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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR Chapter 1.

PT Krakatau Steel in a Glance

Krakatau steel started as Trikora Iron Steel Project that launched by Soekarno, first Indonesias 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, and Wire 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-addedvalue 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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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR 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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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR Chapter 3. PEST Analysis

Thailand is opened their market to the Indonesian investors as we know Thailand and Indonesia are the members of ASEAN which will design to be an integrated market economy among the ASEAN members which called as AEC (ASEAN Economy Community). As AEC member, Thailand has compulsory to abolish the duty taxes, visas and approve the foreign- majority business ownership. This becomes a great opportunity 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 and economic life of the country that affect the life of citizens. The King Bhumibol introduced the economic self-sufficient that does not mean autarky or closed to other market, but they tend to utilize their resources more than consume foreign products. With this paradigm, Thailand is quite strict to foreign companies. The most issue that affects the instability of political in Thailand is the conflict between Red Shirt supporters of Thaksin against the dictators government. Most of the member come from the business man, student etc. The yellow shirt members 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 demonstration since Thai people more educated now. So, this conflict will not give a significant impact to Krakatau Steel performance.

B. Economy Condition
Thailand economic is going better and better after the financial crisis and flood in past years. Thailands economic shows a better condition in GDP, PPP, inflation rate, and production performance. Thailand is one of destiny country of foreign direct investment in South East Asia. For the Iron and steel market in Thailand is huge. Thailand is the major steel importer over around the world which is in fifth place after Europe, USA, Korea, and China.

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The growing of demand for steel in Thailand due to the three factors which are the going up of infrastructure development,

Figure 3.1 The Number of World Imported Products Based on Rank Importers EU 27 USA Korea China Thailand
Unit: in Million MT

2008 41.6 30.2 28.8 15.8 11.8

2009 21.7 15.3 20.3 22.4 9

2010 27.5 22.5 24.8 17.2 12.3

2011 35.1 26.9 22.8 16.3 12.5

the increasing of residential and commercial building and the Industrial needs. For the record, Thailand market of steel has been entered by some other foreign investors such as Germany, Korea, and Japan. The Thailand steel industry has advance technology and productive, but the developing of infrastructure has been increase 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 just a temporary market of Krakatau Steel. A huge project development. of infrastructure

The Thailand government project to improve and build a good and strong transportation armada- port, airport, road and railways to become the CLMV (Cambodia, Laos, Myanmar, and Vietnam) gate way. As we know, the South East market is attractive right know to the big players of world economic and ASEAN economic development. There will be huge economic activities in those countries that need distribution channel and Thailand will be the right choice. The increasing of the residential and commercial buildings due to the tourism and urbanization process.

Figure 3.2 Thailand Steel Consumption by Downstream Sector

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Growing of automotive industry Thailand automotive industry has a strong production base and domestic demand that boost the automotive industry and need for steel. The huge demand in Thailand is strong reason for Krakatau Steel to participate to boost the sales and revenue. Figure 3.3 ASEAN Automotive Matrix

C. Social Culture affects the Legal System


Over all the Thailand culture and decomposition of Thailand people does not distress our business doing there for our product is basic material which will require same quality and standard around the world. However, the education level of people affect Krakatau Steel entry mode as Thailand labors are considered as high labors skill compare to the others ASEAN members. That is why the minimum wages in Thailand is higher rather than in Indonesia. Regarding to this issue, we would like to recommend 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 and Thailand language is complicated to write down contract in Thailand we need to ask the lawyer to translate it not the translator. To finish the dispute, we can do it through arbitration. The composition of profession of legal law in Thailand is similar to Indonesia 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 is greater in Indonesia. Besides that, the Thailand recognized the property rights of individual to invent and innovate.

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The technology of local competitors in Thailand is better than Krakatau Steel as they owned by some countries that owned advance technology and know-how process (Korea, Japan and Germany). This becomes threat for Krakatau Steel if they doing the foreign direct investment. Yes! Krakatau Steel has been doing joint venture with some companies such as POSCO and Nippon Steel & Sumitomo Metal Corporation, but the ability of Krakatau Steel to compete in Thailand does not have power like the local competitors.

E. Geographical issue
Geographical analysis also has become one measurement for us to decide the entry mode. The close distance between Indonesia and Thailand, the low logistic cost, 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. Logistic cost in Thailand for 2010: Logistic administrati on cost to GDP is 1.3 %, inventory holding cost is 6.7 % and transportati on cost to GDP is 7.2 %.

Figure 3.4 Logistic Performance Index (LPI) 2010

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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR Chapter 4. SWOT Analysis

Thailand has detailed rules for company in which will do business in Thailand. These are the five rules from the Thailand Board of Investment for all steel business in Thailand: 1. Modern technologies must be applied to every production process. 2. There must be investments made in research and development. 3. Environmentally friendly technologies and pollution control management systems must be applied. 4. Production output must not be less than two million tons per year to achieve economies of scale. 5. Investors must possess good corporate governance and corporate social responsibility. According the main rules above, Krakatau Steel believe if they can fulfill those rules and even have strength more than that. Furthermore, below are the SWOT analysis of Krakatau Steel (KRAS) compare with Thailand steel market.

A. Strengths
Below is the strength that had by KRAS, some are related to the rules from BOI so that KRAS is able to penetrate Thailand market. 1. KRAS become the only one steel company in Indonesia that has six production plants Having six production plant means KRAS has quite a number of output and activities that support its production. Each plant produces different type of steel material or steel-end-product. First plant process iron ore pellets into irons using natural gas and water, so-called Direct Reduction Plant. Moreover, the irons are mixed up with, scrap. Hot bricks iron and other additional material in Slab Steel and Billet Steel Plant. After that, the slab steels are heated again in Hot Strip Mill. This process resulted in two products which are hot rolled coils and plates. Usually, plates used for ship, buildings, pipes, buildings, general, and others. On the other side, hot rolled coils will be processed in Cold Rolling Mill becoming cold rolled coils and sheets. The end products are generally used to manufacture car bodies, cans, cooking wares, and other applications.

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And the last production plant is the Wire Rod Mill that produces things from 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 by following the OSHE, KRAS tries to reducing the energy used. It is important to 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 is quite the amount for the steel company and related to BOI rule KRAS has fulfilled the target asked. Furthermore, the company`s target of production in 2014 is increased 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 in Thailand. 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, Corporate Achievement IQA Award, and Corporate Achievement PKBL Award. These are the 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), Decorating the 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 penetrate Thailand 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 technology seemed to be far left behind compared to other foreign competitor in the same industry. Moreover, the machine used also in an aging condition that possible had not been renewable for quite some time now. This is quite an issue if we let it by itself since as time goes by such machine and technology may not be able to survive 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 them with its current product available. Hence, when talking about foreign market, this attitude could no longer save them. In such competition, innovation is very crucial 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 the opportunities that can be grabbed. These are the prospects that appear in Thailand to be reaped. 1. The demand for imported steel in Thailand remain high

Figure 3.1, 3.2, and 3.3 show that demand for imported steel is considerately high. Even for the cold rolling steel product the gap between import and export activity is increasing compared to the previous years. This indicates that Thailand needs for steel cannot be fulfilled only from within country production yet.

Figure 4.1 Thailand Wire Rod Import- Export

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Figure 4.2 Thailand Cold Rolling Import- Export

Figure 4.3 Thailand Hot Rolling ImportExport

2. Thailand become gate of CLMV (Cambodia, Laos, Myanmar, Vietnam) trade Being the gate for those countries, Thailand should prepare its infrastructures to better serve its role. Hence, mass development is begun within the country. Start from better transportation, road, and other facilities that support those trade activities. Moreover, this development also related to the rural area in Thailand that changed into urban area. Not to mention, new buildings and more advances infrastructure will be built up. These casualties lead to 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 events that are beyond its control. Hence, to be aware of things which may be happening is one step ahead to be able to counter the high damaging effect to the company. 1. Overflowing foreign and domestic competitors who exist in Thailand first Talking about foreign competitors, KRAS actually faces steel companies from Japan, South Korea, China, India and Taiwan. Those competitors can be said as major importer that has penetrated Thailand before KRAS. Moreover, the local competitors around 81 steel companies also another competitor to take into account. Talking about Thailand culture, they are more likely to buy domestic product rather than foreign brand. Hence, KRAS should better understand how to deal with those in-power competitors.

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2. Complicated problem in Thailand bureaucracy Related to import-export activities, delaying for imported product is often to 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 to be expected. Hence, it is very important to understand how Thai people handle the papers case and count the time for importing product so that it will not late to arrive to customers. 3. Politic instability within the country Red and Yellow-Shirt conflict is nothing new for Thai news. Hence, it is to be 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 improve infrastructure and related facilities Thais government may boost the import activity for steel. Yet once the development is slowed down, the diminishing of demand may occur. Hence, KRAS should fully aware that such casualty may not last forever.

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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR 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 Thailand automotive and steel industry are growing up. This becomes one big opportunity for us to do joint venture with automotive industry or steel industry. Based on the geographical, political and the temporary market chance give us strong reasons to do export rather than joint venture. To decide the entry mode, we make some comparisons.

Joint Venture
Below is the table of Benefit and Cost when using joint venture as mode of entry to expand business to Thailand. Benefit Secure the market in Thailand Know the demand better and learn about the technology how of Thailand automotive and steel industry The inventory, marketing and processing is on time and might less cost since we divide the total cost with our competitors Cost

It cost us more since; it will reinforce KRAS to make a long contract with the Thailand Market.

Deal with a company that have different culture and management

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 two modes of entry, it is proposed to the board of Director to use exporting for expanding business to Thailand.

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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR Chapter 6. Value Chain

A Value chain is consist of activities that have goal which is value creation to the product and create profit margin as well. Below is the Krakatau Steels value chain. Figure 6.1 Value Chain Primary Activities

A. Marketing and Sales


In Krakatau Steel, there are sales teams that handle sales activity specialized in 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 the product, specification and pricing as well. The sales person also has important contribution to explain the value and benefit of the product. Moreover, Krakatau

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Steel also should aware and consider with what Thailand customer needs and demands. Since Krakatau Steel chooses export as entry mode, therefore most customers is Thailand importer. The marketing activity is represented in website, phone call, facsimile and Krakatau Steel could conduct presentation or meeting with Thailand Importer.

Figure 6.2 Sales Team Contacts

B. Inbound Logistic
The raw material of steel product is iron ore and crude steel. Krakatau get the raw material both from local (Indonesia) and foreign such as from China, Japan, Korea, etc. Krakatau Steel has manufacture and headquarters in Krakatau Industrial Estate in CIlegon. Raw material also stored in Krakatau Industrial Estate CIlegon and produced in each plant. Before going to operation, Krakatau steel scheduled the plant operation. In inbound logistics, Krakatau Steel will precede the invoice and order that receive from customer via sales department. The next step, Krakatau Steel 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 have and 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

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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. The first process in steel production is start from Direct Reduction Plant. Then, the plant processes iron ore pellets into irons using natural gas and water. This stage is very critical because the production should be on time or the delivery and shipment will delay.

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 construction sector production to be exported to Thailand. However, since Krakatau Steel also capable to produce steel for many sector such as automotive, transportation, etc. It is possible to produce it based on the customer needs. Below is the picture of product and the application.

Hot Rolled Coil/Plate


Applicable for:

General Construction and Welding Pipes and Tubes Automotive Components and Frameworks Oil and Gas Pipeline Oilwell Pipe Cases & Tubes Gas Tubes Weather Corrosion Proof Steels Rerolling Ship Constructions Boiler & Pressurized Container

Figure 6.3 Hot Rolled Plate

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

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Figure 6.4 Hot Rolled Coil

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Cold Rolled Coil/Sheet Applicable for:


General Purpose Automotive Galvanized Sheet Pipes and Tubes Porcelain Enamelware Tin Mill Black Plate Figure 6.5 Cold Rolled Coil

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

Wire Rod

Applicable for: Wire, Nail, and Mesh Bolt and Screw Spring Bed, Spoke, etc. Electrode Wire
*See more product detail and specification that match for each sector

Figure 6.6 Cold Rolled Sheet

The shipment method that use by Krakatau Steel is all vessels must be equipped with self-loading facilities. Krakatau Steel only responsible for export the product till reaches the port that requested. The inventory will become customer or importer

Figure 6.7 Wire Rod

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

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E. Service and Support
The business and trading activity is not yet done after the shipment. As a good 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 generate repeat buying and build the reputation of the company. Below are support activities. 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. Krakatau Steel consider Figure 6.8 HCM Value Triangle that human resources as the important part for the competitive advantages of the company. Therefore, the company develop HCM Value Triangle as guide for manage human resources. 2. Technological Development The technology play important role in company. Krakatau Steel have subsidiary which is PT Krakatau Information Technology. One of technology that use by Krakatau Steel is e-auction was developed by PT Krakatau Information Technology. Moreover, as the company has joint venture with Nippon Steel & Sumitomo Metal Corporation from Japan and Posco from Korea, they will get technology transfer from them. 3. Procurement Luckily, Krakatau Steel has subsidiary PT Krakatau Information technology that had developed online procurement technology that called e-auction. E-auction make the process of finding and selecting vendor for the company project become easier because it going online. Moreover, in e-auction provide informative system and interactive communication with the vendor. Using this technology it makes the companies more competitive and efficient.

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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR Chapter 7. Cost Risk Benefit Assessment

Penetrating Thailand market with exporting is proposed to Krakatau Steel Board of Director. However, when using this mode of entry there will be cost, risk and, of course, 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 share This opportunity can be grabbed if joint venture is applied. Yet when doing exporting it is one of the opportunity costs that should be let go. Cannot easily engage with local market It is related to the previous costs suffer by the company when applying exporting. Lose the possibility of getting new technology know-how and expert assistance from other company If we do joint venture, for instance with automotive company, we may get the knowledge about how they do business, important marketing strategy, or competitive advantage that can be valuable if Krakatau Steel want to expand in automotive industry. Another scenario if the company would like to joint hand with another steel local company, it fairly possible that KRAS could obtain valuable information regarding technology to process steel or new innovation about steel products. However, those costs are outweighed by the benefits for doing exporting since those costs are practically minor. If the company does joint venture, the impact would be different. While it may turn those costs into benefits yet the damaging effect caused by the opportunity costs of not applying exporting as mode of entry are way more dangerous. It is related to the risk that exists in Thailand market that will 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 operation When doing exporting it sure that Krakatau Steel does not need to prepare sum of money for establishing new manufacturing operation in the host country. Moreover, the investment done in Thailand could be pretty complicated since the 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 company The long-contract might be advantageous if the demand for steel product in Thailand is forecasted to last long. However, the casualty that happen related to bubble demand is probably would not last forever. Once the development activities slowed down, the sales of Krakatau Steel will plummet as well, while the contract 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 market This is related to dealing with personal sales to local business customers or endcustomers 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 country If KRAS directly jump and joint with the local market all the risk and cost will be bore together, include the possibility of riot that can be happened any time in Thailand. Those benefits also take into accounts of the risk possibly happening in the Thailand country. And by exporting it will counter the heavy damage if those risks are actually occurred.

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B. Risk Assessment
Below are the risk matrices looking from the chance (or possibility) it will occur and how heavy the impact affects Krakatau Steel.

Figure 7.1 Risk Matrices Above are actually the risks that have potential to be occurring in Thailand market. Things that should be looked upon carefully are first, the bureaucracy of Thailand and its administrative policies. The obstacle to be expected when taking care of exporting business in Thai market is the long duration of shipping and un-ending queue 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 is pretty crucial to avoid the products arrived late to customers hand. Second high risk and significant impact to KRAS is possible conflict between importer-exporter. Not always the relationship and export-import activity is as smooth 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 from KRAS. If due to one or two problem within the country and importers could not hand

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it to KRAS, there is a high possibility that the payment will never arrive. And third is the risk 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 not being paid by importers, KRAS can hire Exporter Assistance such Export Credit Insurance. These people will insure KRAS and paid some of the payment if the importers 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 and shipping time. The company could at least ensure that the products will arrive on time in Thailand harbor. Those above are the cost-risk-benefit analysis for exporting activity in Thailand market done by Krakatau Steel.

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THE WING OF STEEL WHICH SWELL TO THE LAND OF ELEPHANT WAR Chapter 8. Conclusion and Recommendation

After having analysis in the previous chapters, we all convinced that expanding through exporting to Thailand market is preferable rather than joint venture. This decision is taken from two considerations. First is the company current capability and thick competition atmosphere in that particular country. With the obsolete technology and lack of innovation in the product making, 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 about economic self-sufficient will be hard to convinced those local companies to join hand in one venture. Second, the current bubble demand of steel product is probably just temporary casualty since Thailand now is under heavy construction of infrastructure development. Yet, once this event is slowed down the demand for the company product which is steel will experience downturn. The company cannot risk itself to devote the long-run contract 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 used should be thought carefully. After the previous discussion it seemed that the critical success 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, the product 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 quality steels. Moreover, the demand from Thais market itself is considerately 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 whether Thais like to buy from Thais companies, since it still need more steel products to satisfy the current needs. More issues to understand is that Thailand has quite problem with bureaucracy in the port related to imported product. The imported product from other countries can spend 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 of value chain matched to the schedule start from the production to time of shipment and delivery.

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Furthermore, Krakatau Steel does not need to hold stock in Thailand since it is only exporting activity. The kind of business that KRAS does is sell-and-done. Once the steel products have been delivered, the importer will manage stock and logistic of those imported product along with the paper work. The responsibility hold by KRAS is shipping product and giving detail information when and where the product will be arrived, while ensure that those steel will arrive on time. Thus, by keeping those sectors in the value chain in track, the company will be able to generate the profit margin well. Let the wing of steel widen its gaze to the free land of Thailand and be shined.

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