Cummins in china - Aravind
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Analysis and Inference on the market entry and consolidation strategies adopted by Cummins Inc in China between 1979 and 1998. Based on Harvard/Ivey case study - Taming the dragon.
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Cummins in china - Aravind
- 1. TAS
- 2. TAS Scheme of the presentation Case Background Entry Strategies Business Consolidation & Streamlining Service & Distribution Network Leadership Learning Case Background Cummins Inc. •Automotive Segment •Power Segment •Industrial Segment •Distribution and Service
- 3. TAS Scheme of the presentation MARKET ENTRY From the details available in the case, discuss the reasons for using a Licensing or Joint Venture approach for entering the Chinese market. Identify the underlying challenges for each of the market entry approach. What other approaches could have been explored instead of those used? If these market entry approaches were used in other developing economies would they have worked? Please elaborate.
- 4. TAS Entry •Exporting •Licensing Expand •Joint Ventures •Franchising •Strategic Acquisition •Merger Exit •Divestment •Strategic Sale Consolidate •Greenfield investment •Acquisition
- 5. TAS Nil Less High Moderate High Moderate Less Less Medium High High High Medium High Medium High High High Very High Medium High Very High Very High Medium High Political Economic Competition Legal Technology Exporting Licensing Joint Venture Strategic Acquisition Greenfield
- 6. TAS Entry 1981-1993 Expand 1993-1996 Extend 1997- 10 year License agreement to CQAEP Plant License agreement with DFM for B Engines JV with CNHTC to form CCEC. (Chongqing Cummins Engine Co) JV with DFM - DCEC (Dongfeng Cummins Engine Co) Fleetguard JV with DFM Multi-channel Distribution System Holset JV with Wuxi Power Engineering Ltd Greenfield investment – Dynasty brand of generators Cummins China Inc – wholly owned holding company for all JVs.
- 7. TAS Importing Low capital expense Improve learning Curves Chinese governme nt policies Low Market Knowledge JV with FAW FAW’s market power Size High Competitio n Capital Investment Strategic Partnership OEMs Own Engines Similar Work Culture Wholly Owned Subsidiary /AcquisitionPre- established Market Presence Secured technical knowhow Governmen t Ownership High Capital Risk 1979 1993 1997
- 8. TAS Cummins Brazil •four plants •Distribution network Cummins India •1.5 Billion USD Group Revenue •Cummins in India - seven legal entities across 200 locations •4 JVs and 3 subsidiaries
- 9. TAS Scheme of the presentation BUSINESS CONSOLIDATION & STREAMLINING What were the compelling reasons for Cummins to consolidate its various JVs and other partnerships? Could these consolidations have happened in a different time frame (i.e. before or after the time period mentioned in the case)? Explain why?
- 11. TAS …Consolidation Layer 4 Layer 3 Layer 2 Layer 1 Leadership Subsidiaries MBUs Engine Distribution Power APO China and East Asia 10 Operating Companies
- 12. TAS Scheme of the presentation SERVICE & DISTRIBUTION NETWORK Comment on the Chinese policy of prohibiting distribution and service of auto products? What must have been the compelling reasons to do so? Do you think servicing of auto engines is a business Cummins should be worrying about? Please justify? Are any of your insights applicable to other products and services across industry sectors?
- 13. TAS Reduce Foreign Exchange Depletion Building Domestic Behemoths Shielding domestic companies against foreign companies Limit the FDI at top of value chain Government Policy
- 15. TAS Strengths 1. Previous Experience 2. High product know-how 3. High Margin Business Weakness 1. Cultural difference 2. Medium Market Size 3. Less Market knowledge Opportunities 1. Customer connect 2. Increase Market Awareness 3. Better product quality Threats 1. Government policies 2. Relationships with partner companies …SWOT Analysis for Distribution Business
- 16. TAS •Automobile Industry •Electronics Industry Strategic Distribution
- 17. TAS Scheme of the presentation LEADERSHIP CONCERNS Comment on the leadership approaches adopted by Cummins for emerging markets vs. home market. What in your opinion necessitates such a differentiation? Substantiate your answers with facts and data from the case. What are the merits and demerits of an expatriate leader of a multi-national corporation? How could businesses of Tata group companies apply these learnings? Take any business and detail your proposal.
- 18. TAS Home Emerging Local Local & Expatriate Product Centric Market Centric Sustain Expand High Low High Low High Low More Less Parameter Leadership Focus Objective Market Awareness Process Awareness Synergy Decision Making Power Local vs Emerging…
- 19. TAS …Local vs. Emerging 15 16 37.623 37.174 38.47 41.075 0.858 1.417 0.7 1.574 4.35 -2.595 1.744 -5 0 5 10 15 20 25 30 35 40 45 1997 1998 1999 2000 CCEC Investment Sales PAT Net Cashflow 0 88 0.767 2.679 7.683 31.763 -10 0 10 20 30 40 50 60 70 80 90 100 1997 1998 1999 2000 DCEC Investment Sales PAT Net Cashflow 5257 5625 6266 6639 6450 160 212 140 205 1920 1000 2000 3000 4000 5000 6000 7000 1997 1998 1999 2000 Cummins Inc Revenue Net
- 20. TAS Value of Expats What they bring • High product know-how • Best talents across the world • Higher alignment with company’s global strategy • Experience in similar markets What they don’t bring • Cultural differences • Lack of awareness of local market • Disconnect with staff & language barrier.
- 21. TAS Greenfield Acquisitions Distribution Competitors Daikin, LG, Carrier, Trane, Midea, GREE, Hitachi, Samsung, Panasonic, York, and Sharp Opportunity for Strategic Investment Hitachi – divesting non-core assets Joint ventures with local distributers
- 22. TAS Porter’s 5 Forces Analysis: African AC Market • Unstable political environment • Potential for Growth • Last big market Entrants Moderate • No big local players • Expanding Market • Several established players • Less local manufacturing Competitive Rivalry • Strong Distributers • Price consensus among suppliers • In-house manufacturing Suppliers Moderate • Cheaper Chinese ACs • Cheap buyer switching cost Threat of Substitutes High • Moderate Cost Sensitivity • Raising climate challenge • Lower price differentiation • Low Switching Cost Bargaining power of Buyers Medium High
- 23. TAS Strengths 1. Market Knowledge in MEA 2. Market leader in home 3. Low cost operations 4. Low D/E of 0.06 Weakness 1. Less Brand Awareness 2. Medium Market Size 3. Corporate Structure Opportunities 1. CAGR 5.5% till 2022 2. Varying weather Threats 1. High Competition 2. Civil unrest 3. Unstable government SWOT Analysis for Voltas in Africa
- 24. TAS Scheme of the presentation APPLIED LEARNING Do you think, Cummins learned from its past and could the present approach work in future? Support your arguments with data within or outside of the case. If you were offered to take up a leadership role of this business, what skills, other than knowing Chinese, would be a must have. What would be your recommendations for a sustainable, profitable growth for Cummins in China in the next decade?
- 25. TAS Cummins in 2014 •Operations in 190 countries •600 distributers & 7200+ dealers •Locally managed ABUs. 0.52 0.08 0.04 0.03 0.03 0.03 0.27 Revenue share - 2014 USA China Brazil India Mexico UK Others
- 26. TAS Product & Process Know-how Proven Negotiator Work Culture Emerging Market Experience Leadership Art of taming the dragon
- 27. TAS Favourable Market Superior Technology Power Jam Industry Trends HyperlocalGreen Sustainable Emission standards OEMs - Volvo Navistar Deutz AG- Daimler Govt. Boost Future…
- 28. TAS Questions?
- 29. TAS END
Editor's Notes
- Cummins Inc reported a 19.2 B USD revenue and 1.61 B USD profit in 2014.
- Various market entry modes
- Cummins phased chinese market entry
- How cummins used same approach in other emerging markets and its success with the same.
- Higher investments need a central local pool to manage resources. Cummins needed a consolidated Cummins China office to kick-start its greenfield investment in 1997.
- Higher investments need a central local pool to manage resources. Cummins needed a consolidated Cummins China office to kick-start its greenfield investment in 1997.
- By 1997 Cummins had a very complex organisational hierachy in china which would delay decision making and also confuse partners as to where to look for answers.
- Apple popularized the use of service centers as poles to reach out to customers and give them a demarcating experience.
- Challenges faced by Cummins was different in local market. In local market competition was OEMs and Caterpillar who competed with Cummins on the technology front.
- Challenges faced by Cummins was different in local market. In local market competition was OEMs and Caterpillar who competed with Cummins on the technology front.
- Voltas can use the same approach to gain market entry in north africa through a mix of the approaches mentioned above.
- Cummins used its learning in Market entry to a great avail in other emerging markets and later in Africa. Company supplies parts and service to truck manufacturers in over 190 countries through a distribution network of 600 distributors and over 7,200 dealers.. Local Talent Pool – Cummins India APO Anant Talaulicar
- Cummins used its learning in Market entry to a great avail in other emerging markets and later in Africa. Company supplies parts and service to truck manufacturers in over 190 countries through a distribution network of 600 distributors and over 7,200 dealers.. Local Talent Pool – Cummins India APO Anant Talaulicar
- A market like china which is populated and controlled by powerful government and state companies, negotiation ability with government is a priority requirement for any leader.
- Cummins Chins future looks bright in near term and clouded in long term. Exit of long term competitor, Caterpillar and lack of big engine manufacturers gives Cummins an opportunity to expand. Also the impending implementation of Euro 6 equivalent emission standard gives Cummins a leg up as competitors lack the technology is high capacity engine segments. Also the fruitition of 700 B USD government stimulus is expected to create new demand as new highways move more goods to the roads. But on the long term, advancing technology and sustainable practices are expected to reduce goods movement by trucks and this is expected to affect the business. Also worrying is Cummins deep focus on diesel engines and lack of technical capability in high growing electrical engine segment.