For the last four years I’ve been teaching an international business course occasionally for a local MBA Program. My students are all working professionals who come to class for discussion and debate, not sermons. Case studies are the perfect teaching tool for this audience; there is plenty of room for debate and analysis. Layer in expansion into high-growth economies, and class attendance soars.
The class’ favorite case study is Silvio Napoli at Schindler India (A), available from Harvard Business Online here. The gist of the case study centers on Silvio Napoli, an ambitious strategic planning manager at elevator/escalator company Schindler, assigned the task of creating a subsidiary in India.
He faced three major challenges: First, he was going to be selling non-standard products in India, where customized elevators are critical to any new entrant strategy; his expansion strategy made cost reduction, not product customization, the top objective; and inter-company collaboration to the new low-cost subsidiary was sporadic, which delays in parts lists, design specifications and engineering support.
Meet Silvio Napoli
After having taught this case study for four years and having gone through thorough discussion and analysis of its points, I decided in preparing for a recent class to cut through all the conjecture and get right to the source to see what really happened. I called Silvio Napoli. He graciously gave me fifteen minutes of one of his busy mornings.
We went over the case’s more glaring lessons quickly, and then Silvio provided some great insights into lessons he learned trying to create a subsidiary for Schindler in India. Here are his take-aways:
- A “swatch” strategy of low-cost market entry was the wrong choice. In the case study much is said about how Schindler’s CEO was fascinated with the success of low-end, mass produced Swatch watches — a 90’s phenomenon — more than one General Manager of Manufacturing Operations strove to emulate this low-end production strategy.
- Schindler’s manufacturing cost structures were compatible with customization, not commoditization. Silvio said that was one of the biggest challenges he faced as getting transfer costs for elevators to a price point internally where building elevators made sense. The case study details the very slow ramp for sales — Silvio says this was a great lesson learned as a young manager.
- Exchange rates and unforeseen duties further frustrated market development efforts. Making the transferred sub-assemblies even more expensive was the fact that there were exchange rate fluctuations favoring Indian currencies, and the duties that were increased from 22 to 56 percent for non-core goods during the first summer of Silvio’s efforts.
- Creating a sourcing function in India took longer than expected. To overcome the duties and equalize the exchange rates, Silvio and his recruited management team started sourcing efforts in India. These efforts took more time than expected.
- Cultural differences were immediate and costly. This sounds like common sense, but Silvio said its one thing to say it, and quite another to live it. From reading the case study its clear that Schindler manufacturing sees high customization driving higher gross margins, and that this new Swatch strategy is a definite threat to their approach to business.
- Don’t confuse tactical wins with strategic victories in foreign markets. Within six months Silvio had opened offices in New Delhi and Mumbai, hired five Indian managers, each one very skilled in local elevator markets, and begun to aggressively implement the business plan for the subsidiary. Still, no new business was won. Tactically the execution had been perfect, yet strategically the swatch strategy was not winning any deals.
- China is a tough sell. Silvio relayed how the lessons learned in India are useful for selling into China; yet he says the effort required is significantly greater than getting sales in India once Schindler began customizing its elevators. He says there are successes in China but he thinks companies are thinking it’s much more painless than it really is.
- Don’t take the alliance between India and China lightly. Silvio sees this development as fundamentally re-defining the region and having global impact very quickly. An excellent analysis of the strategic impact of this relationship has been written by Jairam Ramesh, a member of the Indian parliament, in the April 18th edition of the Wall Street Journal. The article is here, and you’ll need Wall Street Journal online access to retrieve it. You can find Jairam’s Web site here. There’s another very good article on this alliance written by Paul McDougall of Information Week here.
Bottom line: No amount of process re-definition could have saved Schindler the pains associated with attempting to move into India with a low-cost strategy. Fundamental assumptions about India just wanting low-cost elevators where customization wasn’t a requirement took the effort of creating a subsidiary to learn from. One of my best students put together this final presentation of his research. If you’re interested you can get the slides here.
Finally, last week’s article on Gartner’s Magic Quadrant generated some hilarious e-mails as many people have created their own quadrants of just about anything you can imagine. The best link however came from Tekrati’s Barbara French who provided this link. Thank you all for sharing your own magic quadrants.
Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research. He recently completed the book Getting Results from Your Analyst Relations Strategies, which is available on Amazon.com.