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Interview

Asier Calonge – Managing Director, Kaefer Spain

27.09.2017 / Energyboardroom

Asier Calonge, Managing Director of Kaefer Spain has implemented a corporate culture focused on the creation of new business opportunities. As a result, Kaefer is viewed less as a subcontractor and more as a partner. In this interview, he details the effect of the crisis on the competitive environment for service contractors, documents the edge of small firms over large corporations in terms of flexibility and shock absorption in a project-based industry, as well as his intentions to further grow the international operations of Kaefer Spain in Latin America and widen the portfolio of services offered.

Can you introduce Kaefer’s operations to our readers detailing the strategic importance of Spain to the group worldwide?

“Our Kaefer collaborators view the Spanish team as professional and facing a difficult market. Very few however, realize how good the engineering and energy companies are in the country.”

The Kaefer group has an annual turnover of USD 5.84bn and employs around 28,000 people around the world. We act as lead contractor for construction, servicing and refurbishment work in all areas of insulation, surface and passive fire protection, scaffolding, HVAC, interior outfitting and maintenance.

The Spanish office has been part of Kaefer for about 40 years, employs around 750 people and had a turnover of about USD 47 million in 2016. Our main clients are large Spanish multinationals in the energy and marine sectors such as Navantia, Repsol, Iberdrola, Cepsa, Enagas, TSK and Sener. The number of projects we have ongoing varies from a period to another. Recently our most demanded services were access, insulation and painting but the coupling of the oil crisis along with the Spanish financial crisis has affected our operations.

The decision to establish our headquarters in the Basque region is a consequence of Kaefer’s acquisition of Montello, a local ship insulation specialist. From there, Kaefer grew its activities through service diversification, and gradually opened seven offices in each of the cities where its main clients were. Our offices are located next to the major chemical clusters and shipyards in Spain. Additionally, the Spanish office is directly responsible for the Moroccan activities and is involved in many projects around the world, mostly in Latin America. Indeed, we have projects in Peru with Tecnicas Reunidas, in Venezuela with Navantia, in Algeria with Iberdrola, and are about to start one in Mexico.

Our Kaefer collaborators view the Spanish team as professional and facing a difficult market. Very few however, realize how good the engineering and energy companies are in the country. Furthermore, the actions of very few companies involved in corruption scandals have deteriorated the perception of the market as a whole.

What have been your main priorities since you took up the role?

As the managing director for the Spanish office of Kaefer, I was in charge of changing the company’s corporate culture to facilitate business expansion. In terms of corporate ethos, my objective was to create a customer-centric approach favorable to signing new clients. Indeed, our previous culture provoked a branch-centric vision. As the market shrunk, it became necessary to look for new openings. The change has required trust building between the employees and management, especially at a time when the decision was made to reduce salaries. As a result of internal communication, training, meetings, and strengthening the relationship ties with our existing clients, our business unit managers are now focusing more on the recruitment of international clients and the targeting of new projects abroad with existing clients.

The close bonds we have built with Repsol, Iberdrola, Cepsa and many other have been an opportunity for Kaefer to engage in partnership-like project rather than sub-contracting ones. Indeed, as clients continue their international expansion they look for tried and tested professionals to work with. When they cannot find local candidates, they turn to us as a trusted supplier and offer to partner. Our international profile is one of the assets we leverage on to make these projects successful. Indeed, having offices and therefore experience in many countries, allows us to combine local knowledge and customer relationships to render the projects successful.

Where do you see your competition, and what have been the key managerial actions you have taken to make Kaefer a partner of choice rather than a subcontractor.

The competitive field has undergone tremendous change over the past few years because of the crisis. The large players in our industry have almost disappeared as a result of their inability to be flexible. Indeed, these large companies needed a large fixed headcount to cater to the big projects they were involved in. As contracts disappeared, these companies could not generate as much cash as before. The high fixed costs of employees plummeted their profitability. For example, Hilfinger used to be one of the largest players in the world. They are now averaging turnovers 30 percent less than those from the 2010s.

On the other hand, small companies have managed to navigate swiftly through the crisis by demonstrating great flexibility. The costs linked to human capital were also more bearable because fewer employees were fixed ones. With clients looking for nothing more than a sound balance between affordability and quality small companies have done better than big ones these recent years.

What lessons can Kaefer learn from this episode as the size of its operations increases?

Kaefer’s Spanish office has been affected by the crisis, yet managed to survive. Indeed, last year’s turnover was around USD 58 million as opposed to USD 70 million a couple years ago. The flexibility of our employment contracts coupled with a reduction in wages has helped absorb the shock. I believe that part of the secret to surviving these types of shocks reside in a slow but steady human capital growth. Regardless of the project, you need to keep full time recruitments to a minimum. Dragados Offshore is one of the organizations in the sector that manages this very well. Their labor pool fills or empties as projects come and go. While this contracting solution might be a bit more expensive, it contributes to minimizing the risks.

In the case of Kaefer, we have decided to pursue outsourcing and short-term contracts. This enables us to vary the number of people we pay according to our real-time needs. As a matter of fact, of the 700 employees we have, 250 are long-term contract employees. While one could argue the case that this is not good for the country, one can also say that less flexibility could lead to bankruptcy and create a worse situation than if we supported the remaining employees. Furthermore, if we have projects, it is in our interest to recruit more.

Could you elaborate on the “RED” acronym?

“RED” is our strategy, it stands for “Recognized, Efficient, Different”. More precisely, we want our employees to keep in mind that it is important that our clients recognize our skills, our knowhow, as well as our health and safety commitments. Eventually this will increase our employees’ pride in their work. Second we need to remain efficient and this is done through various programs such as the sharing of best practices between the international offices or training in lean management to eliminate the waste of resources. As a result of these initiatives, we have managed to increase our productivity and our competitiveness. Last is our difference with the competition and our past selves. By embracing and encouraging the development of new methods and technologies throughout the Kaefer world, we have managed to differentiate ourselves even further and create value for our clients and employees. The “RED” compass has brought two chemical companies towards us willing to partner with us in the innovation process.

How do you intend to grow the business from here?

The basis of our activity will remain the same. My goal, however, is to win more partnership contracts as opposed to subcontracting ones. By doing so we can continue gaining in efficiency jointly and participate in project elaboration.

Kaefer’s growth plan for the years to come is based on two components: further internationalization and portfolio diversification. At the moment, our Spanish operations account for 80 percent of our revenue; our aim is to create a more balanced revenue composition by engaging in more projects internationally. In fact, Kaefer Spain is about to engage in a partnership with Tecnicas Reunidas in Peru. The project consists of a new refinery in Talara; it should be one of our largest projects for the three years to come. We also intend to deepen our presence in Central America. The global headquarters have allowed us to follow existing clients in Mexico despite the existence of a local office.

The portfolio diversification will help protect ourselves from potential future crises. More specifically, we intend to open services within our field of knowledge outside of the energy sector. Firstly, we want to integrate our scaffolding activities to provide a cheaper and safer alternative. Secondly, we have launched yacht-refitting activities in Barcelona and Mallorca – the two largest ports of the world in the sector. We have adapted the branding of our services to convey more a higher quality image and I see this division gaining importance as more rich people invest in “mega-yachts”.

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