Lack of Oxygen
January 25th 2007, Nizhny Novgorod, Russia:
It was high time to finish the Board meeting, yet its members couldn’t agree which way to lead Kislorod Group. Supposed to dot the i’s and cross the t’s, the voting actually split the Board into two equal uncompromising parties. The first party insisted on the profound development of production capacity and putting special attention to the increase of quality and cost reduction as the only viable way to obtain sustainable competitive advantage. The second voted for total withdrawal from production business and focus on the development of a highly efficient retail chain. Both parties were confident and persuasive, both scenarios had significant risks as well as great opportunities. By 6 p.m. the discussion had exhausted itself, and now the Chairman, who was also the major shareholder, had to exercise his ultimate authority and make a hard decision: whether to support one of the parties or to suggest a radically different strategy..............
Kislorod Group
Founded in 1999 Kislorod Group was a local holding company situated in Nizhny Novgorod. The company operated in three businesses:
a) Producing and selling industrial gases (s.a. oxygen, nitrogen, carbondioxide, etc.);
b) Selling used cryogenic equipment;
c) Selling welding equipment
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Gas Business
Producing and selling industrial gases had always been the main business for the company. Started as an intermediate seller, it grew to a solid complex group of two production sites, six retail outlets across Niznny Novgorod region and a distribution center with overall annual sales more than 100 million RUR.
Like all the big market players Kislorod Group too had two ways of producing gases. The first way consisted of compressing and separating atmospheric air with the help of special compressor stations...........
Cryogenic Equipment Business
The company had started selling used cryogenic equipment early in 2006 and through the year achieved dominant position in the market. The business model was simple. It presumed buying used cryogenic equipment from those companies that needed them no longer, then repairing it and providing the necessary service, and then selling to a client together with the necessary engineering and mounting from Kislorod’s side.............
Welding Business
At that time Kislorod was selling two types of welding equipment: welders and electrodes. Set up as a complementary activity to the main gas business, it finally grew into a solid business unit that contributed greatly to the overall profit. The sales were organized in two ways. The first way comprised direct sales to corporate clients, the second one constituted retail sales through Kislorod outlets..............
The Production Strategy
The core idea of the strategy was to focus on the compressive production of industrial gases. In order to do so, it was suggested to conduct total modernization of the production site in Dzerzhinsk, which supposed the capital repair of several buildings, the acquisition and installation of new equipments, the construction of 700 meters long rail way...........
The Retail Strategy
This strategy originated from the assumption that Kislorod Group would not be able to achieve the costs and the quality necessary to compete with the global companies. Thus, the efforts should be focused on the development of a wide-spread and efficiently manageable retail chain. In three years the chain was supposed to cover the whole Privolzhsky Federal District with no less than 30 outlets.............
Assignment Questions
I. What were the major challenges for the business? What threats and opportunities did they create? How can the threats be compensated and neutralized?
II. What are the company’s strong and weak sides?
III. .........
Exhibits
Exhibit I: Kislorod Group
Exhibit II: The Average Monthly Financial Figures of Kislorod Group (in thousand RUR)
Exhibit III: Main Players of the Industrial Gas Market in Nizhny Novgorod Region (2007)
Exhibit IV: The Shrinkage of the Monetary Value (in million RUR per year)
Exhibit V: Kislorod Mobile Pavilion (2007)
