Silvio Napoli At Schindler India – Harvard Businees Case
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COMM 374 – International Business Strategy
Date: March 4, 2007
To: Silvio Napoli, and Schindler Holding Ltd.
From: Chia—Jung Chang 5549039
Re: Silvio Napoli at Schindler India – Harvard Businees Case
Napoli, an ambitious vice president who is responsible for Schindler’s India division, is confronted with difficulties to implement his business plan. Schindler, a prestigious Swiss company, discovered the huge growth potential of the construction industry in Asia. Accompanied with the fortune of the elevator industry, Schindler decided to enter the Indian market. Earlier market research conducted by Napoli has revealed that a 100% wholly-owned subsidiary is of strategic priority due to the lack of ideal partners and local networks in India.
To resolve the present challenges that Napoli face, there are numerous considerations — elevator market environment, government policies, targeting and positioning, product development, efficiency of logistics and supply chain, Schindler’s strategic approach to international operation, and potential human resource management conflicts.
The upfront questions and impediments that Napoli presently encountered will be analyzed by the issues mentioned above and provided with the pros and cons of feasible alternatives.
Standardization: To penetrate market rapidly and take advantage of economies of scale, Napoli focused on simple and narrow product lines, with no allowances for customization. However, due to their lack of local experience, the standardized products introduced may not be in tandem with customer’s preferences. This misalignment might work to impede sales and promotion. On the contrary, customized products can offer Napoli greater opportunities to deal with a variety of customers, especially for an entirely new brand in a foreign market. But the disadvantage is that even with minor modifications, the complexity of product design and installment expense may increase substantially. These unexpected costs would be reflected in the higher prices charged (or lower margins), which will influence sales in the highly price sensitive market.
Outsourcing: Because of the unexpected increase in transfer price for most components and materials from European factories, Napoli chose to outsource low cost components to local companies, and import the core technology from the parent. Outsourcing enables Schindler India to minimize the cost of manufacturing and focus limited resource on other parts of the value chain. However, setting up a local manufacture network incurs monitoring cost and the risk of less quality control. Bad working conditions and low quality products would damage the reputation of the company severely. The other problem is that increased import duties erode the profitability of S300P, which is wholly imported from Southeast Asia. Localizing production of S300P’s components can avoid tariffs and save shipping cost, but Schindler should take the local partners’ capability and compatibility into consideration. Besides outsourcing, there are some alternatives to collaborate with local manufactures. Joint venture, for instance, provides Schindler control of quality and local knowledge. However, it also exacts significant cost including coordinating separate operation, creating competitors, and giving up profits. Another feasible approach is to have a wholly owned subsidiary. Acquisition endows Schindler total control over operation and access to local market, but radically integrating different management structure and culture makes acquisition to be more difficult than joint venture. Greenfield is a feasible approach, but setting plants and training Indian worker need local expertise, and exploring market alone would be highly risky and costly.
Global Strategy: The practice of standardization and outsourcing aims to achieve global efficiency. However, Schindler’s loose control of the India division resulted in a series of unsolved problems, which delayed the implementation of business plans and loss of potential revenue. One of the difficulties is the unanticipated rise in transfer price, and the impact is that suspicion was created and trust decreased. Building a transnational network balances centralized and decentralized management. The high-level communication among the worldwide network encourages knowledge flow and facilitates