GEA Company’s Main Business Issues

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Executive Summary

GEA’s main business – Spray Dryer Absorbers (SDA) – removes dust, heavy metals, and acidic pollutants from flue- and off-gasses at fossil-fueled waste incinerators and power plants, and industrial installations. It is for installation in utility boilers, typically consuming low to medium sulfur coals. The system is also available for smaller utility applications and can aid manufacturers in controlling their emission of both Sulphur II oxide (SO2) and hydrochloric acid (HCL), particularly on waste-to-energy units. With the SDA system installed, manufacturers can meet and sometimes exceed air quality regulations in China (and other parts of the world where such systems exist). It operates on a more than 90 percent removal efficiency for Sulphur II oxide and more than 95 percent removal efficiency for HCL and Sulphur (III) oxide.

In China, dependence on coal and other fossil fuels tends to go down. Therefore, the Chinese market may reduce in the future, but this depends on the regulatory framework. China’s continued utilization of fossil fuels at present is due to the extensive nature of its industrialization and the relative cost-effectiveness of coal. As one of the most heavily industrialized nations on earth, China also experiences a great deal of air pollution. Thus, strict regulatory requirements are pushing companies to continue to use either stop burning fossil fuels or use systems such as those offered by GEA to attain the emission level requirements.

SDA is one of the solutions that will help the many fossil-dependent manufacturing plants in China to continue with their business processes without polluting the environment. A major challenge to the business is that many companies are now considering shifting from using fossil fuels to cleaner energy sources such as solar, wind, and hydroelectric power.

However, the implementation of such a shift is unlikely to be immediate due to the associated high costs. Therefore, despite the threat, GEA’s product will continue to enjoy significant demand by different institutional customers throughout China, other Asian countries, and the rest of the world. Nonetheless, GEA needs to identify and consider several issues that could interfere with its business to secure its future and preserve its legacy, which is more than 130 years old.

Threats Opportunities Weaknesses Strengths (TOWS) Framework

GEA can adapt its operational model and approach to the changing business environment by leveraging its strengths to eradicate internal weaknesses and embrace external opportunities while mitigating industry threats (see Table 1).

External

Internal

Threats
  1. Market Saturation of Coal fired powerplants in China
  2. Emergence of alternative and cleaner energy sources such as gas, solar, and wind power.
  3. Economic downturn due to COVID-19 pandemic
  4. Iintellectual property issues in China
Opportunities
  1. Coal still a major source of energy in emerging economies
  2. Positive government regulations in Asia across all industries that encourage investment in applications that reduce pollution
  3. Water Pollution brought into focus in China and India. Zero Liquid Discharge norms in China
  4. Life Cycle service and replacement parts
  5. Ultra-Low emissions standards growing demand in Iron & Steel segments in China
  6. Growing waste to energy market
Weaknesses
  1. Lack of Geographic Diversification
  2. Weak Position in Iron and steel market in China
  3. Lack of After Sales Service
Weaknesses Threats (WT)Maintain status quo of SDA in China and phase out application with market declines Weaknesses Opportunities (WO)
  1. Contract with more specialized licensees for the Iron and Steel segment in China.
  2. Business Development in other Asian countries except China
Strengths
  1. Possession of leading technologies for the eradication of pollutants from fossil-fueled factories and similar applications
  2. Established reputation in China
  3. Established licensee network and relationships in China
  4. Many years of experience in the industry that could allow the company to adapt and innovate its processes to new pollution control applications easily
  5. Reliable management and the presence of knowledgeable, skilled, and experienced employees that could drive the company agenda forward
Strengths Threats (ST)
  1. Increased focus on China, partnering with new licensees for the Iron and Steel market.
  2. Business development of waste incineration market in China
  3. Process innovation to develop atomizer to clean water and develop new application
Strengths Opportunities (SO)
  1. Leveraging existing licensee agreements for business development into markets outside China
  2. Market penetration in Iron and Steel segment in China
  3. Developing and adapting in house technology to water pollution applications
  4. Develop Service business to Installed base
Factor Trend Evaluation Likelihood Impact Rank
Market Saturation of Coal fired powerplants in China 1 2 2 1 n/a
Emergence of alternative and cleaner energy sources such as gas, solar, and wind power. 2 3 3 4 n/a
Economic downturn due to COVID-19 pandemic 2 2 3 2 n/a
Iintellectual property issues in China 1 1 1 1 n/a
Coal still a major source of energy in emerging economies 3 3 2 3 n/a
Positive government regulations in Asia across all industries that encourage investment in applications that reduce pollution 3 3 3 3 n/a
Life Cycle service and replacement parts 3 2 2 2 n/a
Water Pollution brought into focus in China and India. Zero Liquid Discharge norms in China 3 1 2 3 n/a
Ultra-Low emissions standards growing demand in Iron & Steel segments in China 1 2 2 1 n/a
Growing waste to energy market 2 3 3 4 n/a
Lack of Geographic Diversification 2 2 3 2 n/a
Weak Position in Iron and steel market in China 1 1 1 1 n/a
Lack of After Sales Service 3 3 2 3 n/a
Possession of leading technologies for the eradication of pollutants from fossil-fueled factories and similar applications 3 3 3 3 n/a
Established reputation in China 3 2 2 2 n/a
Established licensee network and relationships in China 2 3 3 4 n/a
Many years of experience in the industry that could allow the company to adapt and innovate its processes to new pollution control applications easily 2 2 3 2 n/a
Reliable management and the presence of knowledgeable, skilled, and experienced employees that could drive the company agenda forward 1 1 1 1 n/a

Table 1: TOWS Framework and weighted scale.

As shown in Table 1, GEA’s most feasible option lies in using strengths to embrace opportunities in the market. It is a desirable approach because it combines positive factors from the internal and the external environments. As Brandenburger and Nalebuff (1995) put it, “success in business comes from changing the game to your benefit” (58). GEA can change the game by leveraging existing licensee agreements for business development into markets outside China, penetrating deeper into the Chinese iron and steel segments, developing and adapting in-house technology for the prevention of water pollution, and creating a service business unit to cater to the needs of existing customers. This operational approach may be explained better with the PARTS of the game theory (see Table 2).

PARTS is an acronym for players, added value, rules, tactics, scope – the different areas that businesses can alter to their advantage.

Component Game Changing Approach
Players Players in the GEA industry include customers, suppliers, partners, competitors, the government, and the local community. GEA’s customers include iron and steel manufacturers, industrial incinerators, and energy producers. Competitors include B&W, MET, and GE. According to the game theory by Brandenburger and Nalebuff (1995), GEA can change these players to its advantage. That process may include eradicating non-performing suppliers and partners, outdoing competitors through innovation, and wining new customers through excellent services and public relations.
Added value GEA can add more value to its operations by creating a service business unit concerned with repairs and maintenance of installed SDA units.
Rules The rules helping GEA are those obligating manufacturing plants to reduce greenhouse and toxic gas emissions. If more countries implement such regulations’ GEA’s market might grow. However, if governments outlaw fossil fuel (particularly coal) usage, GEA’s market might decline
Tactics GEA’s current tactic of licensing agreements offers a unique risk-free model for profitability. Establishing more strategic licensing partnerships would be the key to capturing an additional market share and outperforming competitors
Scope GEA is active in various demanding industries, offering a variety of products and services, including process solutions and technologies for the beverage, food, pharma, chemical, dairy, and marine industries. Each of the company’s five divisions have up to six business units leading the market in their respective segments.

Table 2: PARTS Framework.

As shown in Table 2, GEA can change any or all of the PARTS of its game to attain greater success. However, higher potential lies in added value, improved business tactics, and greater operational scope. Through the added value approach, GEA can create a business unit dedicated to providing repairs and maintenance assistance to companies that install GEA’s separation and flow, liquid and powder, food and healthcare, farm, and refrigeration technologies. GEA should also consider entering into more strategic partnerships within and outside China for improved performance.

Lastly, the company should consider embracing and establishing bigger markets in India and other Asian countries where manufacturing and energy plants still use coal as the main source of energy. GEA is not in control of the legislation process, which is why its role in this regard is limited. Organizing the players (such as the suppliers) to create synergy can also help GEA implement its global strategy and outdo competition.

Issue Assessment

The major issues GEA’s business vary by nature and design. They include a lack of geographical diversification, untapped potential in the iron and steel industries, and untapped potential in Chinese waste to energy segments. GEA has also not utilized its processes and technologies beyond air pollution control. In installed bases throughout China, GEA does not provide any after sales maintenance and repairs, despite the fact that it can do so at a price. The profitability, revenue, and time concerns related to these issues are highlighted in Table 3. The weighted scale, which takes into consideration the profitability and revenue potential of the problem, and the time it takes to benefit from them helps with ranking the issues.

As shown in Table 3, the failure to tap into the existing potential in the Chinese iron and steel and waste energy segments is a considerable problem given its high potential for revenues and profitability.

Criteria /Issue Profitability Revenue Time Total
Untapped potential in the Chinese iron and steel and Waste to energy segments in China 3 3 3 9
Lack of geographical Diversification 2 3 2 7
Lack of focus on alternative applications beyond air pollution control 1 2 1 4
Lack of Service business to Installed base in China 3 1 1 1

Table 3: Issues and their potential.

Describing the Issues

Lack of Geographical Diversification

Presently, GEA SDA’s core business is abating pollution in coal fired power plants in China. Notably, 95% of GEA SDA’s business comes from China, and the remaining 5% comes from South Korea and other parts of Asia. In China, there is a general shift from using fossil fuels to cleaner energy sources such as solar, wind, and hydroelectric power. Therefore, although GEA’s product continues to enjoy significant demand in China, its usefulness in the future may reduce as more companies invest in new technologies and cleaner energy. Thus, GEA must evolve with the market needs not to collapse in the future. Failure to adapt to changing business circumstances and conditions can reduce business activity in the future in China.

In order to make up for this future drop in business activity in China, GEA has various strategic options to consider. One of them is finding new markets either in Asia or outside. Although the use of coal and fossil fuels is generally reducing, some developing economies rely on coal and continue to develop new coal power plants to help with the expansion process. GEA can identify such countries and seek partnerships to help them become industrialized without risking environmental pollution. One of the major concerns for the use of coal power plants is that they cause environmental degradation through the emission of greenhouse and toxic gases. However, with the installation of GEA SDA systems, such concerns will go down, incentivizing investments in coal. Remarkably, coal is an attractive energy source, with is only problem being the toxic gaseous emissions associated with it. Solving this problem is the key to higher adoption of coal usage.

Untapped Potential in the Chinese Iron and Steel and Waste Energy Segments

As described in the industry and company analysis GEA SDA has a less than 10% market share in the Chinese iron and steel segment. The primary reason for this low share is that the iron and steel industry desire fast turn over times of delivery and installation of the FGD system compared to coal-fired power plants. Typically, an iron and steel plant need atomizers to be delivered to site within 2 months as compared to a coal fired power plant where the delivery time is 6 months. When the market in China started to pick up for the FGD systems in 2017 GEA was not prepared for this surge in demand. The assembly capacity for atomizers in Søborg workshop was 35 units per year and GEA was not able to meet the requirements of the market. GEA has a total of 6 licensees in the Iron and Steel market of which 4 of them are dormant since 2018. The reason being there is a perception amongst the licensees that GEA is not capable of meeting the delivery requirements needed.

There has been considerable modifications made to the workshop since 2017 and GEA now can assemble 400 atomizers per year. Given the huge demand for atomizers in the coal fired power plants during the last 4 years and the lack of sales resources at GEA Denmark, there has not been a focus on in this segment and the licensees. From the industry and company analysis there is also evidence of a development of the waste to energy market in China. This has also not been addressed or focussed on due to lack of resources and business demand from coal fired power plants. Considering the market size and growth rate of the Iron and steel segments and the waste to energy segments in China can make up for the expected drop in sales in the coal fired power segment in China.

Lack of Focus on Alternative Applications Beyond Air Pollution Control

In China and India there are new regulations focussing on water usage and zero liquid discharge. A large power plant generates wastewater which requires treatment before being discharged into the environment. The GEA atomizer technology can be used to resolve this issue because the principles that applies is the same.

Lack of Service Business to Installed Base in China

GEA has an installed base of close to 1000 atomizers in China. However, GEA does not offer after sales service to its customers. Some of the well performing licensees have recommended that GEA establishes a service business to maintain a close relationship with customers while making extra revenues. The local copy spare parts that customers use are less effective than the ones GEA would offer if it enters the service parts market. For example, since these local copy spare parts are less compatible than the original parts, they are affecting the effective and performance of the atomizer and require constant replacing leading to high costs in the long –term. GEA’s spare parts and maintenance services will create longer-lasting business partnerships between GEA and its customers while earning the company more revenues. Notably, the unavailability of original and compatible spare parts discourages some potential customers from using GEA’s technology, and this results in significant losses of potential revenues.

Overall, companies are developing in-house technologies throughout the world to overcome pollution to maintain profitability by eliminating the high costs of ineffective operations. Companies that fail to achieve the minimum pollution requirements run the risk of incurring huge expenses in fines. People can see one example of how seriously the world takes pollution concerns in the Diesel Gate Scandal. In it, a federal judge of the United States ordered the German car manufacturer Volkswagen to pay a criminal fine amounting to $2.8 billion for rigging diesel-powered vehicles to cheat on government-sponsored and implemented emission tests (Atiyeh, 2019).

The Diesel Gate Scandal illustrates that not only are governments becoming serious about controlling pollution, but corporate organizations may be experiencing difficulties in reaching these goals. The solution is for companies like GEA to invest heavily in research and development to identify opportunities for improvement in tackling pollution. Corporate organizations worldwide are also considering using alternative sources of energy given that fossil fuel reserves are getting lower and the commodity’s price fluctuation prevents proper business planning and implementation.

Criteria for Choosing

The selection of the identified issue is based on a critical assessment of the company’s business situation and the external environment (that is, through the industry and company analyses). GEA’s primary business is in the production and Sales of SDA in China. An engineering company known worldwide, GEA has been in operation since 1881 and remains one of the biggest companies that provides innovative equipment and process technology in the world. The company enjoys multibillion-dollar sales yearly, operates in more than 50 countries, and is listed in the STOXX ©®™ 600 Index. It lives its values of excellence, passion, integrity, responsibility, and diversity.

The central components to the company’s SDA are the GEA Niro rotary atomizer and gas dispenser, which use a spray dryer simultaneously as an absorber and dryer. The cutting-edge technology illustrates the presence of a qualified development team and resources and a mastery of the pollution control solution in industrial applications.

An examination of the industry within which the company operates also shows that few organizations offer pollution prevention products with the same quality as GEA. Indeed, for most firms, the direct reaction to resolving the pollution problem is dealing with energy sources rather than wastes. In this regard, GEA has a better chance of succeeding if it widens its focus and operational scope.

The issue is also selected because GEA has not fully utilized the available market. There is untapped potential in the iron and steel industries, energy sector, and waste treatment. If GEA plunges fully into these areas, it will experience new business growth and continue serving the evolving needs of the world. GEA’s technology has been perfected over several decades, making it difficult to imitate. As such, the company has a unique opportunity to serve the global needs while growing its business segments and profitability.

Recommendation

Based on the objective issue analysis, the following steps are recommended: Notably, although the issues are independent of each other there is a link to these issues which is the licensing business model.

  1. Market penetration in Iron and Steel segment in China
  2. Leveraging existing licensee agreements for business development into markets in Asia outside of China
  3. Develop Service business to Installed base
  4. Business development of waste water treatment and incineration market in China and the rest of Asia

Handling the Issues – Alone or with Mergers?

There are two general ways through which GEA can handle the pollution issue. The first is through partnerships with other industry players. Such collaborations can occur through industry alliances for a common goal or even the more extensive takeover of mergers and acquisitions. Alliances allow partners to contribute equally resources, knowledge, and skills to develop new processes and capabilities. The partners will only need to agree about the terms and conditions of the new relationship and the extent to which they are willing and able to share resources. Outlining the association’s terms and conditions will reduce the likelihood of disagreements in the research and development processes.

Alternatively, GEA can identify firms making significant progress in developing technologies to reduce pollution and partner with them permanently through mergers and acquisitions. The main concern with mergers and acquisitions is that they can be expensive to implement as they involve extensive legal and related charges. Whether it is a merger or an alliance, a partnership could increase the success rate in creating and implementing new technologies for pollution prevention.

The second way of handling the issue is to do it alone. GEA has been in the business of manufacturing SDA since the 1970s. Therefore, it has four decades of experience in handling some pollution concerns. Over the past 40 years of operation, the company has gathered enough information and data that it can use to fuel investments for the future. The company has also developed various capabilities that place it in a better situation to address pollution. Notably, fossil fuel-based power plants worldwide have quickly adopted SDA because of its various benefits. For example, it removes acid gases and particulates from flue gases – at above-legislative-targets rates – and converts these residues into a light, free-flowing powder.

SDA is simple and uses minimum raw material and equipment, meaning that GEA – the company that developed it – has mastered the processes involved and could re-model the technology to fit other situations. SDA offers enormous savings on energy, associated costs, and water consumption (compared to wet scrubbers), which means that the underpinning technology is effective and reliable, and a good indicator of likely success in future pursuits.

Linkages to Scenarios

The issues remain linked to numerous real-life scenarios. One of them is China’s accelerated fall in Coal demand, which creates a 50% fall in GEA revenues. Thankfully, GEA’s timely investment in India and in waste water treatment can make up for the revenue drop in China. Notably, the 50% drop in revenues in China represent a worst case scenario. Companies will shift from using fossil fuels to using cleaner sources of energy in the next several decades, depending of legislative hchanges. Governments are encouraging corporate organizations to find better ways of using natural resources.

Because cleaner sources of energy are not deplete-able, their utilization has positive ramifications for environmental preservation. Another possible scenario is that the world will continue using fossil fuels if technologies that clean the residual gases become available. In that case, GEA would need a technological solution for both big and small industries and machines. Remarkably, the company will need to develop solutions for devices that use gasoline or diesel engines. The second scenario represents GEA’s expansion into a new market segment, while the first one represents developing a new market.

In the best case scenario, governments will allow companies to continue using fossil fuels if they can prove that the combustion process does not produce any dangerous levels of toxic and greenhouse gases. One way to demonstrate such is to do a case analysis of one of the plants with installed GEA SDA and measuring the nature of the gaseous emissions.

If the test results show that the SDA product is 90 percent or more effective in removing dangerous gases from coal-fired plants, governments may revise their policies to allow the continued use of coal well into the future. As note earlier, countries around the world are not concerned with fossil fuel utilization as an energy source; they are concerned with its damaging effect on the environment when used. Moreover, cleaner energy sources are expensive, and are not yet well developed to meet the needs of mega industrial installations.

Gap Identification

Many companies at present are considering ways of reducing their greenhouse gas emissions and overall carbon footprint. Therefore, they are spending a considerable amount of money in research and development to find alternatives to their current, highly pollutant processes. The increased investment in research and development to create new processes is incentivized by increases in the cost of utilizing traditional processes that pollute the environment. For example, the cost of renewing licenses for fossil-fuel-dependent practices in most parts of the world has increased.

Since companies exist primarily to make profits and create value for their shareholders, they are now looking at the options available to them to save on costs. Therefore, having been in the industry for a long period, GEA has the opportunity to invest in this area and be among the first comers and make considerable profits. The company needs to adapt to the changing business environment if it is to continue making profits and surviving well into the future.

The company can invest alone or with others in the identified opportunities. Collaborations can simplify the work and lead to the exchange of knowledge and skills. However, it may create challenges with intellectual property and profit sharing. Going alone is advantageous in that no intellectual property issues may arise. However, the company may spend more time in research and development due to reduced capacity. The options of creating a business service unit would be the easiest to start because a customer base already exists. Its capital and revenue growth potential is, however, low. Creating a new business segment may be capital intensive, but the potential revenue growth is considerable.

References

Atiyeh, C. (2019). Everything you need to know about the VW diesel emissions scandal. Car Driver. Web.

Brandenburger, A. M., & Nalebuff, B. J. (1995). The right game: Use game theory to shape strategy. Harvard Business Review, 76(3), 57-71.

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