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In late 1996, collaboration ended between BBL (Bharat Bijlee Ltd), a Mumbai-based an Indian elevator company and Schindler, a Swiss-based elevator and escalator manufacturer. Schindler started planning to operate and expand the business 100% wholly own subsidiary in India. In 1874, Robert Schindler established the company in Switzerland. The company begins manufacturing escalators in 1989 and by 1998 the company had worldwide presence and revenues of 6.6 billion Swiss Francs. The company employed over 38,000 staff in 97 subsidiaries and looking to start own operation in India.
Alfred N. Schindler, Chairman of the company felt that India had a large emerging market and the company had great growth potential. He himself spent several weeks in India and travel in different cities to understand the market and growth potential. India was not relatively a new market for Schindler. In 1925, first elevator was installed in India. In late 1950s Schindler appointed local distributer to increase the market presence and agreement done with ECE, an Indian company, and the agreement was ended in 1958. In 1985, Schindler entered into a technical collaboration with Mumbai-based Bharat Bijlee Ltd (BBL) to manufacture and sell its elevator.
Silvio Napoli, a Harvard MBA graduate joined Schindler in Sept 1994 as head of corporate planning in company's headquarters in Ebikon, Switzerland. Napoli had been appointed as General Manager of Indian and his priority was to start-up of the company in Indian subsidiary and his first year's sales target was of 50 units of elevators.
Silvio was a young guy of 33 years old and had lack of international working experience in ground-level. Company's marketing and service office was in Delhi and headquarters was in Mumbai. Everyday Silvio faces challenges in new Indian work culture. 7 months was not enough time to start-up the business and fulfills sales target. 100% wholly own operation in India without any own sales & service network was challenging. Company's strategy was a narrow product-line of simple standardized elevator. Increase of transfer price from 22% to 56% by the Indian Government. Silvio had facing lot of challenges in India simultaneously he need to maintain good relationship with European counterpart to get continuous generous support to fulfill expectation of Schindler's top management.
HISTORY OF SCHINDLER
In 1874, Robert Schindler established the company in Switzerland. The company's headquarters had situated in Ebikon, Switzerland. The company begins manufacturing escalators in 1989. After a century in 1987, the fourth generation of the family led the company by Alfred N. Schindler. Alfred Schindler transformed the company's culture from engineering-based company to customer-based company. By 1998, the company had worldwide presence and revenues of 6.6 billion Swiss Francs. The company employed over 38,000 staff in 97 subsidiaries across the world.
In 1995, Schindler on assuming the role of Chairman, he decided to take six months 'sabbatical leave'. His aim was to expand the company's presence in Asian countries such as India, China, Japan and few other Far Eastern markets that he felt had market potential for company's growth. He decided to travel these markets to know more about market potential and business culture. One of his prime objectives was to expand the business in India and he spent few weeks in Indian and travel over 3,000km in the rental car. He saw that Indian market had great potential for company's growth. He begins considering option to establish its own operation in India.
SCHINDLER'S PRESENCE IN INDIA
In 1925, Schindler's first elevator was installed in India. India was not relatively a new market for Schindler rather disjointed history with the Indian Market. In late 1950s Schindler appointed local distributer to increase the market presence and agreement done with an Indian company ECE, and the agreement was ended in 1958. In 1985, Schindler entered into a technical collaboration with Mumbai-based Bharat Bijlee Ltd (BBL) to manufacture and sale its elevator.
In late 1996, collaboration ended between Bharat Bijlee Ltd (BBL) and Schindler. Schindler started planning to operate and expand the business 100% wholly own subsidiary in India. The company engaged Boston Consulting group to identify and evaluate a local business partner. March 1998, Silvio Napoli had been appointed General Manager of India to start-up the company in Indian subsidiary and his first year's sales target was of 50 units of elevators.
INDIAN BUSINESS CULTURE
"India has a long-standing tradition of enterprise in trade and commerce. However, the sheer geographical size, disparities in regional development levels and the enormous cultural diversity in various parts of India have supported a highly scattered and dispersed business system, with local business thriving on local demand".1
India is one of the diverse cultural countries in the world where after each of 250-300km distance the landscape, culture and food changes and languages are also different. In Indian, business culture is deep routed in four major communities. Family running business majorities of the decision has been taken by the senior-most person in the family but other family members are engaged in the discussion and negotiation process. Decisions are not being taken immediately in the meeting in presence of 3rd party. Their religious believe and culture also play a role to take the final decision e.g. day, date, time and place etc. "Indians are generally too polite to directly answer "no." Since the word "no" has harsh implications in India, evasive answers are considered more polite e.g. "I'll try" or "We'll see" rather than "No, I can't".2 So it is difficult to understand the outcome of the meeting only looking their body language and answering politely.
Indian likes to bargain in everyday's shopping or marketing and also in the business; it's become a cultural habit. During any business deal if an Indian businessman or Indian delegate offers bargaining it need not to be surprise because it's normal for locals.
Indian working culture is relatively slower than few other countries in the world. Especially for any big deals the final decisions relatively takes longer time and after analysis of every aspect of the deal they comes to a conclusion. Government agencies or institutions are worse than the private companies. They have their own pace of work and most of occasions the deadline are failed. So start-up any business or paperwork may take longer time than expected. "Impatience is viewed as rude and attempts to pressurize people to get things done faster will be resisted and resented".3 Indian political parties and media has great influence power to compete or delay process of a deal or even they can break a deal shake of their personal, political or national interest.
1, 2, 3 India Business Guide (August 2008). Swiss Business Hub India, Mumbai.
SILVIO NAPOLI, WAS A RIGHT CHOICE AS GENERAL MANAGER OF INDIA
Silvia Napoli, 33 years old an Italian national, graduates MBA programme from Harvard Business School and joined Schindler in Sept 1994 as head of the corporate strategies. In 1995, he headed the Swatch project and the goal was 'to develop a standardized elevator at a dramatically lower cost than the existing broad line of more customized product' at Schindler's different plants in Switzerland, France and Spain. Under his leadership the team developed S001, and first time in Schindler's history that many parts which were used are outsourced from outside supplier. He improved supply chain and reduced half of the circle time. He was successful in Europe; it might be one of the regions that conditions are similar, and all 3 countries are member of European Union.
Silvio spent 9 months in India to develop deep analysis of Indian elevator market. He integrated the report into a business plan and submitted to VRA and VRA approved the plan. He had got job offer as General Manager in India. He accepted the job after few visits to India with his wife; finally he moved to India in March 1998. Preparation of the report and execution the task in a new environment was totally different experience for him. Preparation of report and making business plan was relatively an individual task in comparison to leading a team. He was a task oriented person and he push hard for deadlines. Indian working culture was different where chasing behind, and putting excessive pressure with deadlines or showing inpatient was not accepted by the Indian culture so his management style doesn't suit to the Indian contest.
The family, including his pregnant wife and two younger siblings 2 and 3 years old respectively choose to stay in Delhi. Whereas his company's headquarters' was in Mumbai and the flight distance from Mumbai to Delhi was 772 miles or 1163 km4 and flying time was 1hr and 30min5. Most of the typical weekdays he had to spend in the headquarters' in Mumbai and his family were alone in Delhi. Wife had suffered of food poising and children fall down and hospitalized. The family really needs Silvio at that time because of new place and everything was new and unknown to them. It was a wrong decision was taken by Napoli to bring the family along with him at the first time. ______________________________________________________________________
4 http://www.travelmath.com/flight-distance/from/Mumbai,+India/to/Delhi,+India 5 http://www.trueknowledge.com/q/flying_time_from_mumbai_to_delhi
His wife was pregnant and kids are too young she had difficulty to handle the two young kids together and on top he left them alone on weekdays in Delhi. It disturbs him mentally and distracts him to focus on the task which he needs to execute according to his business plan. Negligence of the family put a wrong impression and carried a wrong message to the Indian staff where family is top priority in Indian culture.
Silvio doesn't have any working experiences in overseas with the ground-level people. He always works with top management or executives which was a set-back for him. In this project he had to work with ground-level people to start-up the company in India. He had to deal and negotiate with various levels of Government officials, suppliers, customers and so on. His personality was different and 'just by his physical presence, he generate fearful respect'. Indian people are friendlier and they believed in mutual respect especially with the older people and in his team 3 out of 4 management staff was older than him. Mr M.K.Singh, who was elder than him states that 'at some point in your career you will report to someone younger than yourself'. Indian people feel shameless and try to avoid to work under someone younger than himself and they have very difficult to follow the instructions given to them.
Mr Bonnard told Silvio before he left to India that 'to survive in India you have to half monk and half worrier and you have to be work on your monk part.' It was a challenging task for Silvio to change himself asap so that his management style suit Indian culture.
Silvia Napoli was not a right choice to appoint as General Manager of India for Schindler. Silvio's success in Europe proved that he had potential to do new and unusual things. He doesn't have any overseas working experience with ground-level people. His family condition was also critical at that moment which distracts him from his usual routine. India is a very diverse culture and need a local head to operate the company who has knowledge of local culture and market and expert to negotiate and manipulate the local people according to the need and situation.
Indian condition was totally different from European countries because of diverse culture, many languages, different laws in states and changing Indian Government policies and regulations. Silvio had to adapt quickly and if he want to continue the project and need to change his management style which suit to the local culture.
SILVIO'S FIRST SEVEN MONTHS AS GENERAL MANAGER OF INDAN COMPANY
First seven months for Silvio was not an easy period in India. He had faces lot of challenges from family relocation to slow work progression beyond his expectation. He had opened marketing and service centre in Delhi and company's headquarters' in Mumbai.
He did an excellent job to recruit the top-management team who had relevant background of elevator business, local culture and market. Except Mr Singh who was good in building organization from scratch and he had experience in customer-oriented business. Initially, Silvio's selected top-management was still finishing their previous jobs. He had worked very hard to form a team where the staff comes from different backgrounds and he able to convince the company's mission and vision to them.
He tried to work very hard to push the new staff to extend their limits but they struggle to meet the deadlines because of slow working culture in India. Indian business executive's administrative work generally done by the administrative staff but here each staff has to do their own administrative job. The management style implemented as European work culture which was not well accepted but nobody opposed also.
Singh's previous experience with hotel construction conclude that designing, planning, contracting and implementing should be managed by an individual whereas Mathew's previous experience says that elevator industry had different specialists dedicated to sales, technical and installation. Silvio and Schindler together proposed an account-management concept-the customer given a single 'hassle-free' point of contact. Silvio had difficult time to manage his top-management team and implement the Swiss management's decisions which may not suitable for Indian contest.
In Aug, he had travelled to Italy as his wife gave birth to 3rd child. The family was going through in a very critical phase; adjusting in a completely new environment and handling young children during the pregnancy period of his wife.
Two new orders of elevators had been cancelled because the companies strategies to sale standard product and Indian customers requested for customized product. He had to face a new challenge when he received price estimates from Europe's plant which was 30% more than his original plans.
Silvio's seven months work as General Manager of Indian companies was mixed with success and failure. He opened marketing and service centre in Delhi and company's Headquarters' in Mumbai. He recruited excellent top-management team and helped to settle in their job. He was upset with his family issues which disturb rhythm of his work. He was unable to sale a single piece of elevator and as the business plan had to sale standard product. He was not open to change the initial business plan even though the market demands was different what they are offering. Seven months was too less time to evaluate his success and failure where he had to start-up the company from scratch. Along with full-fill the sales target in a highly competitive market and diverse culture.
DECISION ON ODERED OF NON-STANDARDISED GLASS WALL ELEVATOR
The business model was prepared by Silvio in 9 months in India and submitted to the VRA. VRA approved the business model to enter Schindler in India. VRA team judged Silvio's business plan with his previous success at Swatch project. The Swiss- management overwhelmed with the business plan and they overlooked that there was a big difference in European and Indian market. The position of Schindler in Europe was different from India and competition was more intense in India. When Silvio explained the business plan to his top-management team in India they are also not convinced that how to implement the strategy in Indian context. Even competitors' had also concerns about viability of the business model.
The competition was intense and majority of the market captured by the competitors'. Getting order was a breakthrough for the company and a chance to penetrate in the market. Silvio's had to go ahead with the order to showcase company's commitment and good customer service. This order becomes an opportunity for the company to establish future relationship with the customer and used as a local reference for other deals. This deal also morale booster for the Indian top-management and the other staff.
Silvio should be more flexible with his business plan when the completion was very high and difficult to penetration in the new market. Getting an order was not only important for the company it was also important for the management and other staff too.
INCREASED TRNASFER PRICE AND LIMITED TECHNICAL COOPERATION FROM EUROPEAN PLANT
The new challenge for Silvio was the increased transfer price by the Indian Government in the budget. It included increased import duties on specific 'noncore goods' including elevators, whose rate increased from 22% to 56%. Results, the transfer price for S001 model elevator's price goes-up by 30% from the original plan. India's high import duties forced most foreign elevator companies to manufacture the equipments locally in the India. Sivio's business plan was to outsource most of the parts of S001 from local authorized suppliers and only safety related components would be import from Europe. S300P elevators would be wholly imported from East Asia. He also wants to import the equipments by an international reputed logistic company which will increase further cost of the product. Already cost of the elevator goes-up by 30% high from initial plan.
The manufacturing of elevators locally was against his business plan. The Indian market was highly price sensitive and customers had bargaining power. Silvio had two choices either he would sale the elevators with loss. Just to penetrate the market according to the initial business plan and sale 50 pieces of elevators' to complete his sales target.
He didn't getting cooperation from the European plant to get design details and production specification. The European plant was not quick to respond and it's become frustration for Silvio that he needs to outsource S001 from local suppliers and deliver the elevators on time. Silvio had to raise this matter immediate with VRA and Schindler.
Selling of standardized elevator like other consumer products was not a right strategy of Schindler in India. Customization of elevators was necessary according to the market demand. Local engineering will be a better option to design the product than designing in European plant. Later any technical problem would be easily managed by the local engineers' team. Otherwise any breakdown of elevator will increase the average response time i.e. 2-4 hours. "Cost can also be cut by managing the global supply chain effectively so as to better match supply and demand"6 (Charles, et al., 2009:684).
6 Hill, W.H. Charles and Jain, K. Arjun (2009) International Business- Competing in the Global Marketplace. 6th ed. Tata McGraw-Hill Publishing Co. Ltd., New Delhi.
PORTER'S FIVE FORCE ANALYSIS
This tool will help to understand the strength of current competitive position of Schindler, and the strength of a position where the company want to move in future.
Supplier is backbone of an outsourcing company especially for heavy equipments manufacturing company. Without good coordination and understanding with the supplier a company will be handicap at any time. Indian Government increased the import tariff so that all manufacturing and logistics activities could be outsourced to local suppliers. And it forced to the foreign elevator companies to manufacture the equipments locally in the India. All multinational elevator companies relied on local manufacturing for the majority of their components i.e. 75.8% of market share. Only Mitsubishi import high end elevator i.e. 1% market share. Rest 23% of market captured by 25 regional companies and they had lack of technical expertise and limited funds.
Silvio's business plan was to get the design details and product specifications from Schindler plant in Europe. Most of the parts would be outsourced from approved local suppliers and only safety related components would be imported from Europe. But the company doesn't have any centralized assembly station. Additionally, the quality of equipments approved from Schindler's European factories or at competence centre. Silvio had difficulty to get quick response from European plant which delay the business development and would be difficult to deliver the elevators on time to the customers.
If Schindler want to improve supply chain in India and increase the profit margin. Then need to minimize the import of equipments. The company needs to open R&D in India so that according to the market demand the local engineering team will quickly design a model and customize the design according to the customer request or the project specification. Coordination and understanding would be better between the company and supplier. Supplier will get information fast on design specification. Company could provide training and latest technology information to the supplier which helps supplier to manufacture good quality product to maintain Schindler's brand image. The product will be cost efficient and speed of production will improve uses of the latest technology.
"India undertook a cascading s of economic reforms beginning in June 1991. Industrial controls over most investment were removed. Foreign investments restriction came to an end in an effort to attract investment"7 (John, et al., 2008:157). After economic liberalization in the early 1990s in India the construction sector booms and it was fortune for the elevator industry. 50% of demands were for low-tech manual elevators with manual doors which were banned by the Government.
The low-end segment of the market was highly competitive among the local manufacturers. International players are looking to enter in the segment after implementation of banned use of unsafe manual doors fitting. Urbanization of major metro cities and shortage of spaces promote construction of low and mid rise buildings which promising raises demand of middle segment elevators. Due to rapid economic development multinational companies started their business in India and tourism industry also expanding. High-raise offices were constructed and hotel industry also expanding their infrastructure. So there was a small steady growing demand of top-end high quality escalators.
The residential segment capture 70% of the Indian market share followed by commercial segment 20%, Hotel 4% and others 6%. In 1997, the total revenue of the industry was US125 million. The growth rate forecast for 1998 was 5% and subsequently expected to rise to 8-10% in subsequent year. Two major states of India Mumbai and Delhi represented 60% of the total Indian elevator market. The market was price sensitive and intense competition to quote lowest price to get the order while maintain the quality of the product and prove better customer care and service facilities.
There was tremendous potential growth of the elevator industry in India. The economy reforms continue to attract foreign investment and the construction sector booms with fast speed and the elevator industry also grows along with construction sector.
Competitive price was set-back for Schindler with current business plan and need to increase the sales network with local partner to increase the sales growth.
7 Pearce II, A. J., Robinson, Jr., B., R., & Mital, A. (2008) Strategic Management. 10ed. Tata McGraw Hill
publishing co, New Delhi, India.
Four major companies captured three quarter of the market share of the Indian market.
Otis, an US company capture 50% market share.
BBL (Bharat Bijlee Ltd), an Indian company capture 8.6% market share.
Kone, a Finland company capture 8.8% market share.
ECE Ltd, an Indian company capture 8.4% market share.
Hyundai, a Korean company and Mitsubishi, a Japanese company capture 1% market share of high end elevator.
25 regional companies shares 23% of market share of low end-elevator.
Otis was ahead of other brands in term of brand image and value of money. Otis was the most profitable industries companies in India. Whereas Johnson was ahead of Otis in financial terms and customer service.
Otis had 70 service centres across India including National service centre in Mumbai. 80% profit come from service contract and 20% from the installation.
Schindler had difficulty to penetrate the mid-end range of elevators with current business plan and limited human resources, lack of infrastructure and production controlled by Swiss plant. Competition was very high among the competitors' and they had more than 3-4 decade of experience doing business in the sector. Indian customer feel comfortable, respect and carry long-term relationship with their old business partner which was another challenge for Schindler to breakthrough with value added service and establish good customer relationship.
Schindler had one marketing and service centre in Delhi and it is a doubt for me that it really needs a centre in Delhi or Mumbai will be better option. It might be his person interest to open a marketing and service centre in Delhi where his family was residing. So that he can frequent travel to Delhi and he showed to the management that he travel to Delhi for work. It may be a wrong assumption because Mumbai and Delhi represented 60% of the total Indian elevator market but may be a possibility.
Schindler, if really want to compete with the competitors than need to increase number of service centers where the company make 80% of profit by service contact and thus able to reduce the profit margin pressure from new installation of elevator.
Threat of substitution
It will be always a competition between the International and local players that who could offer better customization, elegant design, cost efficient, better safety features and better sales and service and it inspire to invent substitute and better product. Uses of latest technology such as solar operated elevator, better quality of motor, uses of latest durable alternate materials and electricity efficient will phase out the out the products.
Lunching of only two standard models were not enough choices to the buyers and it was not a competitive strategy. The company needs to be expert in customized design and more involved in R&D to invent latest technology and get advantage of first move.
Threat of new entry
"At one time, India had very strict prohibitions against inward FDI, but beginning of early 199s, regulations have been progressively relaxed Still some schizophrenia is evident in the Indian position, and the country still has significant regulations in place that inhibit. This has its roots in strong nationalist tendencies and a desire not to be dominated by foreigners-a reaction to Indian's long rule by the British"8 (Charles, et al., 2009:328).
If any changes of policy by Indian government will influence mergers of two big local companies to capture more market share or attract new joint venture between international and local companies and will be a threat to the other companies.
Otherwise, If Government decide to reduce the import duty then it will be a big threat to reduce the price of elevator, and it will allow import of elevator parts or import of custom made elevators from other countries such as China, Thailand, Korea and Japan etc.
"Sometime restrictions have been more subtle. A government guideline, known as 'Press Note 18' issued in 1998, states that any foreign investor with previous or existing joint venture cannot seek automatic approval for additional direct investment in the same field or related field" 9 (Charles, et al.,2009:328). This rule had been put in place by Indian Government after protest from the local companies argues that the foreign companies break the joint-venture with the local companies once they get knowledge of
8, 9 Hill, W.H. Charles and Jain, K. Arjun (2009) International Business- Competing in the Global Marketplace. 6th ed. Tata McGraw-Hill Publishing Co. Ltd., New Delhi.
local market and establish their business network in India.
Schindler don't have any joint-venture except technical collaboration with BBL so it was an advantage for Schindler. Joint-venture with a local company is again a profitable and covers-shield option for Schindler in case any policy changes by Indian Government.
Indian Government policies and economic growth of India has pros and cons for the existing companies or it may attract new investment or new companies. It's depending on the existing companies that how they will face the challenges with new strategies to be comparative in the market.
SUMMARY/ FUTURE STRATEGIES
Silvio Napoli was not a right choice as General Manager of India rather than he will oversee the project from Swaziland. In India, need someone local who has knowledge of Indian culture and extensive local market knowledge.
Schindler, if insist to appoint someone from Swiss headquarters' then probably someone who has International exposure and bit knowledge of Indian culture.
Current business plan need to review and make new strategies to suite the local context and fulfill customers demand i.e. customization of product.
Schindler need to open R&D centre in India so that the technical team understand customers needs better and designs suitable product. Customization could be done faster according to the customer's specification or demand.
Minimize import of the equipments and outsource as much as equipments form local suppliers will improve supply chain and increase profit margin.
Opening of more sales and service centers or need to outsource sub-contract of service order which was more profitable i.e. 80% profit margin. It helps to maintain longer customer relationship and less price pressure on new installation of elevator which help to be competitive in the price sensitive market.
Launching of more designs will give more choices to the customer and will help to attract new segment of customers.
If Silvio will continue, then he need more support from Swiss farm, VRA and Schindler himself because he had extensive knowledge about the market.