The refrigeration business is a tough one. Yet, Bundy Asia Pacific (BAP) a division of Bundy International has developed a competence in fluid carrying systems. They have become, arguably, a world-class leader in this field. Phil Stephenson (Director - China Operations) has led his company in achieving this success. However, despite having a decade of experience in the Chinese market BAP hadn't met their market target in this region having achieved a quota of a measly 6.2%. It is therefore not untoward that, Bundy International, his parent company felt BAP had not done their best in the Chinese refrigeration market. They felt Bundy had neglected this sector in favour of the automotive industry.
The leadership of Jiang changed the economic face of China into positive development. Whilst his cavalier attitude did not endear him to the denizens of China he pushed his reforms through to create an economic boom such that GDP dropped from 13.4% to level around 9%. It was Jiang's response to promote development in strategic areas by offering incentives and privileges that drew BAP into China. The large consumer market offered abundant opportunities for his products. BAP's mode of entry into this emergent market was through an international joint venture (IJV) with HBT. Their first few years were a success so BAP management decided to expand further into the market with another IJV. However the results they were hoping to achieve with this extension failed to materialise.
So, with such mixed results, has Bundy Asia Pacific made the wrong strategic decision entering the Chinese market? Why has BAP's refrigeration market share declined when the total market has grown? Why is his product latent in this region even though it looked promising a few years back? This paper seeks to examine where BAP's strategies have gone wrong and seek to offer Phil Stephenson recommendations and a strategy to get back on track. It will further look at how easy it is to integrate the China operations into global refrigeration strategy, what choices BAP has and whether his strategic intent is capable of producing the results he wants. In concluding I hope to show that Bundy Asia Pacific's decision to enter the Chinese market was a good choice. This paper will outline a plan of action for 1996 and beyond.
Bundy as a World Class Global Company
World class products are often associated with 'good quality', reliable, innovative and value for money products. Changing an image is not an overnight issue. To be world class you need to be able to "compete with the best in the world" at what you do. It doesn't mean being the best every time but it does have the connotation of being able to compete credibly with the best anywhere. Customers do not care about a company's sales or volume or profitability. The key factors customers use in perceiving companies as world class are (a) Quality of product and service and (b) Value for money.
This clearly shows that BAP has developed a world class competence in refrigerator tubes and components manufacture and they are attempting to use this core competence to establish a global position in the refrigeration tube and component business. To become global BAP have selected a partner for a joint venture but, I would argue, with little thought.
The world has fast developed into a global market and the standards applied to world class performance are becoming the status quo for customers all over. BAP's global competitiveness could be seen in its search to become a strong force in China. Such that, in finding new ways to expand and enter the untapped markets of the Chinese marketplace quickly they sought collaboration with HBT and BSC.
Bundy's Core Competence
Phil Stephenson has opted that to expand the niche market by creating refrigerator components and tubes for new and existing customers. As an MNC, globalisation had led Bundy to open outlets all over the world. It has affected the design, production, distribution, and servicing of goods. In Bundy's case, it initially emphasised product reliability and quality. They had done their R & D well to design for their customers - to meet a specific in terms of product and price. Maintaining a flawless execution was important to keep new and existing customers. The product life cycle of its tubes had been used to streamline and improve its design and innovation.
Bundy Asia Pacific's Key Problems
Bundy has a few major issues that need to be addressed. There seem to be issues with organisation misalignment, cross-cultural issues, Intellectual Property Rights infringement, staffing and rewards, strategic business development planning, and the joint ventures he is employing to conquer "the dragon". Resolving these issues should, hopefully, reverse the trend of negative impact on sales. It must be noted that any outlined strategy would be an important cog in the wheel of BAP's planned global strategy.
To solve this problem would entail, firstly, evaluating the nature of his joint ventures with both HBT and BSC. International Joint ventures (IJV) are an option for foreign market entry. TheyÂ involve two or more businesses pooling their resources and expertise to realize a specific goal. Risks and rewards of the enterprise are also shared. There are many reasons behind forming a joint venture. These include business expansion, development of new products or moving into new markets, mainly abroad. It is for the latter reason BAP entered into joint venture with the above two partners.
Whilst their business had strong potential for growth and they had innovative technology, products and ideas the joint venture would offer the following;
increased technical expertise
access to established markets and distribution channels
However, entering into a joint venture is a major decision. Serious consideration into who and how the JV is applied is essential. The type of joint venture is important as BAP found out. The 50:50 share holding control wasn't a good idea. It was an endorsement for conflict as a consensus was required in all key decisions. The JV was difficult to manage effectively. The complexities lay mainly in the individual partners' incongruent goals and differences in management style and business practices. Someone described it succinctly as "In the same bed but different dreams."
What the Chinese wanted from the venture was local economic development, advance technology transfer, local employment and capital infusion. The other venture partner (also Chinese) was more interested in, aside from the generation of rapid returns, learning management skills and advanced technology. All BAP wanted from this marriage was market share and profitability. As it transpired, the Chinese could not adapt to a western management system. They simply could not break with their long-existing framework especially in such a short period. Under these circumstances the 50:50 share JV proved to create an endless conflict. Resolving this would require BAP to increase their stake in the alliance or terminating the agreement. Given the effort and hard work to get this far the second option would have been irrational.
One option which is favourable would be to split the decision making process with the respective firm-specific advantages. This way partners would control and manage the activities they were contributing to the venture. So, BAP would manage innovation management as they were more adept in this area than their counterparts. Splitting control management this way seems the likely way forward. It can be argued that this method is by far the best approach to resolve BAP's existing dilemma as JV's with Split Control Management perform better than any other JV method.
Organisational misalignment rather than a 'fit' contributes to poor performance - which is what Bundy is currently experiencing. JV's like marriages will have conflicts one way or other. This is because the entities involved will have differing goals and organisational climate especially in international business where there is a convergence of divergent national and organisational cultures. BAP's conflict is intense as it reflects in the drop in performance. Yet, conflict is good if it allows clearing of the air and management to evaluate their decisions with care. At times through constructive conflict superior choices are made for the betterment of the JV.
Avoiding or reducing misalignment and conflict will require the various factions to;
Align their objectives
Ensure ample communication
Develop standard procedures for conflict resolution.
Discuss ways to avoid future conflicts
Ensure all partners are committed wholly to the joint venture.
Empower locally based foreign managers to make most decisions
Conflict is a cultural challenge and an opportunity in honing our constructive management skills (Ting-Toomey & Oetzel 2001). In any cross-cultural environment understanding people management and cultural dimensions will greatly improve results. Cox (2008) acknowledges "Planning and implementing organizational systems and practices to manage people so that the potential advantages of diversity are maximized while its potential disadvantages are minimized". Such strategy breeds a positive outcome when staffs are involved in the planning and execution.
BAP need to invest in pre-departure orientation programs through (a) contact with Chinese people (b) Visits (c) Expatriates who have come back.
It seems that BAP have resorted to quick fix solutions to replace foreign management. There does not appear to be loyalty within the management ranks. The constant turnover of management situation potentially puts BAP under severe financial pressure, which in turn affects its competitiveness. High management turnover is often associated with;
A poor fit with the organizational climate and culture
A poor alignment between pay and performance
A poor connection between the management and staff.
It could be a sign of bad leadership, due to failure to develop executives through effective mentoring for their future roles in foreign territories. Also the lack of local people who were "westernised" suggests that initial Chinese recruitment failed to "fit" the culture of the company. The same could be attributed to their Australian counterparts. They brought in weak candidates who dismally managed their staff relationships - another "fit" failure.
Downsizing is a moral killer. Management may have offered to reduce their hours of work. Choosing to demoralise the workforce allows for them to leave with their skills to competitors who would be only too glad to learn BAP's "methods". In fact, one could claim that the lack of loyalty is enough for former skilled personnel to "sell" the BAP designs to the next employer.
The "one size fits all" approach to reward systems will not maximise productivity across the board. It's "the folly of rewarding A, while hoping for B". It's true that what gets measured gets done. The challenge for Phil Stephenson is to create, measure and maintain a successful employee recognition system. It is not enough to have just monetary rewards; Phil should find alternatives to keep his employees motivated. The option Phil has is offering share options or performance related pay across the board. Intangible rewards are just as good as tangible rewards too many cultures. Whatever method Phil Chooses it may be prudent to communicate to the employees so that they know the score.
The case highlights 4 sales people that were not commercially minded. They could be sent to the Australian HQ to be trained to understand the commercial side of the Bundy business giving them some western ideals. Being of orient background with inbred culture, they will have a better chance of imparting western methods. It can be said their current usage of a general manager with a Chinese background is a step in the right direction.
An explanation as to why BAP's refrigeration market share in China declined whilst the total market grew is found in the issue of IP theft. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90%) and on average, 20% of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. Because the Bundy tubes were in high demand across the globe many of the copy cats tried to reproduce their reliability with dire consequences. It was revealed by the drop in sales. Their market share was in decline whilst the rest of the market grew because their market was being usurped. The infringement of their intellectual property rights to their technology was so widespread through local players that it must have drained their market and damaged their reputation.
One way to deal with this situation is to create a patent for the product. In many countries it is a criminal offence to copyright a patent. A Bundy logo on tubing and products could make it difficult to emulate. The use of business development representatives in the region could also aid marketing and close relationships with customers. The "out of sight, out of mind" culture is evident in this region. Currently there is no mention of CRM program. The creation of satellite Representative offices in strategic zones could be of great benefit.
Early 1990 brought a new breed of competitors. They focused on low cost and proximity to customers. Such strategy assisted greatly in supplying to the customer when it was wanted and at a cheaper price. It is pretty certain that the combination of IP theft and clever strategy created the downturn for BAP. With many indigenous companies creating refrigerator tubes and components, Mr Stephenson will need to focus on his plan of action for 1996 with much thought. He will need to orchestrate a major shift in the way BAP market its tubes. The strategies that have worked well for him in times past don't seem to be providing the positive results of previous years.
Phil Stephenson should appraise the BAP strategy and focus on introducing a new development strategy for the Chinese market; one that will bring him closer to his customers. The framework will demand analysing Bundy's external environment and its internal resources and capabilities. This will give BAP a clear sense of direction whilst providing the values or credo for his team. A clearly defined goal will provide motivation and direction for the BAP employees.
A vital success factor is also to communicate the intentions to the whole organization at an early stage. If the whole organization is aware of the intention and the purpose this will facilitate the process of developing and implementing a successful re-emergence.
Globalisation has led to high levels of performance standards in different dimensions including quality, cost, productivity, product introduction time, and operational efficiency. The risks involve are many as BAP has found out. It seems to have over diversified internationally beyond their ability to manage these extended operations giving it a negative impact on the company's performance. Competition fuels businesses to be efficient in every way. It fuels them to control their costs, innovate and say at the forefront of technology.
Bundy Asia Pacific participates in a few successful niche markets. With its strong R&D capability it has strong knowledge of tools and technology and has several innovative products under its belt but the problem is whether it manufactures these innovative products efficiently and consistently on a global basis. Its revenues are spread across its key businesses with the automotive being the largest contributor.
BAP is the sum of its parts and nothing more. Phil Stephenson and his team need to recognise the need to uphold their corporate vision. The endless conflict with its partners needs to be quelled. Their opposing visions for their joint venture can be ironed out by communication.
Drucker (1984) affirms "There is only one valid definition of business purpose: to create a customer." ...."Because its purpose is to create a customer, the business enterprise has two, and only these two, basic functions: marketing and innovation. Marketing and innovation produce results.
No company is immune from the new customer mantra: "I want what I want." In all industries, customers are demanding ever-higher levels of customization - products and services tailored to their needs. They are assured that, in an economy characterized by superior and better information transparency and operational progressions that make customization possible, they see an excellent chance of attaining it - from inside or outside their existing supplier base.
A properly executed marketing strategy coupled with constant innovation will bring back much lost custom. Surviving and being profitable in an industry characterised by strong competition, proliferation of products through copyright theft is not easy. The challenge BAP face now is to keep creating a competitive advantage that will keep them at the top of their league.
Once this is done the synergies derived from the shared know -how will effectively leverage core competencies and the JV will be justified. Creating the proper synergy will improve vertical integration. The flow of product via satellite offices can reduce cost, speed product development and yield massive benefits. As the alliteration goes proper planning prevents poor performance.