Provision of Business

Analysis Services for Qatar

Railways Company

Business case Manufacture of standard glass

August 2012

CONFIDENTIAL AND PROPRIETARY

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PRELIMINARY

Executive summary
Business
opportunity

Potential
revenues

Ease of
capturing

Strategic fit

Opportunity to manufacture standard glass for Qatar rail

Glass typically accounts for 3-5% of the costs of residential and commercial buildings, with ~10% being standard glass
Opportunity focuses on processing of standard glass, which is an attractive market segment
Main activities include sourcing of raw materials, processing of glass products for railway station windows, facades, and
platform screen doors, and delivery to construction site
Key customer is Qatar Rail - the main decision makers are building developers and main contractors and to lesser extent
architects/engineers/designers
Value proposition is to offer comparable glass quality as international companies, while maintaining a lower cost base
and quicker response time due to presence in local market
Potential revenues from initial construction and maintenance for Qatar Rail network amount to USD 5 mn between
2012 and 2032
Assuming costs of USD 50 per sqm of standard glass, proportion of glass demanded that is standard to be 10%, and
taking into account the number and types of stations (underground, at grade, and below ground), portion of network
(metro, Lusail, WBT, LDR), potential revenue from Qatar Rail network amounts to USD 5 mn
Potential revenue outside of rail project in Qatar and in the wider GCC not included as existing standard glass processing
companies already exist in Qatar business opportunity is therefore not expected to directly generate additional revenue
Sizing is highly dependent on the final architectural designs, and typical stations sizes and designs have therefore been
assumed
Existing processors of standard glass already present in Qatar, although clear communication from Qatar Rail is
needed to increase chances of local participation
Qatar has existing companies that process standard glass, including Qatar Glass industries, Dallas Glass, Jersey Glass,
and Zujaj Company
Qatar Rails procurement strategy may need to be adapted to increase the chances of local participation e.g. by having
a launch event to communicate requirements for glass (and other materials)
Opportunity can capture value in Qatar, although limited potential exists for creating high skilled jobs
Clear communication of glass requirements can increase chances of capturing value locally, although revenue size is
small in relation to overall project size
Opportunity does not create additional (high skilled) jobs due to existing capabilities and capacity in Qatar

SOURCE: McKinsey

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PRELIMINARY

BUSINESS OPPORTUNITY

Opportunity for Qatari company to supply standard glass for rail project
Detailed on following pages

Business
model attribute

Description

Activities

Main
customers

Value
proposition

Revenue
model

Glass typically accounts for 3-5% of the costs of

residential and commercial buildings, with ~10% being
standard glass
Opportunity focuses on processing of standard glass,
which is an attractive market segment
Main activities include sourcing of raw materials,
processing of glass products for railway station windows,
facades, and platform screen doors, and delivery to
construction site
Key customer is Qatar Rail - the main decision makers
are building developers and main contractors and to
lesser extent architects/engineers/designers1

Value proposition is to offer comparable glass quality as

international companies, while maintaining a lower cost
base and quicker response time due to presence in local
market

Income is generated by meeting specifications set forth

for rail project and earning revenue by selling final
products directly to Qatar Rail EBIT margin on standard
glass is typically ~5-10%

1 Customers outside of Qatar Rail project are not included as business opportunity is unlikely to directly lead to additional revenue for existing companies

SOURCE: McKinsey, Qatar Rail, expert interviews, Zawya web searches

McKinsey & Company

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BUSINESS OPPORTUNITY

Glass typically accounts for 3-5% of the costs of residential and

commercial buildings, with ~10% being standard glass
Building elements1

Wood

Attribute

Glass
(~3-5%)

Standard glass

High performance glass

Description

Steel

Basic float glass that does not

include any additional coating
or processing

No significant performance
Performance
(1 inch
insulated
glass)

Cement
Proportion of
bldg glass

Glass that has been coated in

order to modify its appearance
and give it the ability to capture
or reflect solar heat, which
minimises overall energy costs
of the building

Three main criteria for high

enhancements
Maintains high visibility

performance glass:
Insulating performance (Ufactor), typically 0.3-0.5
Solar control / Solar heat
gain coefficient (SHGC),
typically ~0.2-0.35
Visible light transmittance
(Tv), typically ~60-70%

Plastic
Price / sqm (6
mm thick)3

Focus of opportunity2

~USD 12-15 for raw glass and

~USD 35-50 for finished
product

~USD 30-35 for raw glass and

~USD 50-100 or finished
product

~10%

~90% (various types of high

performance glass exists)

1 Illustrative, not exhaustive; focus is on architectural glass and not on e.g. automotive or container glass
2 See separate business case for detailed analysis of high performance glass business opportunity
3 Price for a glass processor (i.e. raw material price is cost from glass manufacturer and price for finished product is sales price to construction company)

SOURCE: McKinsey team, expert interviews, Glass Magazine, Compass

McKinsey & Company

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BUSINESS OPPORTUNITY

Opportunity focuses on processing of standard glass, which is an

attractive market segment

Focus of business
opportunity

Main value chain steps in architectural glass market

Value chain step

Provision of raw
materials

Key success factors

Situation for Qatar

Market attractiveness

Access to high quality raw

materials (e.g. sand, soda ash,
dolomite, limestone, sulphate)
Proximity to glass manufacturing
plants due to transportation costs

Sand in Qatar cannot be used

for glass manufacturing as it is
not the right quality

Low as there is a
lack of natural
resources needed for
glass manufacturing

Low energy, raw material, and

transport costs (~28, 20%, and
12% of total costs respectively)
Economies of scale - large plant
and high utilisation rate

Low as market is
saturated and local
demand does not
justify investment in
new plant (cost:
~USD 100-150 mn)

Low labour and input costs

Proximity to end customers
Advanced machinery and
technical know-how

4 main players make up ~60%

of competitive global market
Regional demand met by
existing players1
Local market demand does not
support a plant in Qatar
Inputs can be sourced at a low
cost from GCC region
Numerous low quality glass
processors in GCC
Few glass processors in Qatar

High as majority of
glass demand in
Qatar is met through
imports

Market and sales team

Proximity to customers and
flexibility to meet changing
demands

Large glass processors

already have own sales agents

Medium glass
processors should
conduct both agent
and distribution
functions in-house

Manufacturing of
float glass

Glass processing

Sales and
distribution

1 Existing glass manufacturers in the GCC include Guardian (UAE and KSA) and Emirates float glass, as well as St. Gobain in Egypt

SOURCE: McKinsey team, Freedonia World Flat Glass report 2011, expert interviews

McKinsey & Company

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BUSINESS OPPORTUNITY

The main decision makers are building developers and main contractors
and to lesser extent architects/engineers/designers
Main players in building construction value chain
Type of players Description
Developers

Architects/
Engineers/
Designers

Main
contractors

Subcontractors

Examples of players

Relevance for entrepreneur

Developers of real estate, e.g.

residential, commercial, public
buildings and light industrial
Developers of transportation
network, e.g. road, rail
infrastructure, airports, ports

Qatar Diar
Asghal
Barwa
Qatar Rail

Involved in creating plans,

description and technical
characteristics of the proposed
facility

Responsible for overall planning,

coordination and control of a
project from start to completion
Responsible for the design and/or
build of the program
Manages all subcontractors,
scheduling, and coordination of
materials to and on site

Redco International
Al Jaber Engineering
Midmac
Balfour Beatty
Bechtel
Besix
Bouygues
Hochtief

Responsible for performing a

certain part of the construction
work, and often a specialized type
of tasks (e.g., earth works,
electrical, plumbing)

Many players, including

Redco International,
Qatar Dredging
Company, Khalid
Cement

SOURCE: Expert interviews, McKinsey analysis

Aecom
URS

Developers design programs to develop real

estate and transport networks
Developers determine high level requirements
of project, which can include decision on which
type and brand of glass to use
Therefore high impact and important customers
Main architects can have some influence on
which glass to use but more in terms of design
and less in terms of performance
Good relations and track record is important, as
designers often use brands or types of glass
they have used before
Main contractors may select subcontractors for
glass if nothing is specified by designer or the
developer
Therefore high importance

Limited influence in terms of what type of

glass is used, therefore low importance

McKinsey & Company

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POTENTIAL REVENUES

ROUGE ESTIMATES

Qatar Rail will require glass for ~150 stations and ~100 walkways,
representing a total demand of ~350,000 sqm of glass

The total rail

network will
consist of ~150
stations and
~100 cooled
walkways for
metro, light and
heavy
passenger rail,
and freight rail

95 stations will
be below ground
and 56 will be
above ground,
requiring
approximately
350,000 sqm of
glass1

Requirement
s include
(non-acrylic)
exterior
facades
Station
windows,
internal
partitions,
and
facades
and
platform
doors and
other glass
doors

1 Exact amount and type of glass needed within Qatar Rail project depends on final architectural designs

SOURCE: Qatar Rail, McKinsey team

McKinsey & Company

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PRELIMINARY

POTENTIAL REVENUES

Potential revenues during initial construction for Qatar Rail network

amount to USD ~5 mn between 2012 and 2032
Potential revenue1
USD million

Key assumptions
1

~3

~5

1 Cost of processed standard glass:

~2

Qatar Rail 2012-20

Qatar Rail 2021-32

Total Qatar
Rail 2012-32

USD 50
Above station station size of 140m x
50m x 6m (L x W x H)
Below station size of 20m x 6m x
3m x 3 (L x W x H x number per
station)
Cooled walkway size of 50m x 10m
x 3m (L x W x H)
10% of glass demanded assumed
to be standard glass
Number and types of stations
(underground, at grade, and below
ground), portion of network (metro,
Lusail, WBT, LDR), and completion
years all taken into account
100 cooled walkways assumed
Replacement of glass is not
considered
Sizing is highly dependent on the
final architectural designs, and
typical stations sizes and designs
have therefore been assumed

1 Potential revenue outside of Qatar Rail in Qatar and in the wider GCC not included as existing standard glass processing companies already exist in
Qatar business opportunity is therefore not expected to directly generate additional revenue

SOURCE: McKinsey, Qatar Rail, expert interviews, Zawya

McKinsey & Company

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PRELIMINARY

EASE OF CAPTURING

Existing processors of standard glass already present in Qatar, although

clear communication from Qatar Rail is needed to increase chances of
local participation
Low ease of capture

Key success
factors

Description

Clear
communication
of glass
requirements

Assessment in Qatar and required actions

Glass processing requires initial

invests in machinery and
equipment of USD ~20-25 mn (for
a plant that can process ~600,000
sqm of standard and high
performance glass and achieve
necessary economies of scale and
scope)

Qatar has existing companies that process standard

glass, including Qatar Glass industries, Dallas Glass,
Jersey Glass, and Zujaj Company

Qatari companies must not only

meet quality requirements but must
also demonstrate competitive
advantages vs. more established
players, e.g. in regards to price,
flexibility, and response time

Local companies can compete by maintaining a low cost

base and leveraging presence in local market to ensure
flexibility and rapid response times

Glass processing
plant and
experience in
manufacturing of
similar materials

Low cost base

and rapid
response time

High ease of capture

In order to increase the chances of

local participation, it is important that
the volume and technical
specifications of the required glass
are communicated early to allow local
companies to ramp up production or
skills if needed

SOURCE: McKinsey, Qatar Rail, expert interviews

Qatar Rails procurement strategy may need to be

adapted to increase the chances of local participation
e.g. by having a launch event to communicate
requirements for glass (and other materials)

McKinsey & Company

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PRELIMINARY

STRATEGIC FIT

Opportunity can capture value in Qatar, although limited potential exists

for creating high skilled jobs
Low strategic value

Strategic value

Assessment

Clear communication of glass requirements can increase

chances of capturing value locally, although revenue size is
small in relation to overall project size

Limited potential for creating regional champion as glass

processors are already present in most GCC countries

Serving Qatar Rail may help increase the reputation local

companies, however

Opportunity does not create additional (high skilled) jobs due

to existing capabilities and capacity in Qatar

Capturing
value in Qatar

Potential for
export /
regional
champion

Creation of
high skilled
jobs

High strategic value

Limited potential for development of cluster

Potential for
cluster

SOURCE: McKinsey, Qatar Rail, expert interviews

McKinsey & Company

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