Team D

Competing Case: Silvio Napoli at Schindler India

TEAM D Alexandra Breitner Annick Verhoeven Catarina Figueiredo Denise Embregts Sophia Oshchebska Wirtschaftsuniversitt Wien 2011 CEMS - MIM Global Strategic Management

Competing Case: Silvio Napoli at Schindler India India 1. INTRODUCTION 1.1 Schindler in India Schindler is the technology leader in elevators with a strong customer focus. After having ended the collaboration with Indian BBL, Schindler enters this high growth potential market independently in 1987. Silvio Napoli, Head of Corporate Planning at Schindler Switzerland, created Schindlers business plan to expand to India and was appointed to lead the top management team of the new subsidiary. The Business plan relied on two main pillars: standardization and outsourcing. Only one type of fully standardized elevator (S001) was to be marketed in India; customized orders were not to be taken. This strategy aimed at reducing complexity of operations and a quick penetration of the market. The outsourcing strategy was expected to reduce costs by avoiding tariffs and excessive overhead expenditures.

2. PROBLEM STATEMENT 2.1 Challenges in the current situation Despite the carefully prepared business plan, its feasibility was challenged. The first orders, taken in Napolis absence, were not consistent with standardization and required considerably higher costs. An unexpected 30% rise in transfer prices from Europe and an increase of the import duties further set back break-even objectives. 2.2 Problem Analysis a. Indian environment Indian culture, according to Hofstede (2009), is long-term oriented and traditional; people are more perseverant in their views and reluctant to rapid changes. This explains why Napolis team behaved inconsistently with the strategy. The low uncertainty avoidance ranking (Hofstede, 2009) explains the Indian reluctance to rules and regulations (see: Appendix a). In general, this environment requires more patience and flexibility than Napoli expected. b. Napolis personality Schindlers top management was convinced Napoli was the right candidate for this job as he was young and risk-taking. Nevertheless, his team described him as authoritative, impulsive and impatient. Napoli had difficulties adapting to culture and local complexities both at a company and personal level. He was persistent in making his developed business plan work, and unwilling to adapt. c. Business strategy The strategy was aggressive and somewhat overoptimistic. The Indian market is price sensitive, which could make a cost-effective standardized product attractive and an

Competing Case: Silvio Napoli at Schindler India India interesting opportunity for Schindler. However, there is no one in charge of marketing and sales, and the Indian consumers are not educated about the cost-efficient and standardized product S001. This could be perceived as a lack in service, which is important to Indian consumers (see: Appendix b). d. The management team The management team consists of different personalities. Additionally, Singh has no experience in the elevator business; he lacks knowledge about this sector and the different products available. He has contacts in the hotel industry, whereas clients for standardized elevators are found in other industries. e. Schindler Corporation Schindler Europe is inactive and does not provide Napoli with necessary training or support. By increasing transfer prices without warning, the parent company shows lack of attention towards the subsidiary. 2.3 Goal For Napoli, the main goal is to set up profitable operations as soon as possible. Also, the future growth potential of the strategy must be ensured.

3.

ALTERNATIVES

3.1. Maintain the business plan The original strategy of standardization and outsourcing stays in place, but the current problems have to be solved. First, Schindler must provide Napoli with a thorough cultural training and offer personal support during the difficult start-up phase. Also, transfer prices have to be negotiated. Further, Napoli has to engage in a more two-way oriented communication and his team needs to be educated about the business plan to prevent them from taking customized orders. Moreover, to achieve stable sales of S001, attention has to be paid to marketing. The consumer has to be educated about the new cost-effective product. 3.2. Revise the business plan In this alternative, elevators are customized to serve demand without changing customer habits. Singh should be given increased control over operations, as he has knowledge about the culture and experience in providing customer service. Additionally, Napoli needs a cross-cultural training in order to tackle his adaptation problems. Specific standardized components can be outsourced; however, customized elevators have to be assembled inhouse. 3.3. New entry strategy Another possibility is to enter the Indian market with a completely different, long-term approach. Schindler should offer high-end elevators focusing on leading technology and

Competing Case: Silvio Napoli at Schindler India India service, as it is an important decision criterion for customers. Schindler needs to set up own local production sites in order to protect know-how. Transfer prices are not an issue as safety parts are produced locally. Also, a new manager with specific knowledge about the new plan should replace Napoli.

4. ISSUES 4.1. Market & growth potential The in alternative 1 targeted low-end and price-sensitive segment is highly attractive, as 50% of market - manual elevators - must be rebuilt because of legal changes. Elevators are expected to become a commodity, allowing for low-priced standardized elevators. With strategy 2, Schindler targets a broader market including the middle-priced segment, driven by urbanization. In alternative 3, Schindler could profit from the trend towards higher technology demand; tourism is also expected to grow which will boost the high-end segment. See Appendix c for industry analysis. 4.2. Competitive situation Due to current developments, the low-end segment, characterized by local players lacking funds and technological know-how, will become more attractive to international players. Schindler could be the first international mover. In alternative 2, Schindler would not target any specific niche, which means that it would face high competition. In alternative 3, the high-end segment is very competitive as Otis and other MNCs are already well established. 4.3. Capital requirements In alternative 1 the capital requirements are rather low although marketing expenditure has to be increased. Regarding alternative 2, the costs will be on a medium level as the customized elevators incur higher production costs. Also, overheads are increased to assure retention of technological know-how. In alternative 3, capital requirements are very high, as Schindler has to invest heavily into developing production plants. 4.4. Restructuring issues Although Napoli is likely to accept alternative 1, it may cause tension between Schindler India and Schindler Europe. Alternative 2 will cause tension between Napoli, Singh and the team. The radical change in alternative 3 will potentially cause the most difficulties as Schindler has to start from scratch.

5. CONCLUSION According to the analysis and the scoring model (see Appendix d), it is suggested to implement alternative 1 in order set up profitable operations and to ensure future growth potential. Schindler is enabled to take advantage of the first mover position in the low-rise elevator market, which is expected to grow by double-digit numbers in subsequent years.

Competing Case: Silvio Napoli at Schindler India India By offering a standardized product, the price-sensitive Indian consumers can be optimally served. Greater marketing and sales efforts are needed to turn S001 into a high-growth product (see Appendix e).

6. APPENDIX a. Geert Hostedes Cultural Dimensions PDI Power distance index IDV Individualism MAS Masculinity UAI - Uncertainty avoidance LTO Long-term orientation

Source: http://www.geert-hofstede.com (12/11/11): Itim International; Geert Hofstede Cultural Dimensions, 2009

b. SWOT ANALYIS: Napolis business plan

Competing Case: Silvio Napoli at Schindler India India

c. PORTERS FIVE FORCES: elevator industry in India

d. SCORING MODEL Market growth & Competitive Capital Organizational TOTAL potential situation requirements issues weights 0,4 0,3 0,2 0,1 1 score weighted score weighted score weighted score weighted A1 2 0,4 3 0,6 3 0,6 3 0,6 2,2 A2 3 0,6 2 0,4 2 0,4 2 0,4 1,8 A3 1 0,2 1 0,2 1 0 1 0,2 0,6 Issues

e. PORTFOLIO ANALYSIS