Page | 1

Table of Contents
Question 1 .................................................................................................................................. 2
Question 2a ................................................................................................................................ 6
Question 2b ................................................................................................................................ 9
Question 3a .............................................................................................................................. 11
Question 3b .............................................................................................................................. 13
Question 4 ................................................................................................................................ 16
Question 5 ................................................................................................................................ 19
Works Cited ............................................................................................................................. 20


Page | 2

Question 1
The external environment presents both opportunities and threats for Hyflux Limited
(Hyflux). It consists of the macro and industry environment, to which PESTEL and Porters 5
Forces will be applied respectively to identify their potential influences on the groups
strategic competitiveness and its ability to earn above-average returns (Johnson, Whittington,
Angwin, Regnr, & Scholes, 2014).

Macro-environment (PESTEL Analysis)
Political-Legal Factors
Globally, water scarcity as a consequence of environmental pollution and rapid economic and
population growth offers greater opportunities for firms to expand into foreign markets. The
potential for growth is further enhanced with government imposition of anti-pollution
standards for wastewater treatment internationally, along with strong financial support from
the same in local R&D and municipal projects to develop sustainable water supply (Buche,
Kroll, Wee, & Chua, 2012, p. 9 & 18).

Economic Factors
The global industrial and municipal water/wastewater markets continue to drive the industry
with a higher proportion from China, India and the MENA region as they represent those
countries that are most affected by the water crisis. Of particular interest is in the area of
water desalination, where the economic potential is enormous. That being said, an economic
downturn can easily dampen the expansion of the water treatment industry. This is evident in
the 2008 global credit squeeze, when many firms were forced to liquidate their assets as a
result of cash flow issue. Typically, only those on municipal projects were spared of the
predicaments (Buche, Kroll, Wee, & Chua, 2012, pp. 3, 4 & 18).

Sociocultural Factors
While the rapid growth in global population and industrialisation has helped fuel the growth
in the municipal and industrial water markets, the drawbacks are also significant, with
associated social costs such as severe water shortages as well as the environmental effects of
pollution affecting numerous cities (Buche, Kroll, Wee, & Chua, 2012, p. 4 & 18). On the
positive side, the fast-growing tertiary sector in China has produced an abundance of
qualified and low-cost engineering talents, providing the necessary resources required to
support companies in their market expansion plans.
Page | 3


Technological Factors
The cost and scope of applying membrane filtration technology for municipal and industrial
use have been greatly improved over the years due largely to technological innovations.
Likewise, alternative innovative methods have also been developed for similar purpose. Also,
while generous R&D budgets are vital to creating innovations, small start-ups often lack the
financial capacity to conduct such activities. Accordingly, the government is providing strong
financial support for local industrial R&D to subsidise costly outlays (Buche, Kroll, Wee, &
Chua, 2012, p. 9).

Conclusion
From the above findings, Hyflux operates in a highly lucrative environment endowed with
abundance of business opportunities. The economic potential is enormous, with high
industrial and municipal demand along with strong government support. Following this, the
subsequent analysis will be to understand the water treatment industry, and it shall be focused
on the Porters 5 Forces to determine its overall attractiveness.

Industry Environment (Porters 5 Forces)

Threat of New Entrants
Threat of New Entrants is LOW when: High Low
Economies of scale are:
Product differentiation is:
Capital requirements are:
Switching costs are:
Ease of access to distribution channels is:
Cost disadvantages are:
Government policies creating barriers are:

The threat of new entrants is low as there are high entry barriers from scale economies,
capital requirements and high switching costs. Essentially, large incumbent firms are able to
exploit large-scale production to produce at lower unit costs which new entrants find hard to
match. Moreover, the start-up costs are high because of the capital-intensive nature of the
industry and this serves to discourage small scale entrants from entering.

Page | 4

Bargaining Power of Suppliers
Power of Suppliers is LOW when: High Low
Concentration of suppliers relative to buyer industry is:
Availability of substitute products is:
Importance of customer to the suppliers is:
Differentiation of the suppliers products and services is:
Switching costs of the buyer are:
Threat of forward integration by the supplier is:

The bargaining power of suppliers is low due largely to the vast number of suppliers with
little differentiation available. Consequently, the switching cost is also low for the same
reason as buyers are able to readily switch their purchasing preference from one supplier to
another.

Bargaining Power of Buyers
Power of Buyers is HIGH when: High Low
Concentration of buyers relative to suppliers is:
Switching costs are:
Product differentiation of suppliers is:
Threat of backward integration by buyers is:
Extent of buyers profits is:
Importance of suppliers input to quality of buyers final product is:

While switching costs are high, the bargaining power of buyers remains high as there are
likely to be high buyers concentration. Moreover, their purchases account for the majority of
total sales, and this automatically accords them with high bargaining power.

Threat of Substitutes
Threat of Substitute Products is LOW when: High Low
The differentiation of the substitute product is:
Rate of improvement in price-performance relationship of substitute
product is:


Alternative methods of water treatment are available at higher prices and this makes them
unattractive options. Besides, the higher prices are possibly the result of higher production
Page | 5

costs as they offer no significant advantages. Viewed in this light, the threat of substitutes is
deemed to be low.

Intensity of Competitive Rivalry
Intensity of Competitive Rivalry is HIGH when: High Low
Number of competitors is:
Industry growth rate is:
Fixed costs are:
Storage costs are:
Product differentiation is:
Switching costs are:
Exit barriers are:
Strategic stakes are:

Rivalry is high with the presence of many competitors. Moreover, the intensity is further
accentuated with the associated high costs that dramatically raise the strategic stakes for the
incumbent firms. The only relief stems from the high industry growth rate which helps lower
the level of intensity.

Conclusion
The overall industry for water treatment remains attractive with huge economic potential.
Nevertheless, there are concerns over the high bargaining power of the buyers and the high
intensity of competitive rivalry, as they are likely to have an impact on the firm in the distant
future.

Environmental Analysis
The external environment that Hyflux operates in offers a good mix of challenges and
opportunities. As the industry continues to be highly economically viable, the company
should seek to avert those threats while capitalising on the market opportunities to increase its
bottom line. In the following analysis, the focus will be to assess Hyfluxs internal
environment to identify those core competencies that will provide it with competitive
advantages over its rivals.
Page | 6

Question 2a
Strategic capabilities are those unique combinations of Hyfluxs resources and competences which may provide it with competitive advantages
over its competitors. To identify these strategic capabilities, the focus is on the firms portfolio of resources and competences that will form the
dimensions in which they are configured. Also, to qualify as core competences, these capabilities will have to fulfil a four criteria test which will
be illustrated below in the VRIO framework.
T
h
r
e
s
h
o
l
d

Resources: what we have (nouns) Type Competences: what we do well (verbs)
Water-related infrastructure assets Physical
Owns and operates several water and wastewater treatment plants under BOT
and/or TOT agreements globally
State-of-the-art infrastructure and
facilities
Physical Facilitate conduct of activities in R&D, design, fabrication and assembly
Human Resource Management Human
Access to human resources with both technical and managerial expertise
necessary for global expansion
Conducts regular trainings and job rotations to equip employees with critical
knowledge, skills, and competencies necessary for companys growth strategy
Government grants and fundings Financial
Access to government grants and fundings to subsidise R&D activitie
Protects companies on municipal projects against tough economic climates
Sound financial performance Financial
Maintains high profitability through securing lucrative industrial and municipal
projects
Low gearing through acquiring funds from mainboard listings and HWT

Page | 7

D
i
s
t
i
n
c
t
i
v
e

Branding Physical
Creates high brand awareness through numerous successful large-scale high-
value industrial and municipal projects
In-house product development and
manufacturing
Human
Conducts in-house R&D activities along with designing and manufacturing of
own proprietary filtration membrane products to better control raw materials,
manufacturing costs, product quality and project turnaround time
R&D alliances with research bodies and tertiary institutions to tap to
complementary firms research expertise and facilities to accelerate growth in
membrane technology
Ability to customise solutions to suit clients diverse needs
Culture and leadership Human
Visionary and enterprising leadership with global mind-set
Strong culture of excellence that encourages teamwork, learning, and innovation
Proprietary products and patents Intellectual Wide range of proprietary filtration membrane products
Table 1: Components of strategic capabilities

Table 1 highlights Hyfluxs components of strategic capabilities. From the above analysis, we have identified several of the firms qualities that
qualify as its strategic capabilities. In the following section, we will put them through the four criteria test of the VIRO framework to determine
their ability to provide the firm with sustainable competitive advantages.
Page | 8

Competence Valuable? Rare? Inimitable?
Supported by the
organisation?
Competitive implications
Water-related infrastructure
assets
Yes Yes No Yes Temporary competitive advantage
State-of-the-art infrastructure
and facilities
Yes Yes No Yes Temporary competitive advantage
Human Resource Management Yes Yes No Yes Temporary competitive advantage
Government grants and
fundings
Yes No No Yes Competitive parity
Sound financial performance Yes No No Yes Competitive parity
Branding Yes Yes Yes Yes Sustained competitive advantage
In-house product development
and manufacturing
Yes Yes Yes Yes Sustained competitive advantage
Culture and leadership Yes Yes Yes Yes Sustained competitive advantage
Proprietary products and
patents
Yes Yes Yes Yes Sustained competitive advantage
Table 2: The VRIO framework
Table 2 illustrates the use of the VIRO framework to assess Hyfluxs level of competitiveness sustained in its strategic resources. As observed
from the above, branding, in-house product development and manufacturing, culture and leadership, and proprietary products and patents
form the strategic competencies that have satisfied the four criteria test. Hyfluxs ability to capitalise on these strengths has provided it with
sustainable competitive advantages over its rivals. That being said, the others are equally important to the companys success, but they are
unable to provide sustainable advantages over the rest.
Page | 9

Question 2b
The SWOT analysis offers a summary of the preceding analyses of Hyfluxs external and
internal environment. Essentially, it highlights its key strengths, weaknesses, opportunities
and threats, which are useful in generating strategic options and assessing future courses of
action.
SWOT Analysis
Strengths Weaknesses
Visionary and enterprising leader with
global mind-set
Strong culture of excellence that
encourages teamwork, learning, and
innovation
Possesses wide range of proprietary
filtration membrane products
In-house product development and
manufacturing allow better control of raw
materials, manufacturing costs, product
quality and project turnaround time
Ability to customise solutions to suit
clients diverse needs
High brand awareness through numerous
successful large-scale high-value
industrial and municipal projects
Small market size and saturated
domestic market resulting in intense
rivalry
Aggressive market expansion strategies
outpace internal organisation growth
Capital-intensive BOT/TOT market
segment present great risk
Human resource issues in international
ventures due to language barriers and
cultural differences
Opportunities Threats
Government imposition of anti-pollution
standards and rapid economic and
population growth drive up demand for
water and waste management
internationally
Emerging countries such as China, India
and the MENA region provide greatest
opportunities for water treatment industry
Global economic crisis hurts demand for
water and waste management
Substitute products (General Electric &
UV pure) offering alternative filtration
solutions present threats to incumbent
firms in industry
Currency risk which is prevalent in
international business undertakings
Page | 10

Availability of large pool of engineering
talents from China
Strong government support and funding
for local R&D and municipal projects

Table 3: SWOT Analysis
Based on the above findings, developing economies such as China, India and the MENA
region offer immense potential for growth. Nevertheless, Hyflux will have to address the
human resource issues along with currency risk for effective expansion into these culturally
and politically diverse regions. With this understanding, the next section will focus on
evaluating its corporate strategy as we attempt to identify the strategic options where Hyflux
has capitalised its strengths on.

Page | 11

Question 3a
A corporate strategy represents a firms strategic directions in consideration to diversify its
product and services into new markets, products or services (Johnson, Whittington, Angwin,
Regnr, & Scholes, 2014). For Hyflux, it pursued 3 pathways to growth during its lifetime:
market penetration, market development and product development.

Market Penetration
In 1992, Hydrochem (later renamed Hyflux) established its foothold in Singapore and the
neighbouring markets by growing its market share through providing water treatments with
traditional membrane technology (MT) brought in from overseas. While it attained
reasonable success in Singapore, it was constrained by the countrys small market size along
with facing considerable competition from several MNCs for the same customer base.
Confronted with domestic saturation within the country, Hydrochem set out to expand its
operations overseas with eyes first set on the China market.

Market Development
In 1993, Hydrochem ventured into China with its existing MT. Through this, the company
was able to enjoy scale economies in its operations. Its business particularly took off when
the Chinese authorities stipulated the compulsory installation of water recycling facilities for
all foreign-owned factories within the country. Along with time, Hydrochem was able to
garner a sizeable client base in China as it began to lay eyes on the municipal water market.
Renamed Hyflux, its first stop was Singapore, as it banked on its MT to leverage on the
governments initiative towards sustainable water supply. Consequently, with its huge
success in municipal projects in Singapore, it paved way for more opportunities into the
overseas market as it went on to secure other municipal projects in China as well as in new
markets such as the MENA region.

Product Development
Hyflux is able to achieve success via its design capabilities in developing its MT for
innovative applications. Through in-house R&D activities and alliances, the company has
developed numerous proprietary filtration membrane systems, which are installed in plants all
over the world. Besides membrane filtration, Hyflux has also acquired new strategic
capabilities through M&E, which allows it to undertake the whole value chain of the water-
related infrastructure. Nonetheless, as project magnitudes and scope grew, the company will
Page | 12

have to be mindful of the project management risk, as new undertakings of large scale and
new ventures regularly run the risk of cost over-runs and delays.

Conclusion
In summary, Hyflux based its corporate strategy to suit its growth needs. However, it is
noteworthy that the company only seeks to expand its business within the boundaries of
related diversification, and not some unfamiliar territory. Consequently, the company is
highly profitable as a result, with its businesses revolving around its capability of being a
provider of integrated solutions.
Page | 13

Question 3b
As earlier discussed, Hyfluxs decision to expand its business globally stems vastly from a
saturated domestic market. Inferring from the case, the company is likely to have pursued
transnational strategy as its international entry mode and the focus is to assess its level of
effectiveness and success.

International Strategy
Transnational strategy involves companies seeking to maximise both local responsiveness
and global integration (Johnson, Whittington, Angwin, Regnr, & Scholes, 2014). For Hyflux,
the high need for local responsiveness stems from the need to tailor solutions to the specific
requirements of customers from different countries along with an understanding of the host
countries macro-environment conditions. Conversely, the high need for global integration is
observed through its exploitation of scale economies by locating majority of its facilities in
China while organising its value-chain activities on a global scale.

Market Selection
For market selection, Hyflux targets those countries with high growth potential based on their
relative attractiveness in relation to the macro environment, competitive threats as well as
multidimensional measures of distance. Accordingly, China was chosen for its similarities in
language, history, culture and interests, as well as economic potential. India and the MENA
region, on the other hand, were likely selected for their economic viability.

Mode of Entry
Hyfluxs entry into the international arena occurred predominantly through a staged
expansion process. Essentially, it entered into the new markets gradually and sequentially to
acquire the necessary knowledge and expertise whilst effectively diffused its risk exposure.
Through licensing, which represented the first step to its business venture, the firm was able
to obtain some local knowledge when it secured the rights to distribute membranes and
membrane filtration plants in Singapore and the neighbouring markets. Accordingly, it also
provided it with the lowest degree of resource commitment.

As Hyfluxs knowledge and experience grew, it began to set its sight on the municipal water
market. However, due to the large project scale, most would only allow firms with robust
financial standings and records to make the tender offer. Hence, Hyflux went around looking
Page | 14

for partners to form joint ventures. Aside from increasing its likelihood of securing the
municipal contracts, it also allowed the complementary firms to tap to each others labour,
finance, technology and management expertise.

Hyflux entered into Chinas municipal water market through wholly-owned subsidiary,
which allowed for full integration of activities across different countries. While it exposed the
firm to tax and currency risk, it was able to effectively transfer them to the investors through
its strategic launch of the Hyflux Water Trust (HWT).


Figure 4: Net Profit Overview

Level of Success
In terms of its level of success, the growth of Hyflux between 2000 and 2008 was
phenomenal. The company had scored high in net profit between year 2000 and 2005 due to
its rapid expansion into China. While the figures plummeted considerably in 2006, it was
largely the result of huge investments in infrastructure in the MENA region which saw a
tremendous increase in its expenses. Nonetheless, its net profit continued to rise sequentially,
reaching a total of $62 million, an impressive increase of 1260% from year 2000.

Conclusion
In summary, Hyflux had performed tremendously well in its international ventures. Through
effective use of its core competencies, the firm was able to offer usage of wide services to the
global markets at attractive prices. Nevertheless, while the overseas markets offered
Page | 15

expansive opportunities, the economic and political risks were unforeseeable, and this may
affect it adversely. That being said, Hyflux was able to understand the geographical markets
through alliances with its various partners, and this formed an essential constituent to making
strategic actions during times of tough economic climate.


Page | 16

Question 4
Innovation and entrepreneurship play an important role in driving the process of economic
development. Indeed, the society would often benefit from synergies between the two. For
Hyflux, its commitment towards environmental innovation has been instrumental in bringing
cost efficiency and innovation to the water treatment industry.

Market Pull
Hyflux identified alternative use for the traditional membrane technology (MT) in
environmental applications. This prompted the company to conduct extensive R&D which
gave rise to the development of a wide range of proprietary filtration membrane products.

Product Innovation
The traditional MT was limited in its applications when Hyflux first brought it into Singapore.
Consequently, the firm focused extensively on product innovation to improve its quality and
expanded its application to other usage.

Process Innovation
Hyflux located its research and manufacturing facilities in China to take advantage of scale
economies. This indicates that the dominant design had already been established and Hyflux
was shifting its focus towards process innovation.

Open Innovation
R&D alliances with research bodies and tertiary institutions were formed to tap to
complementary firms research expertise and facilities to accelerate growth in MT and at the
same time, minimised risky research investments and lengthy development processes.

Closed Innovation
Aside from open innovation, Hyflux also invested in closed innovation. Through in-house
R&D, acquisition of proprietary technology (CEPAration) and technology collaboration
(STW), the company was able to protect its intellectual property and avoid the issue of free
riding from competitors.


Page | 17

Innovation Diffusion
Supply side affecting diffusion
Experimentation conducted pilot plant trials to demonstrate capability and effectiveness
of MT to encourage consumer adoption
Degree of improvement developed in-house membrane which were significantly better
and cheaper than existing ones in the market

Demand side affecting diffusion
Market awareness created high brand awareness through numerous successful large-
scale high-value industrial and municipal projects

Diffusion S-Curve
Timing of the tipping point secured orders for larger membrane filtration systems from
industrial clients in 1998 due to pilot plant trials and its first integrated water treatment
system project for an MNC joint venture manufacturing facility in Singapore

First Mover Advantage (FMA)
Experience curve benefits accrued to Hyflux in the form of greater expertise accumulated
through experience
Scale benefits in the form of scale economies as a consequence of mass production and
bulk purchasing
Reputation and credibility enhanced through numerous successful large-scale high-value
industrial and municipal projects

Stages of Entrepreneurial Growth
Start-up Hyflux began as a small trading company distributing water treatment
equipment in Singapore and the neighbouring markets. Its fortune turned in 1993 when it
decided to venture into China as a result of a domestic saturation in the local market.
Growth while in China, the company was able to leverage on the countrys locational
advantages of low labour and production cost. Additionally, the potential for growth is
enormous, due mainly to its population size. To add on, the lack of water treatment
facilities and expertise within the country had allowed Hyflux to enjoy FMA. Hence,
when the Chinese authorities imposed anti-pollution standards for wastewater treatment
Page | 18

for all foreign companies operating within the country, Hyflux was in a particularly
favourable position as it was already there to take full advantage of the opportunity.
Maturity Hyflux continued to develop new competences around its proprietary MT.
Accordingly, the firm was able to improvise their membrane structure and customised
them to suit the customers requirement. Besides MT, Hyflux also expanded into other
areas of related diversification. Some of which include waste oil recycling as well as
production of specialty materials and energy.
Exit To free up funds to further expand its operations, Hyflux announced an initial
public offering (IPO) of the HWT. Through its launch, the firm was able to diversify part
of the asset ownership risk to the investors as well as obtain funds for acquiring water-
related infrastructure assets and other business undertakings.

Conclusion
Hyflux's ability to identify and capitalise on the MT has vested it with many FMAs. As the
company continues to enhance on the quality, features and deliverability of its MT to
differentiate itself, it is set to enjoy continued success and accelerated growth in the industry.

Page | 19

Question 5
Hyflux's earlier successes were very much hinged on its design capabilities to develop
leading edge MT for innovative water treatment application. Nevertheless, as it continues its
aggressive expansionary policy, it should also review its internal procedures to ensure its
overall robustness to keep pace with the company's strategic direction.

As highlighted in the earlier SWOT analysis, Hyflux is faced with the challenge of having to
develop its internal organisation to keep pace with its expansion. In this sense, the company
may wish to re-examine its internal processes to identify those activities that are not
delivering values. One way is to set up work improvement teams to regularly review the
various workflows and to implement business process reengineering (BPR) wherever
necessary. This will not only help in cost reduction but also aid in eliminating inefficiencies
or redundancies.

Besides re-examining its internal processes, the company should also strengthen its human
resource functions, particularly in its recruitment. Stringent criteria must be set to ensure that
only those with the requisite competencies to meet the demands of the company be selected.
In terms of retention, Hyflux could revise its pay structure as well as explore the option of
incentivising those who have contributed positively and who are still with the company.
Incentives may range from stock options to gainsharing to motivate and reward these
incumbent.

Hyflux is facing intense rivalry in its home country. To resolve this, the company can
consider acquiring some of its rivals. Besides eliminating competition, it can also acquire
their accompanying competencies as well as water treatment projects which effectively
expands its business portfolio.

Finally, to resolve the currency risk inherent in internationalisation, Hyflux should look into
hedging its funds to smoothen out the fluctuations which may ultimately hurt its profit.

Page | 20

Works Cited
1. Buche, I., Kroll, M., Timothy, C., & Wee, B. (2012). Hyflux Limited and Water
Sustainability: threading blue oceans. The Asian Business Case Centre, Nanyang Business
School, Nanyang Technological University, 1-26.
2. Johnson, G., Whittington, R., Angwin, D., Regnr, P., & Scholes, K. (2014). Exploring
Strategy. United Kingdom: Pearson Education, Limited.