BUSINESS STRATEGY FOR A MULTINATIONAL OILFIELD SERVICE COMPANY TO COMPLY WITH INDONESIA’S LOCAL CONTENT REGULATION – A BUSINESS CASE STUDY OF RED DIAMOND COMPLETION TOOLS INDONESIA

• Main Author: Alpha Rena, Rahmawan
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/65395
• Institution: Institut Teknologi Bandung

To protect and stimulate use of local products, local content compliance policies continue to be implemented in various industries. Despite its heavy reliance on foreign companies the oil and gas industry are not exempted from this policy. Year on year, the local content required in manufactured products used in the upstream oil and gas sector. This posses a challenge for the upstream oilfield service (OFS) companies that participate in the sector. Foreign companies shall need to find ways to adapt to the situation or risk losing market share in Indonesia. For years, Red Diamond Completion Tools (RDCT) has enjoyed a significant dominant position in the Indonesian market with their main business of selling oil and gas equipment to upstream oil and gas operators. But due to their heavily reliant on products and technologies manufactured overseas, RDCT may not be able to comply with local content requirements. With no local manufacturing plant existing in Indonesia, the risk of losing marketshare once the local content threshold is increased to a point where RDCT no longer complies is therefore substantial. In an effort to maintain its marketshare in Indonesia, this thesis aims to evaluate multiple options available for RDCT to address the local content issues. Options considered include opening a local manufacturing facility either by direct RDCT investment or establishing a joint venture with a local partner. A less capital-intensive option of licensing RDCT technologies to an existing manufacturing plant in Indonesia is also considered. Acquisition of existing local competitor is also evaluated to see if there is commercial merit to this option. Lastly, an option of not doing anything and evaluating the effects of not taking any business strategy is also considered. An analysis of RDCT’s internal competencies and competitive advantages are first conducted to ensure that RDCT has the capacity to execute such an investment. External analysis of factors is also conducted to identify factors that support or challenge RDCT market growth. Estimation of projected market size is then conducted to analyze how big the market potential is in the next 10 years. All possible business strategy options are then evaluated using capital budgeting methods for quantitative comparison. Capital budgeting evaluation was used due to the significant amount and long-term investment required in establishing a local manufacturing facility. Key profitability parameters to be evaluated include the amount of capital outlay required for each option and the estimated rate of return achieved based on a 10-year cash flow periode. Other qualitative benefits and risks e.g brand reputation, service quality and intellectual property protection are then considered to further weigh in on the final business strategy recommendation. Candidates for local partners were selected based on their capability to execute a local manufacturing facility taking into consideration the benefits and rewards that both RDCT and the local partner may endure. After evaluation of multiple options, a joint venture partnership to establish a local manufacturing plant in Batam is selected. A timeline for implementation is then established covering high level milestones that need to be accomplished. It is targeted for the local manufacturing joint venture to be fully operational by early 2024.