Schindler India Case Analysis Essay
Schindler India Case Analysis
According to the case Silvio Napoli at Schindler India (A) by Fagan, Yoshino, Bartlett (2006), the world elevator leader Schindler was searching for ways to enter the India market in the year of 1998. Silvio Napoli, who was a young Harvard educated Italian and had been working with Schindler since 1994, was appointed by the Verwaltungsrat Ausschuss (VRA) to establish the India operations as a Vice President. In Schindler, Napoli was well known for his ‘Swatch Project’ which was “to develop a standardized elevator at a dramatically lower cost than the existing broad line of more customized products” (Fagan et al., 2006, p. 3). With the ‘Swatch Project’, Schindler was able to increase its profitability by reducing production cycle time.
However, regarding the India operation, Napoli encountered a number of issues that may stop the growth plan in India if not handled correctly. The issues will be further addressed in this report. On the other hand, since Napoli developed the business plan for India operations, he was under the pressures of leading the India operations and meeting the critical planned break-even objectives as a vice president. This report discusses how well Napoli was conducting the basic tasks of management in an international setting and examines the position of the company in terms of how it defines its international management strategy. Further, this report evaluates how well the company matched its chosen strategy and how well Napoli performed as a general manager.
The India Elevator Market
The India elevator market evolved from the economic liberalization in the early 1990s which had increased the demand for elevators in India. According figure.1, we can see that roughly 50% of demand was for low-tech manual elevators while low, mid, and high rise segments accounted for another half market demand with 35%, 50%, and 14% respectively. Fagan et al. (2006) had also pointed out that “the middle segment of low- and mid-rise buildings was promising due to India’s rapid urbanization which had led to a shortage of space n Mumbai and fast-growing cities such as Babgalore, Pune, and Madras” (p. 7).
As for the top end of the India elevator market, there was small but growing demand from multinational companies (Fagan et al., 2006, p. 7). Due to the high importing government tariff in India, the India elevator industry appeared to be a complex global industry, more towards the degree of multi- domestic industry. Factors are discussed below. Figure.1 Indian Elevator Market, Structure, and Product Segmentation
The Government Ban
In the early 1990s, a ban on collapsible gate elevator had been approved by the Indian government and this implied that the 50% of the local demand segment for low-tech manual elevator was open to international companies. As a result, Napoli’s business plan was to place Schindler’s S001 standardized elevator in this category. With economies of scale, market share was expected to gain quickly from the competitive price of S001.
The Expanding Tourism
Tourism was another key criterion in building the top end India elevator market. In 1990s, the Indian government liberation had also led to the increase of Tourism, aiding the domestic hotel industry (Fagan et al., 2006, p. 7). As a result, hotel industry was a major buyer of top-line elevators and Schindler’s S300P mid-range elevator was expected to fit in this segment. In addition, Fagan et al. (2006) had also noted that “the average value per top end elevator was five to six times that o low end installations” (p. 7).
Before Schindler entered the India Elevator Market, Napoli’s business plan had also documented the four major competitors that accounted for more than three-quarters of the market: Otis (50%), BBL (8.6%), Finland’s Kone (8.8%), and ECE (8.4%). Based on figure.2, we can notice that there were actually many players in the market with Otis dominating.
Figure.2 Elevator Brands in India
Fagan et al. (2006) had also reported that “with the exception of Mitsubishi, all multinational players relied on local manufacturing for the majority of their components” (p. 8). I believe this had also put Napoli in the shoes of local manufacturing. Further, including the 25 regional players whom accounted for the remaining 23% of the market, any player could be a potential partner to Schindler for fast adapting to the India market environment. However, VRA concluded that there was no ideal partner (Fagan et al., 2006, p. 3).
Price sensitive was another key feature of the India elevator market. Fagan et al. (2006) had reported that “most analysts agreed that elevators were becoming commodity products and that price pressures would increase” (p. 8). This once again confirmed Napoli’s S001 standardized low price strategy in capturing the market shares quickly.
According to figure.3, surveys had also indicated that service played a critical role in the buying decision. This implied how Indians had switched their taste with the rise of their capital income after the economic liberation in the early 1990s. Figure.
3 Factors Influencing Elevator Purchase
In terms of international management strategy, Schindler approached the India elevator industry as a complex global company. To analyze this further, we first have to understand the global strategy of Schindler which was to promote standardized elevators at a dramatically lower cost. The standardized elevator S001 was then developed in the ‘Swatch Project’ with no room for customization. In addition to that, another global strategy switch was to outsource parts manufacturing and services to outside suppliers. This further enabled Schindler to minimize the production cycle time. The AAA (Aggregation, Adoption, or Arbitrage)
In the approach to the India elevator market, Schindler made used of the combination AAA strategy and it fit the industry environment very well. First of all, considering India’s high import duties, since S001 was expected for 75% of India sales while Schindler India would not have in-house manufacturing, the production of S001 model would be outsourced to local approved suppliers. This was a form of both adoption and arbitrage to Schindler by utilizing local resources with low labor cost in achieving its low cost market strategy. Meanwhile, as illustrated in figure.1, the S300P which accounted for mid and high rise market segment would be wholly imported from Southeast Asia.
In addition, only safety related components would be imported from Schindler plants in Europe. Hereby, we can see that the importing strategy from Southeast Asia and Europe was a form of aggregation for Schindler as a complex global company. The strategy should have worked very well as Napoli’s business plan took account of Schindler’s weakness in India such as no in-house manufacturing and balanced it up with local resources while projecting the Schindler’s competitive advantage in the India market.
Various Modes of Entry
Talking about new market entry, especially in India, the case Eli Lilly in India: Rethinking the Joint Venture Strategy by Nikhil (2004) appears to be a decent example for Schindler in examining the mode of entry to India market. Similar to Schindler, Eli Lilly was trying to enter India market for its pharmaceutical industry. However, the only difference between Eli Lilly and Schindler was their modes of entry; Eli Lilly entered the India market in a joint venture with Ranbaxy while Schindler entered in a wholly owned subsidiary. Schindler could have also entered the India market in a joint venture with a potential local partner. However, it was very smart of Schindler to have entered the India market simply in a wholly owned subsidiary way in terms of future international management. This recalls all the way back to the beginning of Schindler’s India strategy.
In 1995, Chairman Alfed Schindler spent several weeks travelling in India and he realized the huge market potential saying “India will be our Formula One racing track.” Schindler was inspired by the auto industry in India for which “90% of all innovations are developed for and tested on Formula One cars and then reproduced on a much larger scale and adapted for the mass market” (Fagan et al., 2006, p. 11). Therefore, similar to the auto industry, Schindler wanted their innovations to be developed and tested in India before produced in a larger scale for other markets.
Indeed, the thought was definitely an arbitrage but in a very large scale in respect to the low labor cost in India which would significantly increase profitability for Schindler in terms of future international business. The ‘Formula One racing track’ concept could also be why Eli Lilly bought out the joint venture company Eli Lilly Ranbaxy in India eventually and operated as a wholly owned subsidiary. However, hereby, it is crucial for us to recognize that Eli Lilly definitely achieved cost and time saving advantage through international joint venture with Ranbaxy in entering the India market comparing to Schindler’s wholly owned subsidiary.
Napoli the Vice President
As a vice president for South Asia, Napoli had been fulfilling his jobs and making steady progress in all areas. Despite several personal, cultural, and business challenges, Napoli was committed to establish and drive Schindler India as the business plan. However, there were still unexpected changes that may stop the growth plan in India if not addressed correctly.
Adapting to a new environment is never easy and Napoli admitted that the first two month in India was brutal in allocating family and company start-up. However, apart from relocating and settling his family in Delhi, Napoli was very concentrated in shaping Schindler India by shuttling between Delhi and Mumbai for office space, filling government registrations, and completing legal paperwork. As a result, he soon established Schindler India head office in Mumbai and marketing service office in New Delhi.
Recruiting the Team
On the other hand, Napoli was also busy but effectively recruiting the top positions for Schindler India. He soon hired five top managers with strong general and specialized elevator industry knowledge with consensus built around the business plan.
Developing the Relationships
As soon as the Schindler India top management team was formed, Napoli acknowledged the personal challenge and established a lean, efficient organization and most importantly a company culture that employees described as “informal,” “open,” “responsive,” and “proactive” (Fagan et al., 2006, p. 7).
The India Business Plan
Within the shortest time, Napoli worked to gain his Schindler India top management team commitment to his business plan. The cores of the business plan were two elements: the need to sell a focused line of standard products, and the ability to outsource key manufacturing and logistics functions (Fagan et al., 2006, p. 7).
Challenges and Issues
Before addressing the challenges and issues that Napoli had encountered, we first need a clear picture of the Schindler India business plan. According to Fagan et al. (2006), the business plan called for Schindler India was to sell 50 units in the first year and to win a 20% share of the target segments in five years (p. 9). The business plan had also projected “Schindler India would break even after four years and eventually would generate double-digit margins” (Fagan et al., 2006, p. 9).
Under the pressure of running Schindler India business plan on schedule, Napoli was being questioned on the feasibility of his plan since no other company in the industry worked in the way of selling only one standard elevator. Further, Napoli discovered that there was a good possibility for each of the standard elevator to be specified with a glass wall. However, although glass wall was a minor modification, Napoli believed that the installation would be much more difficult than expected especially to a new team. It was a dilemma between standard and customization while going customization would certainly violate the business strategy.
On Napoli’s travel to Italy with family, he discovered that the company had accepted an order for an expensive custom glass pod elevator on one of his daily telephone calls to key managers in India. The custom glass pod elevator was to be imported from Europe and simply violated the business strategy.
No Support from Global Schindler
Global Schindler was supposed to be helping Napoli in running Schindler India business. However, on the contrary, Napoli was shocked when he saw the transfer prices on the basic S001 elevators at 30% higher the costs in his original business plan. Further, when Schindler India team started working with the European plants to get design details and production specifications, Global Schindler was slow in responding which frustrated Schindler India team in setting up alternative local resources.
Increase of India Government Import Duty
The India government import duty rate was increased from 22% to 56% and this made the impact of the transfer price increase worse for Schindler India.
Given the issues illustrated above, it was apparent that global Schindler had not matched its chosen combination of AAA strategy. Aggregation was not noticeable while arbitrage was hardly to be achieved with the increase of the transfer price. Instead, Napoli had been trying very hard in fulfilling his jobs and performed very well in establishing Schindler India.
As illustrated in figure.3, service evolved to be a critical factor in buying decision. However, service aspect was missing in Napoli’s business plan though the price aspect was being addressed. Service aspect was crucial because the last four phases of the elevator life cycle were service content and accounted for 80% of business profits Connection with Global Schindler
Again, regarding the increase in transfer price issue, it implied that Napoli might have spent too much time on establishing Schindler India and had forgotten to connect with global Schindler. This could be a reason why Napoli was not aware of the transfer price increase from global Schindler.
According to the case Silvio Napoli at Schindler India by Fagan et al. (2006), the organizational structure in figure.4 shows that Napoli reports to India/Middle East executive R. Maiocchi. However, there was no interaction between them mentioned in the case. This could be another reason for the lack of connections between global Schindler and Schindler India. Further, a better organizational structure could be done to avoid asymmetric information such as the non-standard orders.
Figure.4 Schdler Organization Chart
After analyzing the case Silvio Napoli at Schindler India by Fagan et al. (2006) thoroughly, it is now the time to conclude this report with respect to the question whether Silvio Napoli was the right choice as a general manager and how well he had done as a manager.
Choice of Silvio Napoli as the General Manager for Schindler India
Recognizing the establishments Napoli had done in eight months for Schindler India, there is no doubt that Napoli was the right person for the job. As Bonnard explained the choice of Napoli, he acknowledged that Napoli was open in going new ways and knew lots of people. Indeed, in order to handle different cultures between countries, Schindler was right in appointing Napoli who was young and flexible as the general manager for Schindler India. As expected, Napoli was fast and efficiency in establishing Schindler India in eight months of time.
On the other hand, given the challenges and issues Napoli had encountered in Schindler India, Napoli was prepared in facing the problems by understanding the situations very well. Napoli described that he had to resolve the challenges in India while maintaining contact with European organization to ensure he received the support he needed (Fagan et al., 2006, p. 11). On top of those, Napoli had never forgotten the “Formula One” expectation from Mr. Schindler in the venture of Schindler India.
Schindler India Organizational Restructure
From the issue of accepting nonstandard product in Schindler India which violated Napoli’s business plan and strategy by Indian managers, it had indicated that the organizational structure in Schindler India needed to be restructured. By comparing the Schindler India organizational structure (figure.5) with Methe’s (2012) functional structure (figure.6), a sales department was found missing in the Schindler India organizational structure. Therefore, by restructuring a sales department in Schindler India, it could have resolved the issue of accepting nonstandard order since the sales manager had to report to Napoli who was the general manager for any order he was taking in.
Fagan, P. L., Yoshino, M. Y., & Bartlett, C. A. (2006). Silvio Napoli at Schindler India (A). Boston: Harvard Business School Publishing. Celly, N., Dhanaraj, C., & Beamish, P. W. (2004). ELI LILLY IN INDIA: RETHINKING THE JOINT VENTURE STRATEGY. Ivey Management Services, Richard Ivey School of Business. Methe, D. (2012). Note on Organization Structure. Institute of Business and Accounting, International Management Course.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 6 November 2016
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