Market analysis

Market analysis

You have been appointed Geschaftsfuhrer of KAVAG GmbH outside of Frankfurt,

Germany, by the Vice President International of a large US

engineering/manufacturing corporation. KAVAG has been struggling for years, mainly

due to the neglect by the parent company. Morale is poor.  The demand for oil and

natural gas is expanding, there are tighter air pollution control laws, and

manufacturing companies in Eastern Europe and the Central Asia countries (newly

formed after breaking with the Soviet Union) are looking for business.

See the description of KAVAG’s Product lines for applications, competition,

customers, sales and gross margins. A brief summary is as follows:

•                     Catalytic & thermal incinerators.  Most of the fabrication is

done in the KAVAG shop.

•                     Wet scrubbers.  The application engineering (chemical) is the

key to the business and KAVAG has three chemical engineers. Most of the work is

sub-contracted to specialty shops, with final assembly and testing at in a

warehouse at corporate headquarters.

•                     Bag filters.  Competition is intense with the bigger

fabricating shops having a distinct advantage. Fabrication is at KAVAG.

•                     Pulse Jet filters. The application engineering is key with

this specialty equipment (US patent expired 3 years ago) that is used in food

processing, veneer and furniture operations, mineral processing, metal fabrication

and textiles. Strong competition in most Common Market countries. The fabrication

is basically cutting, fitting and welding of steel, painting, assembly of blowers

and motors at KAVAG. The gross margins are 10% less than in the parent company, but

there is a lot of potential due to the strong US position/reputation..

•                     Dry Gas Scrubbers & Gas Separators. These are pressure

vessels which have layers of cyclones inside a heavy steel chamber. Application

engineering is key. The pressure vessels are sub-contracted to heavy industry

companies (80% of COGS), while the cyclones and accessory equipment is handled by

KAVAG (20% of COGS), but can done in a steel fabrication shop. KAVAG Dry Gas

Scrubbers have been installed at every compressor station on the Orenburg Gas

Pipeline running from central Russia to Western Europe. Almost every drilling

platform in the North Sea has a Gas Separator from KAVAG.

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