Akbar Rivai – President Director, PT. Sagatrade Murni, Indonesia
The President Director of Sagatrade Murni (STM) in Indonesia explains how joint-ventures and strategic partnerships enabled STM to become a total solution provider always seeking to remodel itself and enhancing its capabilities. Furthermore he highlights how diversification and constantly readjusting the companies’ strategy to changing market environments led to growth beyond domestic borders.
Sagatrade Murni, an indigenous Indonesian entity, has been manufacturing quality oilfield equipment since 1984 and today your products are successfully deployed across all the main oil producing markets worldwide. What would you say have been the key milestones in the company’s history to date?
We’ve been in the business some thirty years and witnessed a lot of changes both internally and externally. Originally we limited ourselves to the manufacturing of comparatively easy technologies such as welded centralizers that are essentially well cementation aid devices that ensure the efficient placement of the cement sheath around the casing string. Then, over time, we progressed to the production of more complex and technically challenging items such as float equipment; thus allowing us to scale the value chain and widen our profit margins. Today, for example, we are able to design and materialize hydraulic, mechanical and custom specification liner hangers.
These diversifications have also entailed adopting new business strategies along the way. For the centralizer market where profit margins remain slim, it had always been a case of pursuing high sales volumes. For the liner hangers, by contrast, the name of the game is much more to do with investing in R&D and coming up with new generations of precision technology. Sagatrade Murni’s engineers are continually developing and testing new complimentary products to add to our product range. Currently we are expanding further into the rotating hanger market which represents a new development for us in the sense of extending what has very much been a sub-surface, down-hole tools business into covering part of the surface arena as well. New products under development in 2015 also include Saga Casing Packers and the Saga-Lancaster choke valve product line.
How important is joint venturing to this process of maturing the service offering and diversifying the product line?
Forging joint ventures with strategically important partners certainly provides an accelerated way of enhancing our own capabilities. It also enables us to make the transition from product manufacturer to provider of entire service solutions. In 2014 Sagatrade Murni entered into a joint venture with the Houston-based outfit, Lancaster Flow Automation with a view to manufacturing choke valves for oil and gas production. Subsequently we have also moved into a sales, marketing and service venture with the Australian firm, Integrated Oil Field Services Pty Ltd and forged an alliance with Pro-Test Well Services Pty Ltd, a specialist in drill stem testing, data acquisition and diagnostic fracture injection testing. These developments are perhaps emblematic of the way in which Sagatrade Murni constantly seeks to remodel itself and strive for more.
Just how easy has it been to source the sort of skilled human capital required for a rapidly evolving market offering that today spans primary cementing equipment, well testing, liner hanger services and inflatable packers?
Sagatrade Murni has always made it its responsibility to be developing local economic communities, contributing to the national workforce and fostering job creation. As such, it is fair to say that our staff have grown and matured over time along with the rest of the business. The progress of the mindset and technology of Sagatrade Murni has very much been mirrored by the evolution and up-skilling of our personnel. As the firm transitioned from conventional products to more sophisticated ones, so too have the competencies of our staff advanced in a commensurate fashion. Harmony between these two facets is perhaps the overarching secret to our success over the past three decades.
When we first established our iconic Samarinda manufacturing facility back in 1987 it was of course pretty challenging to locally recruit expertise given the remoteness of a location then only really accessible by river. Our dedication and persistence in offering employment to and training up a local workforce can be said to have paid off, however, and we now find ourselves with an operation deeply embedded in the local community and overseen by a diligent and high caliber staff. In certain instances, we do, of course, have to parachute in foreign expertise until a familiarization with newly introduced machinery takes root, but the transfer of technology tends to be swift and our permanent workforce remains entirely homegrown.
Tell us more about your purpose-built factory in Samarinda.
Our Samarinda facility in East Kalimantan occupies almost 20,000 square meters of floor space and employs a 300-strong workforce composed of engineers, CNC operators, QA and QC personnel, metal fabricators plus management and administration staff. Fully equipped with state of the art machinery, we can efficiently fulfill large manufacturing orders to API specification and recognized safety standards while our procurement and logistics processes ensure on-time delivery.
Samarinda has traditionally been famous for the timber industry, but not for oilfield component manufacturing and therefore we are very proud of what we have contributed to the local community by way of job creation, improved livelihoods and economic cluster growth. Nowadays, with improved transportation infrastructure the site is better linked in with the operational fields of our customers, but we gladly remember our legacy of introducing a new economic sector at the local level.
How potentially attractive is Indonesia as a manufacturing hub relative to the rest of the South East Asian region?
At the end of the day in our line of business, volume is everything. Indonesia may offer better labor costs compared to more developed neighbors like Singapore and Malaysia, but providing you can manufacture above a certain volume then the operating costs should come down by themselves regardless of the base labor expense. It all comes down to the quantity of goods you can manufacture within a given time and then sell on to the market. Ideally you want to marry low production costs with high sales prices and it is the meeting point of these two aspects that defines the success of the business. Nevertheless it is worth remembering that labor costs of even 1 Rupiah will be expensive if you fail to shift your stock, whereas conversely labor costs over 1000 Rupiah can end up very cheap if you’re managing to turn over massive sales volumes to the market.
Since 2004 Sagatrade Murni has been spreading its wings abroad and introducing Indonesian-made technology to the world’s oil and gas markets. Please tell us about how this side of the business has been developing.
Initially it was our existing clients that compelled us to go abroad and defined the footprint of our overseas engagement. Back in 2004 there was a tendency for Indonesian drilling engineers to seek employment in the Middle Eastern markets where salaries were higher and soon we encountered members of this drilling engineering community that we had been working with in Indonesia demanding our services out in the Middle East as well so we started conducting equipment exports.
Today our core market very much remains the domestic client base, but up to 30 percent of our revenues are generated abroad. To handle that aspect of the business we opened an international sales office in 2008 in Singapore called Saga-PCE Pte Ltd and this acts as our vehicle for managing international partnerships. We have also subsequently opened sales offices in the UAE and Oman and an additional manufacturing platform in Mexico.
That said, the Indonesian petroleum industry remains the focus of our attentions because of the sheer size of the market and depth of the client base. We could be manufacturing a full 47 different types of equipment, but today only provide 7 types so there’s plenty of scope for undertaking a lot more work. On the client side, our customers range from the oil majors to big-ticket service contractors such as Schlumberger to small independent operators so there are many possibilities out there for us to bolster our order book.
How receptive is the local industry to your technologies at a time when oil prices are in free-fall and even the oil majors cannot play business as usual?
Shockwaves from the oil price crash have been felt at the heart of the petroleum industry and this has created a ripple effect that has adversely impacted the oilfield service suppliers. From Sagatrade Murni’s perspective, however, the outlook appears rosy. Personally I am confident that we’ll soon witness coalescence around a new price equilibrium. Right now you can say that we’re at a strategic inflection point in which the heady days of free spending and waste are on the wane and the search is on for technologies that can make operations more sustainable. Irrespective of whether it’s the financial speculators or the actions of the drillers that are driving the prices, we’re seeing the opening of a new game where the watchwords will be ‘efficiency’ and ‘prudence’. There may well be a silver lining to this cloud hanging over the industry for firms like Sagatrade Murni because we are one of those very outfits that can actualize performance gains for the oil industry’s main protagonists.
What will differentiate you from the competition and render you the partner of choice to future clients?
Our value-add comes from the level of engagement we maintain with out customers. Our factory is always open to new ideas and suggestions from our clients and we maintain a close level of dialogue with the client base at the operational engineer level as well. The fact that we continually embrace state of the art technologies and are ready to upgrade our manufacturing facilities with the latest generation machinery also excites the customers as they are aware the door is always open for innovating new types of solution. The fact that big name companies in the oil and gas industries have been repeat customers for many years is also testament to the loyalty we inspire from our client base and the quality of our products.
Beyond that, we manage to compete with the Baker Hugheses and Weatherfords because of our quick reflexes and rapid reactions – attributes that are still very possible for a mid-size firm like us. Big, lumbering corporations, by contrast, can take years to reformat a simple design. They are inherently slow moving because of their vertical management architectures and centralized decision-making. We on the other hand possess sufficient flexibility and versatility to be able to respond swiftly to a client’s evolving vision and undertake a bespoke service tailor-made to their exact needs.
What are your goals for growing the business in the short to mid term?
Right now we could be described as a small, but highly visible fish in the big pond that is the Indonesian market. We need to bulk up and gain some extra mass while taking great care not to relinquish any of the agility and flexibility that has made us successful in the first place. Our priorities will be to triple our asset base within the next couple of years, to rapidly expand and up-skill our labor force and to move into new spaces and market niches as and when they arise. Having successfully mastered the onshore domain and swampy, transitional zone, the offshore space could well represent the next frontier for Sagatrade Murni. The key is to maintain momentum and keep pushing forward.