krakatau steel market penetration to thailand

7/28/2019 Krakatau Steel Market Penetration to Thailand

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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR

Sampoerna School of Business | 2013 1

Chapter 1. PT Krakatau Steel in a Glance

Krakatau steel started as Trikora Iron Steel Project that launched by Soekarno, firstIndonesias President as the national industry in the era of 1960. Ten years later, PT

Krakatau steel is built using the material and plants left from Trikora Iron Steel Project.

And seven years after, Suharto, the president after Soekarno, commenced PT Krakatau

Steel as the largest steel producer in Indonesia.

The fame of PT Krakatau Steel Krakatau was starting as it showed itself as the

rapid development company in steel industry. Only less than 10 years, it was able to

add up the productions facilities swelled to Sponge Iron Plant, Steel Billet Plant, andWire Rod Plant Steel. Not only that the infrastructure facilities also developing, such as

facilities of electricity power and Water Treatment Plant, Cigading Special Port and

telecommunication system.

Not only have that, the company also expanded itself to more various product

of steel consumption. Some of them are hot and cold rolled coils and wire rods.

Furthermore, at that time KRAS has production capacity up to 2.45 million tons per year.

Addition to that, KRAS also aim to fulfill the demand for worldwide customers by

diversify its supporting business. The numbers of market that it serves are high-added-

value steel production, utility industry, Engineering Procurement and Construction (EPC)

services, information technology and medical services.

In the year of 2010, PT Krakatau Steel registered itself as Public Company (IPO)

and listed in Indonesia Stock Exchange as KRAS.


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Chapter 2. Objective of Expanding Business to Thailand

PT Krakatau Steel is the biggest and leading steel industry in Indonesia. Its fame

and name is heard not only domestically but also internationally. Hence, here wed like

to propose to board of director for expanding KRASs wings to the land of Elephant War

Thailand.

There are some reasons and objectives to achieve when entering this Thailand

market.

Objectives for expanding operation to Thailand are:

1. Referring to company objective to serve the global consumers and emphasize its

presence in global market

2. Building the company brand name in Thailand market and enlarge the partner both

the same and across industries

3. Increasing sales and profit margin by grabbing the bubble demand for imported

steel product that currently coming from Thailand market

4. Maximizing the advantages of being the same member of AEC (Asean Economy

Community) by penetrating Thailand market

For further explanation and specific reasons will be found in the chapter of PEST

Analysis (Chapter 3).


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Chapter 3. PEST Analysis

Thailand is opened their market to the Indonesian investors as we know Thailandand Indonesia are the members of ASEAN which will design to be an integrated marketeconomy among the ASEAN members which called as AEC (ASEAN EconomyCommunity). As AEC member, Thailand has compulsory to abolish the duty taxes, visasand approve the foreign- majority business ownership. This becomes a greatopportunity for Krakatau Steel as to expand the business or sales.

A. Political Issue

Thailand knows as the free land as they have never been colonized by other

country. As a kingdom country, the King has a great effect for the social andeconomic life of the country that affect the life of citizens. The King Bhumibolintroduced the economic self-sufficient that does not mean autarky or closed toother market, but they tend to utilize their resources more than consume foreignproducts. With this paradigm, Thailand is quite strict to foreign companies.

The most issue that affects the instability of political in Thailand is the conflictbetween Red Shirt supporters of Thaksin against the dictators government. Mostof the member come from the business man, student etc. The yellow shirtmembers come from the old generation that against Thaksin. Since 2006, this

conflict has affected the political condition especially each of the election.However, the conflict is not like before, now it more diplomatic and demonstrationsince Thai people more educated now. So, this conflict will not give a significantimpact to Krakatau Steel performance.

B. Economy Condition

Thailand economic is going better and better after the financial crisis and floodin past years. Thailands economic shows a better condition in GDP, PPP, inflation

rate, and production performance. Thailand is one of destiny country of foreigndirect investment in South East Asia.

For the Iron and steel market in Thailand is huge. Thailand is the major steelimporter over around the world which is in fifth place after Europe, USA, Korea, andChina.


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the increasing of residential and commercial building and the Industrial needs. For the record, Thailand market of steel has been entered by some other foreigninvestors such as Germany, Korea, and Japan. The Thailand steel industry hasadvance technology and productive, but the developing of infrastructure has beenincrease the need of steel so that the local companies cannot fulfilled the demands.For the construction market, the need of steel is 60% of total steel. This demand is justa temporary market of Krakatau Steel.

Importers 2008 2009 2010 2011

EU 27 41.6 21.7 27.5 35.1USA 30.2 15.3 22.5 26.9

Korea 28.8 20.3 24.8 22.8

China 15.8 22.4 17.2 16.3

Thailand 11.8 9 12.3 12.5

Figure 3.1 The Number of World Imported Products Based on Rank

Unit: in Million MT

The growing ofdemand for steel in Thailanddue to the threefactors whichare the goingup of infra-structuredevelo ment,

A huge project of infrastructuredevelopment.

The Thailand government project to

improve and build a good and strongtransportation armada- port, airport, roadand railways to become the CLMV(Cambodia, Laos, Myanmar, and Vietnam)gate way. As we know, the South Eastmarket is attractive right know to the bigplayers of world economic and ASEANeconomic development. There will behuge economic activities in those countriesthat need distribution channel and

Thailand will be the right choice.

The increasing of the residential andcommercial buildings due to the tourismand urbanization process.

Figure 3.2 Thailand Steel Consumption byDownstream Sector


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Growing of automotive industry

C. Social Culture affects the Legal System

Over all the Thailand culture and decomposition of Thailand people does notdistress our business doing there for our product is basic material which will requiresame quality and standard around the world. However, the education level ofpeople affect Krakatau Steel entry mode as Thailand labors are considered as highlabors skill compare to the others ASEAN members. That is why the minimum wagesin Thailand is higher rather than in Indonesia. Regarding to this issue, we would like torecommend Krakatau Steel to export rather than foreign direct investment.

The Thailand social culture influences the legal system there. That is our concern.Thailand has a civil law that cause, the Krakatau steel to write contract in detail andThailand language is complicated to write down contract in Thailand we need toask the lawyer to translate it not the translator. To finish the dispute, we can do itthrough arbitration. The composition of profession of legal law in Thailand is similar toIndonesia which is they do not have juries, but magistrates, judges and lawyers.

D. Technology

Thailand technology is more advance if we compare to Indonesia. We can look at this from the government spending for technology development in Thailand isgreater in Indonesia. Besides that, the Thailand recognized the property rights ofindividual to invent and innovate.

Figure 3.3 ASEAN Automotive MatrixThailand automotive industryhas a strong production baseand domestic demand thatboost the automotive industryand need for steel.

The huge demand in Thailand isstrong reason for Krakatau Steelto participate to boost the salesand revenue.


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The technology of local competitors in Thailand is better than Krakatau Steel asthey owned by some countries that owned advance technology and know-howprocess (Korea, Japan and Germany). This becomes threat for Krakatau Steel if theydoing the foreign direct investment. Yes! Krakatau Steel has been doing jointventure with some companies such as POSCO and Nippon Steel & Sumitomo MetalCorporation, but the ability of Krakatau Steel to compete in Thailand does not havepower like the local competitors.

E. Geographical issue

Geographical analysis also has become one measurement for us to decide theentry mode. The close distance between Indonesia and Thailand, the low logisticcost, administration, transportation, inventory holding cost and free duty taxes as

part of FTA as the some reasons (the other reason will discuss in entry mode section)for Krakatau Steel to export rather than FDI.

Figure 3.4 Logistic Performance Index (LPI) 2010

Logistic costin Thailandfor 2010:Logisticadministration cost toGDP is 1.3 %,inventoryholding costis 6.7 % andtransportation cost toGDP is 7.2 %.


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And the last production plant is the Wire Rod Mill that produces thingsfrom billets steel. The end products commonly used for piano wires, steel cords,springs, and other applications.

2. KRAS has OSHE (Occupational, Safety, Health and Environment)

This means that KRAS do care about the environment because byfollowing the OSHE, KRAS tries to reducing the energy used. It is importantto keeping them from overusing the limited energy available. Moreover,the other objective of this program is to develop their employees as well.

3. Increasing trend of KRAS steel production output over years

The recent KRAS production output is 2.75 Million steel per annum. It isquite the amount for the steel company and related to BOI rule KRAS has fulfilledthe target asked. Furthermore, the company`s target of production in 2014 isincreased up to 55 percent or 4.25 million tons per year. Looking for the number set, KRAS will be able to participate in the foreign steel market, especially inThailand.

4. KRAS has so many Awards and achievement both in national and international

Some awards ever received by KRAS are Best Senior Management IR

Support 2012, Corporate Achievement Best Green Industry, CorporateAchievement IQA Award, and Corporate Achievement PKBL Award. These arethe proof that KRAS has the skill and experience in its field.

5. It has its own supplier for raw material in South Kalimantan - PT Meratus Jaya Steel

6. Do numbers of Corporate Social Responsibility (CSR)

Here are some of its CSR, assistance for flood victims (2013), Decoratingthe city garden (2012), Cheap market from BUMN (2012), and Pro Poor, Pro Job,Pro Environment and Pro Growth PT Krakatau Steel (Persero) Tbk (2011).


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B. Weaknesses

Even though KRAS seemed to be a promising company that is able to penetrateThailand market, it sure has drawbacks that need to be watched for.

1. Obsolete technology and aging machine

KRAS has been operated for about 40 years now, yet its technologyseemed to be far left behind compared to other foreign competitor in the sameindustry. Moreover, the machine used also in an aging condition that possiblehad not been renewable for quite some time now. This is quite an issue if we let itby itself since as time goes by such machine and technology may not be able tosurvive compared to fast growing knowledge and sophistication.

2. Lack of innovation for its product

Year by year KRAS keeps producing the same product that make it lack of innovation. Maybe it wants to retain the current market and try to satisfy themwith its current product available. Hence, when talking about foreign market, thisattitude could no longer save them. In such competition, innovation is verycrucial to keep in compete even outrun the foreign steel industry competitor.

C. Opportunities

To swell the wings to the new market sure because KRAS find theopportunities that can be grabbed. These are the prospects that appear inThailand to be reaped.

1. The demand for imported steel in Thailand remain high

Figure 4.1 Thailand Wire Rod Import- Export

Figure 3.1, 3.2, and 3.3 show thatdemand for imported steel is

considerately high. Even for the coldrolling steel product the gap betweenimport and export activity is increasingcompared to the previous years. Thisindicates that Thailand needs for steelcannot be fulfilled only from withincountry production yet.


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2. Thailand become gate of CLMV (Cambodia, Laos, Myanmar, Vietnam) trade

Being the gate for those countries, Thailand should prepare itsinfrastructures to better serve its role. Hence, mass development is begun withinthe country. Start from better transportation, road, and other facilities thatsupport those trade activities. Moreover, this development also related to therural area in Thailand that changed into urban area. Not to mention, newbuildings and more advances infrastructure will be built up. These casualties leadto Thailand high demand of steel as one of the basic material of those facilities.

D. Threats

When entering the new foreign market KRAS sure will face such eventsthat are beyond its control. Hence, to be aware of things which may behappening is one step ahead to be able to counter the high damaging effect tothe company.

1. Overflowing foreign and domestic competitors who exist in Thailand first

Talking about foreign competitors, KRAS actually faces steel companiesfrom Japan, South Korea, China, India and Taiwan. Those competitors can besaid as major importer that has penetrated Thailand before KRAS. Moreover, thelocal competitors around 81 steel companies also another competitor to takeinto account. Talking about Thailand culture, they are more likely to buydomestic product rather than foreign brand. Hence, KRAS should better understand how to deal with those in-power competitors.

Figure 4.2 Thailand Cold Rolling Import- Export Figure 4.3 Thailand Hot Rolling Import-


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2. Complicated problem in Thailand bureaucracy

Related to import-export activities, delaying for imported product is oftento be happening in Thailand. The product from other country can be stuck for two weeks up to a month. Moreover, long queue is hassled up the obstacle tobe expected. Hence, it is very important to understand how Thai people handlethe papers case and count the time for importing product so that it will not lateto arrive to customers.

3. Politic instability within the country

Red and Yellow-Shirt conflict is nothing new for Thai news. Hence, it is tobe expected if riot can strike any time.

4. Changing in Thailand demand for steel

It is possible that high demand for steel in Thais market is only temporary.Now, due to excessive need to impro ve infrastructure and related facilities Thaisgovernment may boost the import activity for steel. Yet once the development isslowed down, the diminishing of demand may occur. Hence, KRAS should fullyaware that such casualty may not last forever.


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Chapter 5. Mode of Entry

Basically, we consider two big possibilities to enter market in Thailand either to

conduct joint venture or do exporting. What we are seeing that the Thailandautomotive and steel industry are growing up. This becomes one big opportunity for usto do joint venture with automotive industry or steel industry. Based on thegeographical, political and the temporary market chance give us strong reasons to doexport rather than joint venture. To decide the entry mode, we make somecomparisons.

Joint Venture

Below is the table of Benefit and Cost when using joint venture as mode of

entry to expand business to Thailand.

Benefit Cost

Secure the market in ThailandIt cost us more since; it willreinforce KRAS to make a longcontract with the ThailandMarket.

Know the demand better and learn about thetechnology how of Thailand automotive andsteel industry

The inventory, marketing and processing is ontime and might less cost since we divide the totalcost with our competitors

Deal with a company thathave different culture andmanagement

Exporting

The disadvantage of exporting compare to joint venture mode is relying on

securing the market in Thailand. However, this is not become a great issue

anymore since the Thailand government has allow the importer to import steel

from overseas with some rules (discussED in SWOT analysis section).


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Considering the close distance and low cost of transportation become the

reasons for us to export (as mention in PEST analysis).

There are two notes that explain why exporting outweigh joint venture:

1. Thailand steel market is a temporary market which is 60% of total steel goes to

construction industry. So the huge demand if steel is due to the developing of

infrastructure. This reason is one strong statement for us to grab market there

through exporting rather than joint venture (to a void huge loss as the

demand of steel is going down due to the finishing of construction).

2. Entering the Thailand market will lead us to face a high competition with the

local companies which have advance technology compare to us. This

become one consider for us to not do joint venture, since the local company

has more competitive advantages compare to us. There will not be any

reason for them to do joint venture with us. If should do joint venture, it would

cause a huge disadvantages for us as we will sacrifice to get the attention of

the local businesses.

Hence, after considering all of the possibilities and cost and benefits of those twomodes of entry, it is proposed to the board of Director to use exporting for expandingbusiness to Thailand.


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Chapter 6. Value Chain

A Value chain is consist of activities that have goal which is value creation to theproduct and create profit margin as well . Below is the Krakatau Steels value chain.

A. Marketing and Sales

In Krakatau Steel, there are sales teams that handle sales activity specializedin specific business. For instance, export sales, CRC (Cold Rolled/Plate) sales, HRC(Hot Rolled Coil/Plate) sales, Wire Rod Sales and ship building & project (HR, CR,WR).

Customer can contact the related sales person to get information about theproduct, specification and pricing as well. The sales person also has importantcontribution to explain the value and benefit of the product. Moreover, Krakatau

Figure 6.1 Value Chain Primary Activities


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B. Inbound Logistic

The raw material of steel product is iron ore and crude steel. Krakatau get theraw material both from local (Indonesia) and foreign such as from China, Japan,

Korea, etc. Krakatau Steel has manufacture and headquarters in Krakatau IndustrialEstate in CIlegon. Raw material also stored in Krakatau Industrial Estate CIlegon andproduced in each plant. Before going to operation, Krakatau steel scheduled theplant operation. In inbound logistics, Krakatau Steel will precede the invoice andorder that receive from customer via sales department. The next step, KrakatauSteel will set schedule for production in order to fulfill order on time.

C. Operations

One of method of steel production that use by Krakatau Steel is Galvanizing& Annealing Processing Line (GAPL). There are six plants that Krakatau Steel haveand currently it is the biggest in Indonesia. Krakatau Steel is not alone doing their operation and business. Krakatau Steel have joint venture with Nippon Steel &Sumitomo Metal Corporation from Japan and Posco from Korea. This joint venture

Steel also should awareand consider with whatThailand customer

needs and demands.Since Krakatau Steelchooses export as entrymode, therefore mostcustomers is Thailandimporter. The marketingactivity is representedin website, phone call,facsimile and KrakatauSteel could conduct

presentation or meeting with ThailandImporter.

Figure 6.2 Sales Team Contacts


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will enable Krakatau Steel to get technology transfer as benefit for them. Moreover,it also increases the production capacity of steel up to 3 million steel per year. Thefirst process in steel production is start from Direct Reduction Plant. Then, the plantprocesses iron ore pellets into irons using natural gas and water. This stage is verycritical because the production should be on time or the delivery and shipment willdelay.

D. Outbound Logistics

The product that Krakatau Steel export is consists of Hot Rolled Coil/Plate,Cold Rolled Coil/Sheet and Wire Rod. Krakatau Steel could focus on constructionsector production to be exported to Thailand. However, since Krakatau Steel alsocapable to produce steel for many sector such as automotive, transportation, etc. Itis possible to produce it based on the customer needs. Below is the picture ofproduct and the application.

Hot Rolled Coil/Plate

Applicable for:

General Construction and WeldingPipes and TubesAutomotive Components andFrameworksOil and Gas PipelineOilwell Pipe Cases & TubesGas TubesWeather Corrosion Proof SteelsRerollingShip ConstructionsBoiler & Pressurized Container

*See more product detail and specification that match for each sector

Figure 6.3 Hot Rolled Plate

Figure 6.4 Hot Rolled Coil


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responsibility. Before Krakatau Steel export the product, customer should done thetransaction whether using credit of letter, Bank Export Import, money transfer or other possible way. Since, Krakatau Steel choose export as entry mode, thecompany should ship on time and consider some issues and obstacle such as queuein port. Outbound logistics activity, conducted by customer or importer but this iscrucial stage because Krakatau Steel should export the product timely.

Cold Rolled Coil/Sheet

Applicable for:

General PurposeAutomotiveGalvanized SheetPipes and TubesPorcelain EnamelwareTin Mill Black Plate

*See more product detail and specification that match for each sector

Wire Rod

Applicable for:Wire, Nail, and MeshBolt and ScrewSpring Bed, Spoke, etc.Electrode Wire

*See more product detail and specification that match for each

sector

Figure 6.7 Wire Rod

Figure 6.6 Cold Rolled Sheet

Figure 6.5 Cold Rolled Coil

The shipment method that use byKrakatau Steel is all vessels must beequipped with self-loading facilities.Krakatau Steel only responsible for export the product till reaches the portthat requested. The inventory willbecome customer or importer


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E. Service and Support

The business and trading activity is not yet done after the shipment. As agood company, Krakatau Steel should provide customer service that will handle

some problem, complaint and offer solution to the customer. This customer relationship management is very important to keep existing customer to generaterepeat buying and build the reputation of the company. Below are supportactivities.

1. Human Resources Management

Krakatau Steel has vocational training program and management trainee.This kind of training aim to prepare the employee before enters into the work field. Moreover, the training also has impact on employee development skill.

2. Technological Development

The technology play important role in company. Krakatau Steel havesubsidiary which is PT Krakatau Information Technology. One of technology thatuse by Krakatau Steel is e-auction was developed by PT Krakatau InformationTechnology. Moreover, as the company has joint venture with Nippon Steel &Sumitomo Metal Corporation from Japan and Posco from Korea, they will gettechnology transfer from them.

3. Procurement

Luckily, Krakatau Steel has subsidiary PT Krakatau Information technology thathad developed online procurement technology that called e-auction. E-auctionmake the process of finding and selecting vendor for the company projectbecome easier because it going online. Moreover, in e-auction provideinformative system and interactive communication with the vendor. Using thistechnology it makes the companies more competitive and efficient.

Figure 6.8 HCM Value TriangleKrakatau Steel consider that human resourcesas the important partfor the competitiveadvantages of thecompany. Therefore,the company developHCM Value Triangle asguide for managehuman resources.


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Chapter 7. Cost Risk Benefit Assessment

Penetrating Thailand market with exporting is proposed to Krakatau Steel Boardof Director. However, when using this mode of entry there will be cost, risk and, ofcourse, benefit to take into account. Here those concerns will be discussed.

A. Cost Benefit Assessment

1. Costs

The costs that discussed here is the same as opportunity cost when we take one

action and let go another opportunity. Here are some of those.

Cannot secure the market demand s and market shareThis opportunity can be grabbed if joint venture is applied. Yet when doingexporting it is one of the opportunity costs that should be let go.

Cannot easily engage with local marketIt is related to the previous costs suffer by the company when applying exporting.

Lose the possibility of getting new technology know-how and expert assistancefrom other companyIf we do joint venture, for instance with automotive company, we may get theknowledge about how they do business, important marketing strategy, or competitive advantage that can be valuable if Krakatau Steel want to expandin automotive industry. Another scenario if the company would like to joint handwith another steel local company, it fairly possible that KRAS could obtainvaluable information regarding technology to process steel or new innovationabout steel products.

However, those costs are outweighed by the benefits for doing exporting sincethose costs are practically minor. If the company does joint venture, the impactwould be different. While it may turn those costs into benefits yet the damagingeffect caused by the opportunity costs of not applying exporting as mode of entryare way more dangerous. It is related to the risk that exists in Thailand market thatwill be discussed more after this.


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2. Benefits

Here are the benefits that outweigh the costs above.

Avoid substantial cost of establishing manufacturing operationWhen doing exporting it sure that Krakatau Steel does not need to prepare sumof money for establishing new manufacturing operation in the host country.Moreover, the investment done in Thailand could be pretty complicated sincethe bureaucracy issue regarding corruption and collusion still hot as ever. The risk of riot that will be discussed after also one to take into account when decide to

jump directly into this Thai local business.

Not bound by long-contract with local companyThe long-contract might be advantageous if the demand for steel product inThailand is forecasted to last long. However, the casualty that happen related tobubble demand is probably would not last forever. Once the developmentactivities slowed down, the sales of Krakatau Steel will plummet as well, while thecontract is still activated. Being in the place where the market demand is infertile(or not productive), not a wise choice to do.

Not need to deal with selling product directly to local marketThis is related to dealing with personal sales to local business customers or end-customers since. Once KRAS has shipped its products the rest will be handled by

local importers.

Minimize the risk of taken heavy damage if riot happen within the countryIf KRAS directly jump and joint with the local market all the risk and cost will bebore together, include the possibility of riot that can be happened any time inThailand.

Those benefits also take into accounts of the risk possibly happening in theThailand country. And by exporting it will counter the heavy damage if those risksare actually occurred.


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B. Risk Assessment

Below are the risk matrices looking from the chance (or possibility) it will occur andhow heavy the impact affects Krakatau Steel.

Above are actually the risks that have potential to be occurring in Thailandmarket.

Things that should be looked upon carefully are first, the bureaucracy of Thailandand its administrative policies. The obstacle to be expected when taking care ofexporting business in Thai market is the long duration of shipping and un-endingqueue in port. Many of imported products are taken hostage due to the

complicated paper work for it. Hence, the time of shipping and delivery duration ispretty crucial to avoid the products arrived late to customers hand.

Second high risk and significant impact to KRAS is possible conflict betweenimporter-exporter. Not always the relationship and export-import activity is assmooth as ever. The possible problem arises when the letter of credit is not at hand.That letter of credit is like guarantee that importer will surely pay the product fromKRAS. If due to one or two problem within the country and importers could not hand

Figure 7.1 Risk Matrices


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it to KRAS, there is a high possibility that the payment will never arrive. And third is therisk of volatile exchange rate in the global market.

To handle the volatility of exchange rate, there will be some tools to be used

such SWAP, Forward Contract, and Options. While to counter the possibility of notbeing paid by importers, KRAS can hire Exporter Assistance such Export CreditInsurance. These people will insure KRAS and paid some of the payment if theimporters turn out to be bailing out. And as for the delaying delivery in the harbor,the company can handle it by keeping in track with steel production schedule andshipping time. The company could at least ensure that the products will arrive ontime in Thailand harbor.

Those above are the cost-risk-benefit analysis for exporting activity in Thailandmarket done by Krakatau Steel.


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Chapter 8. Conclusion and Recommendation

After having analysis in the previous chapters, we all convinced that expandingthrough exporting to Thailand market is preferable rather than joint venture. Thisdecision is taken from two considerations.

First is the company current capability and thick competition atmosphere in thatparticular country. With the obsolete technology and lack of innovation in the productmaking, the company is least likely able to catch the interest of Thailand companies for

joint venture. Moreover, the current culture that still cling to Thai people itself abouteconomic self-sufficient will be hard to convinced those local companies to join handin one venture.

Second, the current bubble demand of steel product is probably just temporarycasualty since Thailand now is under heavy construction of infrastructure development.Yet, once this event is slowed down the demand for the company product which issteel will experience downturn. The company cannot risk itself to devote the long-runcontract while the diminishing trend of demand can happen anytime.

Hence, exporting to expand in Thais market is better method to use.Furthermore, when deciding into using this mode of entry the sector of value chain usedshould be thought carefully. After the previous discussion it seemed that the criticalsuccess of value chain is laid in operation (on-schedule production) and outbound

logistic (on-time shipment and delivery) of the company.On the other hand, company faces the issue of competition with local steel

industries since Thais seemed to love their own product a lot. Responding to that, theproduct that KRAS offer is worth to buy considering it has joint venture with Japan(Nippon) and South Korea (Posco) which have proven to own the technology for producing superior quali ty steels. Moreover, the demand from Thais market itself isconsiderately excessive. Remember again from the figure in value chain chapter that steel products rank five in the imported goods consumed by Thailand people.Hence, it does not matter wheth er Thais like to buy from Thais companies, since it stillneed more steel products to satisfy the current needs.

More issues to understand is that Thailand has quite problem with bureaucracy inthe port related to imported product. The imported product from other countries canspend two weeks to one month in the port. Add to that, the endless queuing is another issue to consider. For this reason, the company should make sure that all the process ofvalue chain matched to the schedule start from the production to time of shipmentand delivery.


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Sampoerna School of Business | 201324

Furthermore, Krakatau Steel does not need to hold stock in Thailand since it isonly exporting activity. The kind of business that KRAS does is sell-and-done. Once thesteel products have been delivered, the importer will manage stock and logistic ofthose imported product along with the paper work. The responsibility hold by KRAS isshipping product and giving detail information when and where the product will bearrived, while ensure that those steel will arrive on time.

Thus, by keeping those sectors in the value chain in track, the company will be ableto generate the profit margin well. Let the wing of steel widen its gaze to the free landof Thailand and be shined .

krakatau steel market penetration to thailand

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