Question

GPPE(Geoscopic Protective Prototype Equipment) Pty Ltd opened in 2005 in NSW under the leadership of the Managing Director, Leigh Baker. Leigh was one of just two Directors for GPPE, owning a controlling 51% share.GPPE's Mission Statement was to 'To maintain safety of all deep-water infrastructure through leadership in exploration and research, industry accreditation, and infrastructure maintenance.'

GPPE provides high-gradeunderwater Geoscoping inspection and reports through remotely operated robots (ROVs) or unmanned underwater vehicles (UUVs). The robots and vehicles are specifically designed to operate underwater at depths of up to 150 meters, withstanding water pressure and temperatures. The robots, essentially underwater drones, are designed to navigate infrastructure (pipes, concrete, cables, joints, tunnels etc.) to record images of the infrastructure and transmit those images back to the company along with the exact location through satellite mapping. GPPE provide equipment for hire to governments, armed forces and other enterprises involved in the maintenance of underwater infrastructure.

Most of the specialisedequipment is constructed within GPPE but it sources 80% of the parts from overseas manufacturers. In total, 60% of the parts are sourced from the German company, IPS (International Protection Supplies) and 20% from other suppliers across the globe, and from one company in India, IAL (Infrastructure Association Limited). GPPE has plans to add their own manufacturing arm to their business, to enable them to build those parts they currently purchase overseas.

However, a favourable compliancerequirement is that onlyGPPE'sown qualified technicians can operate their equipment, and although there are other businesses with comparable products, GPPE owns and manages the only industry recognised and accredited qualification program with which it offers nationally through several partner organisations. Only GPPE can issue the qualification which is recognised across

Australia and it is gaining recognition from the UK and some European countries. Every year, GPPE contribute to the World Conference on ROVs and through that involvement they are receiving many more companies asking for their skilled training. From the accreditation and training program, GPPE make well over $100,000 per year in course fees (inclusive of a percentage paid to each partner organisation) and have very little outlays for that profit.

Early 2007,the company experienced exceptional growth through many municipal councils utilising their systems and GPPE also secured a five-year multimillion-dollar NSW State Government tender to provide ongoing inspections of all underwater infrastructure including bridge footings, drilling rigs, pipelines, marine infrastructure, underwater tunnels and more.

Assessment Task 2 - Business Case Analysis Semester 2 2020 - BMA799Page 1 of 3

By mid-2007,Leigh Baker and his business partner decided that a strategic move would be to increase the business operations nationally, with the possibility for international growth at a later stage. So, near the end of 2008, GPPE had subsidiaries in every state in Australia with assets worth over 15 million dollars and over 400 staff.

In 2009, GPPEdecided to offer 50 shares to further increase its assets and opportunities for above average returns for shareholders. The company notified ASIC of its intention and delivered the 50 shares to the market at a viable price indicative of the expected return on investment. The shares sold and have since been increasing in value. GPPE may consider altering its company structure in the future to be able to offer more shares. GPPE continued to perform both locally and nationally and was able to compete and provide its customers with more services at a lower price than its competitors.

January 2010, after evaluating the demographic segment and the industry environment, GPPE decided to

vertically and backwardly integrate their business by acquiring the Indian manufacturing business IAL (Infrastructure Association Limited) with the purpose of continuing to produce their parts through that acquisition. The 8-million-dollar acquisition of IAL was approved by the local authorities and GPPE took over production of the ROV and UUV parts. GPPE operated IAL as a decentralised entity, utilising the core competencies and resources and ensuring the local market was not disrupted. At the same time GPPE was undertaking due diligence for another small manufacturer of parts within Thailand with a possible takeover bid being considered.

Using the existingmanufacturing processes of their IAL acquisition, GPPE diversified their products, manufacturing small hand-held and large industrial drones. The drones were shipped back to Australia with purchases from farms, sporting arenas and local council road inspections, and other services. Within 12 months,GPPE's drone manufacturingoutput was earning almost double the cost of purchasing their parts from IPS for building their ROVs and UUVs.

After only 5 years,GPPE was performing very well with an increased portfolio of businesses and a possible multi-domestic strategy on the horizon.

PART 2

January 2011, the German company, IPS (International Protection Services) opened three wholly owned subsidiaries in NSW, WA and Victoria, offering the German precision manufacturing of both ROV and UUV parts and built ROVs and UUVs, along with a newly formed maintenance service department. IPS sold its items to over 1000 businesses across the world.

GPPE was unawareof the intention of IPS to invest in Australia by opening subsidiaries in three states and

by May2011 GPPE's sales of ROVs and UUVs had decreased considerably through competitive pricing by IPS.

GPPE's purchasingagreement with IPS also lapsed in April 2011, with IPS refusing to renegotiate the terms of purchase, and instead increasing the purchase price of its parts by double.

GPPE were suddenlyplaced in uncertain waters with regards to their ROV and UUV operations, however the drone business was stable despite a number of new entrants to the market (GPPE was able to manufacture the drones cheaper and at less cost than others within the industry).

However, with IPSentering the Australian market and the loss of their purchasing agreement, Leigh and his business partner, and shareholders, had planned an emergency meeting.

Answer the following question

Question:If you were a business consultant - what would you advise the Directors of GPPE to do now?