CHAPTER 4: ANALYSIS OF DATA
4.3 INDUSTRY ANALYSIS
which the smaller firms can provide.
4.7. The AIDS epidemic will reduce the South African labour force in 2010 by 21 %.
This will contribute to productivity losses by firms, an increase in healthcare by government, and an increase in the technical skills gap.
5. Step 5: Derive Implications
The increase in demand for generic plant maintenance services at Camden, Grootvlei, Komati and the new power stations would attract new competitors to the maintenance services industry. This creates a threat to AMS since the firm lacks the financial resources to compete with the larger firms. The competitors can tender for AMS contracts at the Majuba power station by leveraging its resources from Camden, Grootvlei and Komati power stations. The new BEE codes require AMS to improve the gender equity within the organisation; formulate and implement a skills development strategy in line with SETA and ensure social responsibility. Technical skills shortages will cause AMS to lose some of its employees to competitors and its customers.
Government will continue to improve the BEE codes to ensure that transition to black economic empowerment is achieved. The larger firms would be forced to procure services from black empowered small to medium enterprises such as AMS.
• The Majuba power station can switch to any capable contractor who provides the service at a lower price.
• Some of the other power stations are starting to contract some of the maintenance functions to their employees to increase productivity and decrease costs.
• Camden, Matla and Arnot have contracted the coal and ash plant maintenance services to Roshcon which is a subsidiary to Eskom.
• The barriers to entrance are extremely low created by the generic maintenance services.
4.3.2 Threat of Substitute products: Rating = 3
• Technology developments within the maintenance industry have led to online condition monitoring equipment which can predict and prevent equipment failures. The current switching costs are high, which has persuaded some of the power stations to utilise current maintenance techniques.
• Online condition monitoring could be the way forward in the future for the maintenance service industry. The drivers for switching could be the fact that the plants are nearing their life cycles, and to extend the current life cycles.
4.3.3 Intensity of rivalry among competitors: Rating = 5
• The generic contract maintenance has gone through a growth phase created by the demand for electricity and the return to service of the three mothballed power stations Camden, Grootvlei and Komati. These maintenance contracts on the entire ash and coal plants have been contracted to Roshcon which is a subsidiary of Eskom. Roshcon is achieving growth due to imperfect market conditions. Roshcon also has the following resource advantages over competitors: capital equipment to move ash to the dumps, and specialist on coal reclaiming.
• Tutuka Power Station has contracted the ash plant maintenance to employees.
The rivalry between the small companies created by contracting to employees will increase in the near future.
• The maintenance industry is also made up of specialised conveyor belt hot and cold splicing and pulley lagging. This industry has also gone through a growth phase due to the current life cycle of the power stations and the conveyor belts.
Majuba is situated +/- 200km away from Witbank where there is a high concentration of power stations and coal mines which utilise the specialised services. Therefore many of the conveyor belt splicing contractors compete in these areas. The splicing service is an emergency service and requires that the firms respond almost immediately. The Majuba power station has experienced reliability and high transport costs problems with these contractors due to geographical location.
• AMS also competes with some of the contractors at Majuba who were also Eskom employees. Most of these companies have similar electrical, mechanical, and control and instrumentation maintenance capabilities.
• The opportunities at Majuba Power Station are the C&I Coal plant maintenance, coal and ash plant cleaning contracts and the operating of the ash and coal plants. The small to medium enterprises operating within Majuba have also
shown interest in these contracts.
4.3.4 Bargaining Power of Buyers: Rating = 5
• AMS relies on Majuba for its income, therefore making Eskom powerful in negotiations. The switching cost for Majuba is low because the firm provides all the capital spares and tools to AMS.
• The buyers of Majuba power station concentrate on the price when evaluating contract tenders. They are not concerned on the quality 0 the service, rather on the actual prices tendered.
4.3.5 Bargaining Power of Suppliers: Rating
=
0• AMS is not affected by suppliers as it relies on the customer to provide the firm with all the spares, consumables and equipment.
4.3.6 Conclusion
Competitive forces are strong, and the profitability of the generic maintenance industry is low due to imperfect market conditions and the growth in maintenance services created by Eskom employees and Roshcon. Many of the power stations have not contracted the generic maintenance service and have indicated a reluctance to contract the services. Research has shown an increase in demand for breakdown maintenance such as hot and cold conveyor belt splicing.