit 1: Goodbaby 11.00am –

12.30pm

12.30pm – 1.30pm

Lunch Lunch Bus to Bosch Lunch Lunch Lunch Lunch

1.30pm – 2.00pm

Topic 2: TBC

Topic 4: The Globalisation of China Enterprise & Marketing in China Professor Lu Wei

Company Visit 2: Bosch Automotive Products

Field work

Company Visit: Meeting with David Luan

Field work Group

Presentations 2.00pm – 3.00pm

4.00pm – 5.00pm

Team Debrief

5.00pm – 6.00pm

Wrap-up Session

Wrap-up Session

Visit to Old Town, Suzhou

Wrap-up Session

Module Wrap-up

Evening Networking Event Andaz Shanghai Keynote: Jason Li

Dinner Dinner in Old Town

Dinner Dinner Dinner Farewell Dinner


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Schedule of Research and Analytical Work in Australia after the Module

Deliverables The following deliverables will be achieved by the completion of this Unit

Prepare and deliver a ten minute introductory summary of our Business Plan with each group member contributing.

Milestone: Tuesday 19 August 2014 (9.00am).

Prepare and submit a 4-6000 word Client Report outlining recommendations Milestone: 22 September 2014.

Prepare and deliver a Summary Presentation to the sponsoring company executives via teleconference.

Milestone: To be determined. In addition to these milestones, the SMBA6101 International Business Project also has additional assessed requirements for each team member (Individual Blog due 31 August 2014 and Reflective Essay due 22 September 2014). Project Timeline

Task Components Date/s

Overview of the problem

Market and Industry Background 25 -31 August

Sponsoring company capabilities and competencies

25 -31 August

Problem definition and discussion 25 -31 August

Milestone: 31 August

Project Agenda Objectives 25 -31 August

Scope 25 -31 August

Milestone: 31 August

Approach Overall approach and analytical framework 1 – 7 September

Work plan (tasks, descriptions, schedule, responsibilities)

1 – 7 September

Milestone: 7 September

Results Deliverables 8 – 20 September

Expected benefits and value to sponsoring company

8 – 20 September

Client Report Review final report 20 – 21 September

Milestone: Submit final report 22 September

Milestone: Present Summary to clients TBC


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References

BP 2014, Statistical Review of World Energy 2014- Historical Data Workbook,

accessed on 5th of August 2014,

http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-

review-of-world-energy.html

Clarkson Capital Markets 2012, Overview of the Offshore Supply Vessel

Industry, Clarkson Capital Markets, New York

DOF Group2013, Capital Markets Day 31st of May - DOFK, DOF Group,

Brazil

Evergreen Holding Group, About Us, accessed on 11th August, 2014

http://www.evgreengroup.com.cn/en/about.asp

Evergreen Holding Group (EHG), Evergreen Holding Group, Accessed 1st

August 2014, http://www.evgreengroup.com.cn/en/index.asp

Sinopacific Shipbuilding Group (SSG), Sinopacific Shipbuilding Group –

Accessed 1st August 2014, http://www.sinopacificshipbuilding.com/

Farstad 2014, 2013 Annual Report - The Market for Offshore Supply Vessels,

accessed 5th of August 2014,

https://www.farstad.com/en/annualreport2013/business-review/the-market-for-

offshore-supply-vessels#business-review/the-market-for-offshore-supply-

vessels/the-brazilian-market

Marine Wiki 2014, Offshore Supply Vessels, accessed on 11th August 2014,

http://marinewiki.org/index.php/Offshore_Supply_Vessels

OPEC Secretariat 2013, World Oil Outlook, final report prepared for the

Organization of the Petroleum Exporting Countries, accessed on 11th August

2014,

http://www.opec.org/opec_web/static_files_project/media/downloads/publicati

ons/WOO_2013.pdf

World Economic Forum, The Global Competitiveness Index data platform,

accessed on 5th August 2014,

http://www.weforum.org/issues/competitiveness-0/gci2012-data-platform/

http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html

http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html

http://www.evgreengroup.com.cn/en/about.asp

http://www.evgreengroup.com.cn/en/index.asp

http://www.sinopacificshipbuilding.com/

https://www.farstad.com/en/annualreport2013/business-review/the-market-for-offshore-supply-vessels#business-review/the-market-for-offshore-supply-vessels/the-brazilian-market



http://marinewiki.org/index.php/Offshore_Supply_Vessels

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/WOO_2013.pdf

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/WOO_2013.pdf

http://www.weforum.org/issues/competitiveness-0/gci2012-data-platform/

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