SOLEX ENGINEERING ENTERPRISE (SEE)

The company:

Solex Engineering Enterprise (SEE) is a Sri Lankan organization formed as a partnership by two brothers in 1980. They had a keen interest to explore into new paths in the mechanical engineering discipline. They started with manufacturing water pumps to the local market. Initially SEE marketed its products under different labels. In 1995 they expanded operations and moved to a better location, approximately 7km from Colombo with a production facility covering an area of 10,000 m2, in the industrial area of Peliyagoda, and started their own marketing under the brand name “SOLEX”.

The mission of the company is to provide a total pumping solution with excellent quality products supported by an efficient after sales service, for the home and industry.

Business activities

At present SEE has become one of the leading water pump manufacturers in Sri Lanka with the brand Solex in Sri Lankan centrifugal water pump market, securing no. 2 position for the last eight years. They enjoy a 35% share of the centrifugal electric water pump market in highly

brand conscious water pump market in Sri Lanka. SEE feels that they could achieve this position due to their innovative approach towards customer satisfaction and the dedication of their employees influenced by the unique company culture.

At present SEE markets a wide range of centrifugal water pumps, i.e., end suction pumps, submersible pumps, high pressure pumps and tailor made pumps powered by electricity and kerosene and diesel engines, water and gully bowsers, cylinder sleeves, brake drums, woodworking machines, ferrous and none-ferrous castings to local and foreign markets. The R & D teams started working on air compressors, household appliances and automotive batteries.

Solex offers a range of domestic water pumps to the market with varying performance levels to suit the needs of the customers. Outputs of these pumps vary with the volume of output as well as the height the water that it can deliver. For the those who need to get water from the sources deeper than 9-meter height, Solex advices their customers to fix the systems with a ‘deep valve’ accessory kit.

SEE has achieved a turnover of Rs. 1000 million during the year 2006 with its nearly 500 employees and the turnover was increasing since then except for minor fluctuations of sales due to Sri Lankan economic situations.

The water pumps market in Sri Lanka

The water pump market in Sri Lanka can be categorized into various uses such as the domestic range, agricultural sector and industrial pumps. It is filled with locally manufactured and imported water pumps. The water pumps for households market is the largest in the industry and therefore the competition in this sector is very high.

The brands available in the Sri Lankan market are Jinasena (from Jinasena Group), Solex, Singer (Singer group), Arpitech (from Arpico) and Z-lon (from Maharaja Group). Jinasena is the most reputed brand name in the local water pump market for decades. Jinasena has started its pumps since 1932. Jinasena pumps have ISO 9001/2015 certification for the entire range of water pumps manufactured by them. This brand has earned a priceless goodwill for the excellence in product quality and after sales services. It had secured the largest market share for domestic and agricultural water pump market for decades and the Solex became the largest competitor for Jinasena in the market.

Arpico supermarket chains (belong to Richard Peiris Group) started selling domestic water pump range using its supermarket chains as well as through few selected hardware stores. Similarly, Singer group offers water pumps with a wider range than Arpitec water pumps.

However, the range of water pumps sold by Singer is much less than those of Solex and Jinasena. Singer offers its water pumps to its customers highlighting its unique easy payment packages offered to buyers. The imported water pumps were available in the local market for a long period, since early 1980s, but cannot identify any established brand name in Sri Lankan market. The major segment for such imported pumps was various industrial customers. In mid 1990 the water pump market was full of low-priced Chinese made water pumps and in early 2000 the Indian made pumps too entered the market. These low priced entries made a vibration to the Sri Lankan water pump market securing nearly half on the water pumps market for all the makes of water pumps. Subsequently due to the devaluation of Sri Lankan currency the prices of these imported pumps rose, and pumps still hold a substantial share of the market competing with local brands with its low price. It is also noted that buyers of imported water pumps find it difficult to get after sales services including necessary spare parts. From the viewpoint of the customers, they still prefer the local made branded pumps and in the long term they seemed to be cost effective than the imported products, (after sales services, availability of spare parts, durability and power consumption.) as per the dealers opinion.

In year 2007, Jinasena limited started offering polymer-based water pump under Jinasena brand name at a lower price than conventional pumps made of metal. They went ahead with marketing campaigns stating that polymer water pumps are better in health aspects since no harmful metals get into water through the pump. As of today, it is soughed by customers where water conditions are different, such as coastal areas and lands with hard water.

With regard to the present situation in domestic water pump market, Marketing Manager of SEE stated that the water pump industry was currently under severe pressure due to the influx of inferior quality, cheap Chinese pumps. "These cause a significant loss to the consumer in the long run, in terms of electricity, cost of repairs, etc. We thought it fit to introduce this five-year warranty, in a bid to protect the local consumer and industry, by encouraging a demand for locally made water pumps and thus curbing the dumping of substandard products in Sri Lanka.”

As per the technology wise, SEE industrial pumps ranges to 50hp models whereas Jinasena produces their industrial pumps with 100 hp motors. SEE believes this a way forward to improve its position in industrial pumps market. Further, SEE improved its capability to produce water pumps for special needs customers, meeting their unique requirements which includes, varying capacities and use of specific raw materials as well.

The recent development noted in the Chinese made water pumps as well as many other products is the constant increase in their prices. Because of this the Sri Lankan made products find it comfortable to compete with market prices. This has affected the imported water pumps

market shares seriously. Many manufacturers find it is more cost effective to manufacture within the country compared the import, when the value addition can be done locally. As a result, more and more manufacturers have started manufacturing their required components locally rather than import them, if it is possible to meet the price and quality, water pumps manufacturers too have started following this trend.

Present business activities of Solex

“SOLEX” markets a complete range of centrifugal water pumps, covering most of the aspects of Sri Lankan water pump market. The company has established a strong, loyal dealer network with over 800 dealers to penetrate into the retail market and has established links in the industrial and supplier markets. The company has its marketing team with necessary technical expertise to look after the retailer network and the industrial customers.

Production facility and capacity

SEE has a fully automated ferrous and nonferrous foundry occupying 3000m2 and a machine shop of 7000m2 with a work force over 200 people. They use modern technologies to meet the stringent quality standards specified by their industrial and retail customer base for its large portfolio of products, and is capable of producing top quality cast iron, non- ferrous products from 0.5 kg to 500.0 kg per item. The foundry has a production capacity of 400 M.T. per month.

The products are always subject to stringent tests at the foundry laboratory to ensure the consistency of the mass production and to support the TQM. At present Solex has obtained ISO 9001/2015 certification for its domestic water pumps they manufacture.

SEE started making their own dies and moulds in 1990 using conventional methods for simple products and moved to manufacture dies and moulds for complex products using 5 Axis CNC (computerized numerical control) machining centres and CNC lathe machines supported by modern CAD/CAM software.

SEE formed a strategic business unit to cater to the die and mould industry in the recent past taking the rapid market development into account. During its first year the SBU has been able to develop a good client base due to the higher level of quality. Now SEE produces die and mould for the leading water pump manufacturers in Sri Lanka.

Further, to face high cost in importing electric induction motors of good quality due to escalating foreign currency rates SEE started manufacturing their own induction motors to replace them with foreign makes. Some of the raw materials for manufacturing motors as well as water pumps are imported and there are many suppliers to SEE. The materials purchased locally also have multiple suppliers.

At present electric motors, one of the major components of a water pumps, has become expensive as Chinese suppliers have started increasing price. Further they have imposed limitations through higher minimum order quantities for the buyer orders. These conditions have increased the relevant subassembly component costs when sourced from Chinese suppliers. The company understands that the suppliers are reliable in terms of quality of products they supply. Further, it was noted that the cost of international shipping of these items are in the increase. SEE has noted that all these factors ultimately resulted in price increase for their buyer and SEE products becoming less competitive.

SEE industrial water pumps were confined to 25 hp motor capacity and recently have start to increase the capacity of the water pumps with motors with 50 hp motors. So, they could cater to extended industrial user market.

As per energy saving requirements, electric water pumps are now fitted with variable speed drive (VSD) are demanded by present day customers. In the local water pump market this has become a need as the competitors started introducing water pumps with such devices. This device enables to lower down energy consumption to suit the energy consumption even the electric motor of the pump is of high capacity.

SEE started to meet this requirement by fixing VSDs to their electric motors as well.

Sri Lankan economic situation:

Due to Covid 19 pandemic situation global economic activities have taken shifts in different directions. Most of the industrial sectors reports downward operational levels and unemployment rates in many countries have gone up. Along with pandemic situation it was estimated that most major economies will loose at least 2.9% of their gross domestic product over 2020.

The COVID-19 pandemic impacted in many of Sri Lankan industries resulting in Sri Lanka’s economy contracted by 3.6 percent in 2020. The affected industries sectors include tourism, construction, transport and export processing industry.

Though the restrictions on imports were imposed the decline in foreign currency inflows were insufficient to meet external liabilities, hence reserves declined to an 11-year low in February 2021. Due to a shortage of foreign currency, the exchange rate depreciated by 6.5 percent from January through March 17, 2021. As a result of this, Government of Sri Lanka imposed import restrictions which affect the importation of water pumps much difficult.

The balance of payment and measures taken by the Government of Sri Lanka under the Covid 19 pandemic environment to meet the national budget deficit has resulted in devaluation of Sri Lankan rupee. This has created a situation that leads to increase in price of imported water pumps as well as imported components required for manufacturing water pumps in Sri Lanka.

On the other hand, China, facing difficulties with getting their supplies due to its global political situation. This had caused certain business practices of Chinese manufacturers to impose higher minimum order quantities for their buyers. Sri Lankan water pumps manufacturers find the stated minimum order quantities specified by them create increase their cost of inventory, specially holding cost of electric motors. However, this minimum order quantity issue also affects the importers of Chinese made water pumps as well and hence it affects the availability and price of Chinese made water pumps. This has resulted in price hike in imported water pumps in Sri Lankan market.

This situation has made water pumps manufacturers situation a bit difficult to source electric motors for their water pumps from Chinese sources. Amongst the options are to increase the manufacturing of electric motors within Sri Lanka.

Questions.

a) Identify the key business line/s of the Solex Engineering Enterprise. ( 8 marks)