Case Study: Colfax Corporation
In October 2008, Colfax Corp.’s share price posted at $9 per share. The makers of high-tech industrial pumps thought long and hard about a variety of channel strategies to grow the company and return more value to its shareholders. But what channel structure would it take to get there? And what were the hurdles?
Looking To the Middle East for Distribution-Led Growth
Realizing that fundamental changes to industry operating conditions favored the company’s specialized pumps, Colfax had already made the strategic decision to enter the complex and technical oil and gas market in the Middle East. But unfamiliar designs and new technology presented unique challenges to potential customers.
In a market with lots of players competing for “share of voice” for the attention of national state-owned oil companies — players like competitive pump makers, distributors, EPCs (engineering, procurement and construction firms), and applications markets (shipping, power plants, food processing, oil & gas, for example — how could Colfax stand out from the pack in the best possible light?
Find the Optimal Distribution Strategy
For Colfax, it was about more than throwing a dart at a distribution strategy. The company sought to learn all it could, conducting in-depth analysis and engaging channel systems partners — including end customers in the Middle East — in conversation, to create an ideal picture of critical service output demands.
The company learned that nine components would help win it win over its end customers. Colfax would need to supply basic support and keep all processes moving. By instituting face-to-face, expert-to-expert, no nonsense conversations Colfax could increase technical assurance on the state side and process efficiency. Excellent technical support or documentation would ensure self-sufficiency, providing customer engineers with more secure knowledge.
Colfax also heard that it should be proactive — oil supply programs are vast and complex, so take charge of whole solutions and help manage the oil company’s supply efforts — and, naturally, error-free when it came to delivery on quality and spec.
Culturally, including locals would help comply with domestic social policy, and bring value-added capacity by assuring supply availability, effective testing and quality installation. And a multi-bidder procurement process would underscore selection fairness and help oil companies evaluate offerings.
Overcoming The Challenges
Technical, investment and political risks all factored into Colfax’s decision. As did considerations like diverting resources to focus on winning the Middle East and worrying about out-bidding competitors for scarce local talent and resources. Could Colfax find a way to provide a turn-key solution, including value-added services, in a labyrinthine bid process?
By thinking through and prioritizing the demand-side inputs, Colfax was able to deliver an attractive, differentiated, profit-generating customer experience.
The company’s hybrid channel design included opening a Middle East office in Bahrain — ensuring company thought leadership as locally as possible throughout the region. At the same time, Colfax developed a partnership with Saudi distribution players to perform specific value-added roles, without ceding control of customer relationships and pricing. Finally, by working with expat engineering experts from India, Colfax was able to perform specific technical work to support the overall relationship.
Because Colfax took a measured, strategic approach to its own Middle East challenge, the company managed to increase its value by a factor of eight in less than a decade — as of July 2014, sitting pretty at a $74 share price.