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Management in Different Times in Process Industries and Contracting Disclosure Number: IPCOM000220020D
Publication Date: 2012-Jul-18

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  Management in Difficult Times
in Process Industries and Contracting


Merz~ and Response to Market Conditions

Thomas J. Ryan

Vice President European Operations The M.W. Kellogg Company

Kurhaus Hotel

Seheveningen, The Netherlands

25 May 1984

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Good Morning. My thanks to the American Institute of Chemical Engineers, Neth'eriands Section, for inviting me to participate in your Fifth Colloquium. Certainly the theme of this Colloquium is appropriate. Through the exchange of ideas here, I hope the theme will become less appropriate with the passage of time.

My mission is to address the issues facing contrantors in these difficult times. Then, to post you on the trend to merge and to form new business combinations. Whenever business combinations occur, there is inevitably a change in how the surviving or controlling entity adapts itself to the marketplace. For this reason, I believe I can give you insight on the marketplace in terms of threats and opportunities for the engineering and construction (E&C) contractor and in doing this, integrate Kenogg's experience, attitude and impact on Our operations as a result of our two recent mergers.

I plan also to focus your attention on some very key issues that will determine the configuration of the future contracting company or, possibly, its demise.

For perspective, we should first describe the current marketpiaee for E&C contractors. In my opinion, one thing is clear - the high workload era of the seventies for the E&C industry is history. Beyond that my observations are mixed; there's good news and bad news.

First, the good news. The E&C industry in Europe has just about bottomed out. But, it will continue to bounce around this bottom during 1984 and most likely into 1985.

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Second, the bad news. There will continue to be adjustments as we hit bottom and hogan our slow recovery. Unlike our clients, an E&C company cannot shut down a product llne or reduce production in response to a declining market. In our case, as the market for our services declines, competition becomes almost predatory. To survive we adjust by a combination of increased productivity and cost reductions. These actions impact on staff personnel at all levels.

In most established companies, these reductions have been accomplished. Recent surveys indicate that the engineering population for European E&C contractors has dropped over 20% from its peak in the early 1980's. This is small when compared to adjustments made in the USA. There, the reduction has been more dramatic. For an example, in Houston, Texas, the reduction in the engineering population in our industry is just under 40%.

The reduction in Europe has been less severe because of fairly strong backlogs in 1982 and 1983. Another mitigating factor is the more protective social legislation which either restricts staff reduction as an absolute or is so costly in terms of redundancy compensation that it is less costly to retain excess capacity and the associated financial costs and attempt to wait out the down cycle.

The 1982 and...