QUESTION 1
1. What’s the difference between an entry-condition loop and an exit-condition loop? Which kind is each of the C loops? Provide a detailed response with examples.
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25 points
QUESTION 2
1. Write a for loop that prints the values 1 2 4 8 16 32 64 by increasing the value of a counting variable by a factor of two in each cycle.
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25 points
QUESTION 3
1. Write a function that takes three arguments: a pointer to the first element of a range in an array, a pointer to the element following the end of a range in an array, and an int value. Have the function set each element of the array to the int value.
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25 points
QUESTION 4
1. Write a void function called "swapPositive" which takes two reference parameters and swaps the values in those parameters if they are both positive numbers.
Show how this function is called from a main() program.
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144 International Business Strategy
313-294-1
"
"Toyota (TM) Focusing on Emerging Markets for Boosting Sales," www.sharewellnewswire.com. May 28, 2012.
"The IMV Project," WWW.loyotageorgclown.com. December 9,2004.
"Developing Localized Products Thai Are "Made by Toyota"," www.toyota.global.com.May2011.
Makikc Kitamura and Masatsugu Hone. "Toyota Said to Aim for Emerging Markets Growth in Plan,"
w\\'W.bloomberg.com, March 7, 2011.
"ToYOIII'S New Plant Makes Indonesia Production Hub," www.chinadaily.com.cn. March 18,2013.
"The [MV Project," WWW.loYOIageorgclown.c011l. December 9, 2004.
"Toyota (TM) Focusing on Emerging Markets for Boosting Sales," www.sharewellnewswire.com. May 28, 2012.
Berte! Schmitt, "Toyota Launches All-Out Assault on Emerging Markets, Meets "Fierce Competition't-Not from
Detroit," www.thetruthaboulcars.com.May25.2012.
"Toyota Focuses on Emerging Markets," www.zacks.com, May 29, 2012.
Hajime Yamagishi, "Toyota Centres Strategy on Hybrids," www.asianewsnct.net. September 26,2012.
"Toyota Says To Release 2\ New Hybrid Models By End: 2015," www.reuters.com, September 24, 2012.
Chang-Ran Kim, "Toyota to Focus on Emerging Markets," www.theglobeandmail.com. March 9, 2011.
Morgan Stanley is a multinational banking and financial services corporation.
"The Toyota Global Vision," www.toyota_g1obal.com/company/messageJrom_presidentlspeechl\0309.pdf
"Toyota Eyes 50% of Global Sales from Emerging Markets," www.indianexpress.com. March 9, 2011.
"Toyota to bring in premium brand Lexus to India in 2013," hr ...
QUESTION 11. What’s the difference between an entry-condition lo.docx
1. QUESTION 1
1. What’s the difference between an entry-condition loop and an
exit-condition loop? Which kind is each of the C loops? Provide
a detailed response with examples.
2.
3.
4. Path: p
Words:0
25 points
QUESTION 2
1. Write a for loop that prints the values 1 2 4 8 16 32 64 by
increasing the value of a counting variable by a factor of two in
each cycle.
5.
6.
7.
8. Path: p
Words:0
25 points
QUESTION 3
1. Write a function that takes three arguments: a pointer to the
first element of a range in an array, a pointer to the element
following the end of a range in an array, and an int value. Have
the function set each element of the array to the int value.
9.
10.
11.
12. Path: p
Words:0
25 points
QUESTION 4
1. Write a void function called "swapPositive" which takes two
reference parameters and swaps the values in those parameters
if they are both positive numbers.
Show how this function is called from a main() program.
13.
14.
15.
16. Path: p
Words:0
144 International Business Strategy
313-294-1
"
"Toyota (TM) Focusing on Emerging Markets for Boosting
Sales," www.sharewellnewswire.com. May 28, 2012.
"The IMV Project," WWW.loyotageorgclown.com. December
9,2004.
"Developing Localized Products Thai Are "Made by Toyota","
www.toyota.global.com.May2011.
Makikc Kitamura and Masatsugu Hone. "Toyota Said to Aim for
Emerging Markets Growth in Plan,"
17. w'W.bloomberg.com, March 7, 2011.
"ToYOIII'S New Plant Makes Indonesia Production Hub,"
www.chinadaily.com.cn. March 18,2013.
"The [MV Project," WWW.loYOIageorgclown.c011l. December
9, 2004.
"Toyota (TM) Focusing on Emerging Markets for Boosting
Sales," www.sharewellnewswire.com. May 28, 2012.
Berte! Schmitt, "Toyota Launches All-Out Assault on Emerging
Markets, Meets "Fierce Competition't-Not from
Detroit," www.thetruthaboulcars.com.May25.2012.
"Toyota Focuses on Emerging Markets," www.zacks.com, May
29, 2012.
Hajime Yamagishi, "Toyota Centres Strategy on Hybrids,"
www.asianewsnct.net. September 26,2012.
"Toyota Says To Release 2 New Hybrid Models By End: 2015,"
www.reuters.com, September 24, 2012.
Chang-Ran Kim, "Toyota to Focus on Emerging Markets,"
www.theglobeandmail.com. March 9, 2011.
Morgan Stanley is a multinational banking and financial
services corporation.
"The Toyota Global Vision,"
www.toyota_g1obal.com/company/messageJrom_presidentlspee
chl0309.pdf
"Toyota Eyes 50% of Global Sales from Emerging Markets,"
www.indianexpress.com. March 9, 2011.
"Toyota to bring in premium brand Lexus to India in 2013,"
hrtp:lleconomictimes,indiatimes.com, November 28,
2011.
Nandagopal J. Nair, "GM is about to Overtake Toyota as the
18. World's Largest Automaker," httpJ/qz,com, July
26,2013
Mn Jie and Masatsugu Horie, "Toyota Boosted with Yen at 100
Faces Stronger Competitors: Cars,"
www.bloombcrg.com, May 10,2013,
"Triggerpoints: The World's Emerging Car Markets,"
https:!!www.eiu.com/publicJtopical_report.aspx?campaignid....l
riggerpoints
"VW Conquers the World," www.econoruist.com, July 7,2012.
"Toyota President Seeks End to Tunnoil With Management
Revamp," www.autonews.com.March Lzul S.
"Emerging Markets Help Honda Motors Reach $42,"
http://seekingalpha.com,August23,2013.
"Honda to Double Brazilian Output in Emerging Market Sales
Push," www.japantimes.co.jp.August 8, 2013.
Ma Jie and Masarsugu Hone, "Toyota Boosted with Yen at 100
Faces Stronger Competitors: Cars,"
www.bloomberg.com, May 10,2013.
Kenneth Rogoff, "Emerging Market Slowdown: Can a Crisis be
Averted?" www.iheguerdian.corn September 3
2013. ' ,
AJ Sull, "Investors Seeing the Other Face of Emerging
Markets," hllp:l/business,financialpost.com September 13
2013. ' ,
Alanna Petroff, "Emerging Market Woes: Contained or
Contagion?" http://money.cnn,com, August 30, 2013.
"Emerging Markel Slowdown Adds 10 Global Economy Pains,"
www.imf.org,July 9, 2013.
"JMF Sees Heightened Risks Sapping Slower Global Recovery,"
www.imf.org,October9,2012.
19. Leigh Thomas, "DECO Sees Europe Joining lf.S. Recovery,
Emerging Markets Sluggish," www.reuters.com
September 3, 2013. '
'The Great Deceleration," The Economist, July 27, 2013
"Toyota Set to Target Rising Stars,"
www.bangkokpost.corn.July zo, 2013.
Nandagopal J. Nair, "OM is about 10Overtake Toyota as the
World's Largest Automaker." http;1 J I 262013. ' qz.com, uy ,
Chang-Ran Kim. "Toyota to Focus on Emerging Markets,"
www.theglobeandrnail.com, April 27, 2011.
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Mabe: learning to be a Multinational 14~
Richard Ivey School of Business
The Unlverslry of Western Ontario IVEy
9B13M042
MABE: LEARNING TO BE A MULTINATIONAL
Jose Luis Rivas and Luis Arciniega wrote this case solely to
provide material for class discussion. The authors do not Intend
to
illustrate either effective or ineffective handling of a managerial
situation. The authors may have disguised certain names and
other
identifying information to protect confidentiality.
Richard ivey School of Business Foundation prohibits any form
of reproduction, storage" or transmission without Its written
permission, Reproduction of this material is not covered under
authorization by any reproduction rights organization. To order
copies
22. HISTORY
Mabe was founded in 1946 by the Mabardi and Berrondo
families. Although initially dedicated to
building kitchen cabinets, in 1950, the company expanded to
manufacture its first appliance, a stove. By
1968, the company had expanded its involvement in appliances
and it began exporting fridges and stoves
to Central America and the Caribbean. The first industrial plant
for manufacturing refrigerators was built
in Queretaro, Mexico, in 1976, the same year the company
began exporting to the United States. By 1980,
Mabe was the market leader of stoves and refrigerators in
Mexico. General Electric (GE) acquired 48 per
cent of Mabe in a JV in 1987. As part of the JY deal, Mabe
retained full management responsibility and
would build gas stoves for the U.S. market, in exchange for
receiving U.S. technology and technical
advice. By virtue of this deal, GE had become Mabe's main
business partner and its largest customer.
In 1989, Mabe acquired Easy, one of the industry's key players,
In 1990, Mabe opened a new stove plant
spanning 1.5 million square feet in San Luis Potosi, Mexico.
The production at this new plant would be
mostly devoted to the U.S. market.
..--:...:.
146 International Business Strategy
9B13M042
Page 2
23. In 1994, the company decided to embark on an expansion to
Latin America, and Mabe's missio~ was
redefined to include the label "Leaders in Latin America" with a
focus in the Andean Pact countnes -
Venezuela, Colombia, Peru and Ecuador. Mabe acquired
appliances plants in Ecuador, Argentina and
Colombia. In Venezuela, Mabe decided to compete using a GE
plant and through a joint venture with
Ceteco, a Dutch firm that already had a presence in the Latin
American market. The purchased plant in
Colombia was bought from Phillips. In Ecuador, Mabe
established a IV with the Orrantia family through
their Durex brand. In Peru, a representation office was opened
to import appliances.
In 1998, Mabe acquired the Spanish manufacturer Pager's
operations in Argentina. In 1999-2000 the
U.S. Energy Department issued a regulation requiring energy
consumption to be decreased by 30 per cent.
When GE considered the investment required to shift its U.S.
production plant, it decided instead to
source from a new plant to be built in Celaya, Mexico. Thus, in
2000, a high-end refrigerator plant began
its operations there. The output from this plant would cover
demand from both the domestic and
international markets under the Mabe and GE brands. In 1994, a
research and development (R&D) centre
opened in the city of Queretaro, Mexico. The centre's main
purpose was to decrease reliance on GE for
R&D and to develop higher and more sophisticated technical
skills to support GE's technology team in its
R&D and product development efforts. Another goal was the
development of proprietary technology.
Also in 2000, the San Luis Potosi plant was enlarged to
accommodate the production of electric stoves for
GE's u.s. market.
24. In 2002, Mabe entered Latin America's main market through
two acquisitions: Dako (GE's operation in
Brazil) and CCE appliances.
By early 2003, more than a third of all gas and electric ranges
and refrigerators sold in the United States
had been manufactured in Mabe plants. Its side-by-side
refrigerators could also be found in one of every
four American homes, 1
In 200S, Mabe's entered the only North American market where
it did not yet have a presence. Cannco
Canada was acquired, and with this acquisition, Mabe started
exporting dishwashing machines and
clothes dryers to the U.S. market.
As part of Mabe's internationalization strategy, a brand
portfolio was established with the GE brand in the
upper segment, Mabe in the middle and some regional brands,
such as Easy, Dako, Patrick and Durex, in
the middle and lower segments.
In 2008, Mabe ~cquired ATLAS Costa Rica, a manufacturer of
refrigerators and stoves. That same year,
two repres~ntatlon offices ~ere opened,: one in Chile and one.
in Russia. The main purpose of a
representation office was to Import appliances from other
producing countries. In the case of Russia
because of the market's importance and cultural distance, Mabe
decided to open the representation office
in a S(}-SO deal with Spain's Fagor.
Due to the financial crisis, in 2008, GE considered selling its
appliance business worldwide. Several
bidders expressed interest, including Mabe. In the end,
however, GE's board decided to keep the
25. appliance business.
In 2009, Mabe became Brazil's second industry player by
acquiring Bosch's B '1' ti W' hthi . . . h B .. razt Ian opera IOns.
It
IS acquismon, t e razilian market also became Mabe's number
two wo Id id k ft hU '1 d St t Th M' k hat ti - r WI e mar et, a er
t e
nJ e a es. e eXlcan mar et at t at tune was approximately $6S0
million,' while the Brazilian
1 J. David Hunger, ·U:S. Major Home Appliance Industry in
2002: Competifion Bacorn •.
~unger(eds.), Strategic Management ~nd8usiness Policv
Prentice Hall, Upper Saddle Rf:erG~Ja~~n T. Whee/en and J.
All currency amounts are expressed In U.S. dollars unless
otherwise indicated. ' , 3.
Mabe: Learning to be a Multinational
Page 3 9B13M042
market was at almost $1 billion. Brazil had become Mabe's most
complex experience, due to the
following factors:
• GE's large operation with Brazilian-American executives
• Mabe arrived with Mexican-Americans
• Bosch mostly had German-Brazilian executives
The challenge in Brazil was the result of different cultures
having to come together. Thus, Mabe's chief
executive officer (CEO) in Brazil was the former corporate head
of human resources.
26. In 2012, Mabe was the largest appliance manufacturer in Latin
America and held an important share of
demand for the U.S. market. Mabe manufactured all the stoves
that OE sold in the United States plus
high-end side-by-side and bottom-freezer refrigerators and all
of OE's clothes dryers. Mabe was also in
charge of R&D for those products alongside OE's Canadian
operations, where OE held 17 per cent of the
market and was present in every Latin American country.
Exhibits 1 and 2 contain a summary of Mabe's
history and revenues.
One of the lessons Mabe learned through this expansion was
that the best people to operate businesses are
the locals who know the industry. Corporate managers needed to
visit the foreign operations only to solve
specific problems. Another lesson was the importance of
instilling the finn's culture into the acquired
firms. Perez was conscious of the value of cultural integration
and knew it would be a complex issue to
work through. A final lesson was that, in terms of culture, an
internationalization process needed be taken
very seriously, which meant a long-term commitment to the task
and the involvement of the CEO, top
managers and board members in all stages of the process.
THE ALLIANCE WITH GE
ln 1987 GE acquired 48 per cent ofMabe. GE's main interest
was to decrease its production costs. At the
time, GE was using Electrolux as its main provider of stoves for
the U.S. market. Mabe, on the other
hand, wanted both to learn from a giant such as OE and to be
able to penetrate new markets. One of the
first decisions of the joint venture was to build a plant to
27. manufacture stoves for the new markets. As it
turned out, the new San Luis Potosi facility became the largest
manufacturer of its kind in the world.
Mabe and OE faced the challenge of training U.S. suppliers that
were not accustomed to exporting
components to a developing country such as Mexico.
As part of tbis joint venture, a new breed of executives joined
Mabe, where graduate degrees were still
rare. 'For many years, the norm had been for employees to work
their way through the ranks. After the Jv,
all the new incoming cadre of hires were engineering graduates
and, following the catchphrase "all
students, all teachers," they were first assigned to teams headed
by seasoned Mabe and GE executives,
who were initially suspicious of the experiment. Five of these
new executives were selected as the pilot
group to receive training in Kentucky's GE facilities, while the
rest of the group stayed in Mexico to
continue working with their U.S. counterparts. Finally, as part
of this process, Mabe would also manage
GE's Canadian operations; the research and development
activities of GE's stoves, refrigerators and
dryers; and the global procurement of strategic components for
both OE and Mabe. Exhibit 3 provides a
breakdown of Mabe's regional sources of income.
At the beginning of the 1990s, Mabe convinced OE that Latin
America was a natural market for
expansion: The language, culture and the degree of economic
development were similar among the
region's large economies. To rapidly consolidate the markets,
Mabe used GE's methodology of "action
learning," whereby multidisciplinary teams of executives
collaborated to recommend ways to enter new
28. .-iI? _
148 International Business S~t~ra~te~g~y _
9B13M042
Page 4
markets. Each team travelled to the target market for a six- to
eight-week stay. At the e.nd of this time
period, each team formulated its recommendations, and top
~anagemen~decided ~h1Ch markets ~o
pursue. Since the late 1980s, GE had used this methodology at
Its Crotonville leadership centre to tram
and select executive talent.
Mabe and GE were to apply this methodology, using one team
to recommend entry strategies to the board
and top management team.
Throughout the expansion process in Latin America, Mabe and
GE also worked closely on. strategic
programs for the North American markets, such as the new side-
by-side bott~m freezers, refrigerators,
electric stoves and - with the acquisition of Cameo in Canada -
the production and supply of clothes
dryers. Exhibits 4 and 5 provide balance sheets and income
statements for 2006 through 2008.
Additionally, sales for global appliance players can be seen in
Exhibit 6.
THE BRIC COUNTRIES
Early in the 2000s, observers predicted that Brazil, Russia,
India and China (i.e., the BRIC countries)
29. would overtake the largest industrialized countries in size by
2050. Some predictions had subsequently
shortened the timeline to 2018. In 2011, China surpassed Japan
as the second world economy in terms of
size. Exhibits 7 and 8 show the sizes and profitability of
selected BRIC countries.
Russia had the largest land mass in the world and a gross
domestic product (GOP) of almost $1.5 trillion
in 20 I0, compared with India's $1.4 trillion, Brazil's $2.2
trillion and China's $5.7 trillion. Russia's 20 I0
per capita income was slightly higher than Brazil's, double that
of Chiua and approximately nine times
India's. Russia had the world's largest gas reserves and second
largest oil reserves, Russia's discretionary
income was 30 per cent higher than Brazil's, 10 times that
oflndia and four times that of China.' Moscow
and other major Russian cities were experiencing a consumer
boom, spurred on by rising incomes of the
middle class.
The Russian government established in 20 II a $10 billion fund
to be used to attract foreign investment.
Russia's outward foreign direct investment was almost $50
billion between 2007 and 2009, and Russian
multinational corporations (MNCs) owned $203 billion in assets
outside of Russia, more than that of any
other BRIC country. Additionally, Russia had recently
introduced an innovation program that included a
centre for innovation - Skolkovo - and several techno parks and
economic zones throughout the
country.
During the past two decades, Russia had faced struggles on two
fronts: a decreasing population and the
deterioration of human capital. According to Rosstat, the
30. Russian agency of statistics, since 1992, Russia
had 12.5 million more deaths than births, the equivalent of three
funerals per each birth for the past 20
years. Worldwide, in the period after the Second World War,
only one population decrease had been more
alarming: in China, between 1959 and 1961, as a result of Mao
Tse-Tung's "big jump-ahead program."
Thus, between 1993 and 2010, Russia's population decreased
from 148.6 million to 141.9 million.
Several. industrializ~d countries w~re also experiencing
population decreases: Germany, Italy and Japan
",:ere either bordermg on popu.latlOn decre~ses or were
beginning to show signs of a decrease. The
difference between these countnes and RUSSia was that the
former countries faced this crisis at a time of
unprecedented levels of public health, whereas Russia was
experiencing an extraordinary crisis of
J Sheila M. PUff~r ~ Daniel McCarthy, two Decades of Russian
Business and Management eeseercn: An Institutional
Theory PerspectIVe, Academv of Management Perspectives
2011, pp. 21-35. .
ar _
Mabe: Learning to be a Multinational 140
Page 5 9B13M042
mortality. According to the Human Mortality Database', life
expectancy in Russia was lower in 2009 than
in 1961. In 2009, the life expectancy in Russia at age 15 was
lower than in Bangladesh or Madagascar.
31. The main causes of Russian deaths were cardiovascular
diseases, fatal injuries, accidents and suicides.
Cardiovascular diseases in Russia were almost three times the
levels in Western Europe, and deaths due
to injuries and violence were similar to those experienced by
some African societies, such as Liberia and
Sierra Leone.
The second front of problems for Russia was its deterioration of
human capital. Globally, higher levels of
education typically correlate with increased levels of public
health. Russia's adult population was 30
percentage points above the DECD average but with a life
expectancy similar to that in Senegal. Part of
the problem might been the quality of Russian education;
international standardized tests have revealed
that Russian elementary and high-school education is below the
levels in Turkey, which has among the
lowest ratings for education among the DECD's's list of
countries. In 2008, Russian authors published
fewer scientific articles than authors from Brazil, China or
lndia. Indeed, Russia represented a new and
curious reality in today's globalized world: a society
characterized by high levels of education but low
levels of health and knowledge. Beyond affecting individual
levels of wellbeing, this triple problem could
also have serious economic implications. Even despite Russia's
vast natural resources, in today's
globalized economy, a country's wealth is represented by its
human capital. Natural resources can
increase the level of wealth in an already rich human capital
society, such as Norway or Canada; but,
natural resources cannot on their own replace the value of
human capital, nor is there a single example of
a super world power that has developed solely on the basis of
its natural resources. Each year, Russia
32. earns less than Belgium for its exports. To complicate things
further, in Russia, the state's share of the
economy is 56 per cent, a high rate that is seen only in China,
where state-owned companies also account
for more than halfofthe total value of the stock market.'
Today, many multinationals consider an entry into Russia to be
of strategic importance in their efforts to
truly achieve global competitiveness. However, a survey of 158
corporate investors and non-investors in
Russia indicated that respondents viewed doing business in
Russia to be more risky and less profitable
than doing business in China, India or South East Asia." The
respondents' main concerns were weak
legislative and enforcement regimes and the incidents of
corruption and bribery at all levels of state
bureaucracy. Indeed, Russia was ranked 147th out of 180
countries in Transparency International's 2008
Corruption Perception Index.' A 2009 survey by the Foreign
Investment Advisory Council (FlAC) of 50
executives from large companies" reported concern about
Russia's political interference in business,
arbitrariness in the application of laws, complexity of the tax
system and lack of skilled staff. Over the
past decade, the Russian state had exerted a far stronger
influence over business activity than the previous
Yeltsin administration. The lack of clear direction and
instability had created a volatile environment for
managers, as had the corrupt law enforcement and judicial
systems, weak capital market institutions and
poor protection of private property rights." Russia's flawed
privatization process of the early 1990s was
seen as having caused the problems that persisted in the
country's business environment, including the
low credibility of formal institutions.
33. An in-depth field study found that Russians' low trust of
outsiders inhibited communication with the
foreign managers of Western subsidiaries and undermined
organizational initiatives.lO As a consequence
4 www.mortalityorglcgi-
binlhmdlcountryphp?cntr=RUS&level=1, a?ce~sed Apri/3,
2013.
5 Ruchir Sharma, Breakout Nations: In Pursuit of the Next
Economic Miracles VVWNorton & Co. Ltd., New York, 2012.
6 N. Buckley, "Huge gains but also a lot of pain, " Financial
Tim~s, October 11, 2005.
7 www.transparency.orglresearchlcpilcPL2009, accessed Apn/3,
2013.
8 www.fiac.rulsurveys-200B.php. accessed Apri/3, 2013. . . . .
g SheNa M. Puffer and Daniel J. McCarthy, "Two Decades of
RUSSian BUSiness and Management Research: An Institutional
Theory Perspective,· Academy of Management Perspective~
Ma~ 2011, pp. 21-36: .
10 Angela Ayios, Trust and Western-Russian BusIness
Relationships, Ashgate Publishing ua; Farnham, UK. 2004.
~---------------------
1 SO International Business Strategy
9B13M042
Page 6
of the low levels of trust, outsiders needed to spend
considerable time and effort building particularized
trust.
34. Russians continued to be heavily influenced by their history and
to manifest many cultural influences
from their Soviet and Czarist past, including collectivism,
paternalism, admiration of strong leaders, f~ar
of responsibility, mistrust of outsiders and reliance on one's
own networks. Indeed, compared with
managers from the four major developed economies, Russian
managers have been faun? to be. more
oriented to the short term and to place little emphasis on
competitive strategy, formal strategic planning or
financial planning."
A study that compared the informal institutions of Brazil,
Russia, India and China
l2
concluded that, of the
four countries, Russia was in the worst position. Russian formal
institutions and governance codes were,
on paper, comparable with those in DECO countries; however,
in practice, their informal institutions of
networks (known as blat) between leading shareholders, the
business groups and the state competed with
the formal arrangements.
Russia had 110 middle ground. The proportion of small and
medium-sized enterprises in relation to all
enterprises was lower in Russia than in any other major
emerging market. Compared with Europe, Russia
had no truly modern banks. The country's financial system was
dominated by one big bank, and very few
Russians invested at home, so loans of any kind were difficult
to acquire. The mortgage market was
virtually nonexistent, representing only three per cent of GDP,
the lowest of any emerging market. The
financial market resembled that of frontier markets, such as
35. Nigeria, rather than the financial market of a
major developing country, Money flowed into Russia from 2004
to 200S, but then reversed in 2009,
leading to a net foreign direct investment of negative $9.5
billion in 2010, Russia was probably the only
emerging market that had suffered a large and accelerating
outflow of private capital: based on Russian
central bank estimates, the outflow hit $SO billion in 2011, up
from $42 billion in 2006,,
Vladimir Putin was probably the man in the best position to
save Russia from chaos in 1999, when the
economy was in crisis and the war with Chechnya was raging,
but it was not clear whether he had the
appropriate vision to take Russia to the next level of economic
development. Putin had moved from the
presidency to being the prime minister, and was again president.
He could hold that office for two terms,
until 2024, which would extend his reign to a quarter century,
Putin's disapproval rating had doubled
since 200S, to 40 per cent at the end of 20 11. Of all the major
emerging markets, Russia was the last to
recoup the output lost during the recession of 2008, with the
economy returning to its pre-crisis peak by
the end of 20 11.1J
MABE AND RUSSIA
Around 2004, Mabe started to explore new regions of the world
for expansion, Economies of scale were a
key success driver in the appliance industry and virtually all
global players had a multi regional presence,
Mabe considered several p~ssibilities, They already had a
procurement office in China but Mabe's
management tho~ght the Chinese market was too big and
complex to enter. India and Eastern Europe
36. were strong candidates, While Mabe pursued market research in
Eastern Europe several industry players
had referred to Russia as the "last frontier" market, which had
caught the attention of Ramiro Perez,
11 Chris Carr, 'Russian Strategic Investment Decision Practices
Compared to Those of Great B 't. G h U ·ted
~tafes and ~apan, "Intemational Studi?s of Management and
Oroanization vo; 36, no. 4, pp. 82-~ ~~' ermany, t e nJ
Saul Estnn and Martha Prevezer, The Role of Informal
Institutions in Co orat G . . . .
Shina C?mpared, " Asia Pacific ~ournal of Management vot. 28,
pp. 41-67. rp e ovemance. BraZil, Russia, India and
Ruch" Sharma, Breakout Nations: In Pursuit of the Next
Economic Miracles WvV N n & C Lo on o. td., New York, 2012
.
.. __ ...i....- _
-
Mabe: Learning to be a Multinational 151
Page 7 9813M042
Mabe's international VP, To decrease the risk of foreignness
and to leverage its competitor capabilities,
Mabe invited Spain's Fagor to fonn ajoint venture, Mabe would
source stoves and fridges from Mexico
and Brazil and microwave ovens from China. Fagor would
contribute with its frontline washing machines
that were made in its Polish plant. Initially, only a
representative office would be established, and all
37. appliances would be imported, which would provide the new
joint venture with an opportunity to learn
about the Russian market. One of the venture's first decisions
was to have two expatriates, one Brazilian,
the other Spanish, as the JV's CEO and chief financial officer
(CFO), respectively. As was customary,
Mabe introduced an "action learning" team to determine the
type of products that the new JV would
import to Russia. The team determined that a broad line of
products strategy would serve the Russian
market well.
One of the main challenges faced by global firms starting
operations in Russia was understanding the
vastness of the country. With a population of ]42 million, the
minorities were of "country size." For
example, although Russia was usually considered to be
predominantly Orthodox, it also had more than 20
million Muslims. This vast country had more than 20,000 linear
kilometres of borders with 14 country
neighbours, 83 regions and diverse religions. Russia shared
borders with such diverse countries as China,
Pakistan, Afghanistan and North Korea. Due to the
misconception of the size and diversity of Russia,
foreign companies tended to enter Moscow and Saint Petersburg
first, the two most crowded markets in
Russia. These two cities concentrated a large proportion of the
population, whose consumrtion patterns
and styles differed from those of the average Russian citizen,
according to Nicolay Shkolyar " head of the
Commercial Office of the Russian embassy inMexico City. On
another hand, the country was also one of
the 20 least densely populated countries in the world and had
only five cities with the critical mass of
people and income necessary to draw in global brands."
38. Russia could be a hostile environment for foreign investors. For
example, to obtain a work visa, an AIDS
test was required. Nonetheless, the appliance market was
attractive due to its size (i.e., US$3 billion) and
profitability (i.e., two times the average operating margin). The
downside was that manufacturing locally
was necessary to achieve cost advantages over the other
industry players. The main local producers were
Indesit (Italy), Bosch-Siemens (Germany) and LG (South
Korea). Samsung (South Korea) and Mabe-
Fagor both had a local office and imported appliances from
several of their manufacturing facilities
worldwide.
Business Culture
Until the early nineties, one of the rituals of trust among
Russian executives was the sealing of deals by
toasting with vodka in a banya (i.e., a sauna).The rationale was
that if you were naked and drunk, you
could not hide anything from your partners. A young Russian
entrepreneur added:
In Latin countries, people use charm to gain trust, but as a
citizen of a country where 1110st
foreigners are considered suspicious, you don't really know
what is behind an apparent friendly
smile. Russians could be considered rude, cold and unfriendly,
but one thing you can be sure is
that what you see is what you get with them. Any foreigner
coming to Russia for business needs
to adapt to our cultural cues to be considered trustworthy."
Russia's low unemployment rate acted to demotivate finn
loyalty. The Communist culture continued to
prevail among Russians for more than 40 years. As a resul~, ~
39. strong sense of, distrust for private
enterprises dominated the business environment and was more
significant toward foreign firms.
14 Nicolay Shkolyar, head of the commercial office, Russian
em~assyMexico, June 2011.
15 Ruchir Sharma, Breakout Nations: In Pursuit oft~e Next
Economic Miracles VVWNorton & Co. Ltd., New Yorl<, 2012.
16G/eb Kouznetsov, Russian entrepreneur, MeXICO, July 2011.
152 Internati~on~a~1~Bu::s~in~es~s~S~tr~at~eg~y':..- _
9B13M042
Page 8
Russians in their late twenties were a generation dissimilar to
their predecessors, They te~ded to be
money-oriented, with strong aspirations to accumulate wealth
and to escape from the modest life that had
characterized their socialist-style childhoods. Their top
aspirations include escaping from their small
apartments in huge blocks of grey, cold concrete and driving a
German-made car. The sec?nd cluster, of
their lists included dining in fancy restaurants and vacationing
in the Mediterranean, essentially ~ehavm~
like other "European yuppies." One additional way of standing
out among the crowd and showmg their
achievements was through the Russian version of the social-
media site Facebook
(www.odnoklassniki.ru). In their spirit of feeling European,
many young Russians rotated jobs, selling
themselves to the highest bidder. Contrary to their preceding
generations, they openly criticized norms
and avoided environments where discipline was heavily
40. enforced.
Compensation did not mean everything in this high power
distance country, remarked Glev Kuznetzov,
I've heard from my elementary school classmates, talk about
friends that moved to another
company because of job titles. It was cooler to show a business
card that said you are a VP, than a
simple Manager, even when the latter was a position in a
multinational and the former in a local
small firm.
Young Russian professionals, with their high aspirations,
acquired European style and anti~statlls quo
spirit, collided against the more disciplined and submissive
"older" Russians. Tn fact, Russians in their
mid-thirties and forties tended to speak only Russian and had
mostly been educated under a different
mindset. Thus, when younger Russians led an organizational
structure, they tended to be more selective
when recruiting new talent. That is, they felt more comfortable
working among Russians like themselves,
not Russians like their parents.
In the process of recruiting and selection, these younger
Russians paid more attention to candidates'
family origins even when the candidates themselves were young
and had a college degree. According to a
common rule of thumb, if the potential hire came from a family
of the intellectual elite ~ i.e., musicians,
artists, scientists or academics ~ they would easily fit with the
new generation, but if they came from a
family of workers from the Soviet era, the potential of conflict
still existed, notwithstanding the age or
educational level of the candidate.
41. GLOBAL TRENDS IN MAJOR APPLIANCES
Due to the contraction of GOP in major industrialized countries
during 2008/09, emerging markets, led by
China, Brazil and India, overtook the developed countries in
terms of volume sales. This trend was
exp~cted .to continue until.2015. Some emerging markets, such
as Russia, experienced important volume
declines III 2009. Even with a recovery after 20 I0, the ageing
demographics would probably not allow
Russia to recover from its pre-crisis levels until 2014.
Growth in the consumption of fresh food and ready-to-eat meals
would likely lead to a decrease in freezer
sales. Even with reduced disposable incomes, the market for
ready-to-eat meals increased in Russia.
The emerging markets that offered the best growth potential
were those with strong mid-term
fundamentals, III terms of demograp~1Cs, lo~ percentages of
appliance ownership and an ability to resist
exogenous shocks. For example, Latin America, Turkey, Egypt,
China and lndia were expected to grow 7
to 10 per cent between 20 I0 and 2015. Sales in many emerging
markets would be influenced by the
entrance of more affordable products that addressed market-
specific needs. Government stimulus
packages could also act as boosters In these markets.
Some of the key success factors for the future of the appliances
sector ( ) d. ... were a ener an water
efficiency and technological mnovation and (b) location For
example c: gy.. , manuracturers such as Haler and
-.-----------------
42. ______---------------------------------M::ab:e':-: ,:,Le,:,arningto
be a MUI::tin:.:a::t:.:lo::na::I_--J._"111.d.J;~~......
Page 9 9813M042
Midea, which were based close to the Asia Pacific markets,
would probably increase their market share.
Another important change to consider was Sarnsung's push in
Eastern Europe following the construction
of its first non-Korean appliance factory.
MABE AND RUSSIA IN 2012
In 2012, the only foreign employee in Mabe's Russian JV was
the CEO. After four years of working to
understand the culture and nature of the Russian business
people, a solid management team seemed to be
in place. The product line offering was trimmed to only those
products that truly offered a competitive
advantage over other competitors' offers, and commercial best
practices were implemented with key
distributors. A lesson for Rarniro Perez was that when an
Action Learning team analysed a new market,
they should not do it with a "linear mindset," whereby they
attempted to place a large set of the JV's
offerings. In other words, the team needed to take an
incremental approach, starting from scratch and
delving deeper into what the market really needed. Thus, the JV
started with a broad line of product
offerings that needed to be trimmed down to products that truly
offered the Mahe JV a competitive
advantage. In Russia, being competitive in 2012 meant having
access to local manufacturing. In 201 l,the
IV's sales in Russia were close to US$70 million and were
43. expected to reach US$SOmillion in 2012. The
products offered included stoves, which had a four per cent
market share, and refrigerators and washing
machines, which each had a market share of two per cent.
Altogether, the lV's market share increased
from 0.9 per cent in 200S to 4.9 per cent at the end of 2012. A
selection of images from the different
offerings can be seen in Exhibit 9. Exhibit 10 shows the main
appliance players in Russia during 200S.
A current advantage of the JV was its workforce. Mahe and
Fagor had recognized early the potential
problems in personnel recruitment and decided to have only two
types of salespeople: a senior position
requiring 8 to 10 years of experience and a junior position
requiring one to three years of experience. For
both positions, the average age was less than 42 years;
candidates over that age were more likely to
exhibit Soviet-era mentalities.
Because of the financial crisis of 2008, market demand in
developed markets had decreased. In Western
Europe, for example, demand had decreased 30 per cent in
Spain and IS per cent in Italy. This decrease
had forced many of the industry's players to accelerate their
international diversification to the most
promising global markets: Malaysia, Philippines, Egypt, China,
India, Russia, Brazil, Peru, Mexico and
Argentina. As a consequence, the Russian market had expanded
capacity, and the seemingly attractive
profit margins of 200S had dropped substantially.
Mabe's marketing strategy in Russia had been geared toward
distributors and not toward the end
consumers. In 2012, Mabe changed its strategy from using
wholesalers to using regional distributors
44. (while maintaining its presence in national and regional chains).
Mabe's product offering catered to the
high-end market segments in 200S and gradually changed to the
medium-end segments with such brands
as De Dietrich and Brandt that were part of Fagor's product
portfolio. Mabe's entry and positioning
strategy in 200S and in 2012 are compared listed in Exhibit I J.
Vladimir Putin won the presidential election in 2012, and many
foreign investors preferred to wait until
the new government was in power before making any significant
investment decisions. Mabe's lV was
expected to finally tum in a small profit for 20 12.
As Perez reclined his chair and glanced over Mabe's Mexico
City skyline, sundown started. What should
he do about this Russian JV? Was Fagor the right partner?
Should the JV lower its prices to increase
market share faster? Was it time to manufacture some products
locally? What lessons had he learned for
choosing future markets? Could another emerging market have
been a better investment than Russia?
L_.:'.:5:.4":"_J.-_lnternationa, BusinessStrategy
9B13M042
Page 10
EXHIBIT 1: MABE'S COMPANY HISTORY, 1946 TO 2009
mabe COMPANY HISTORY
mabe..
FOlIndll<l
45. 1946
Acqulsiton of
Cameo In
t'..illnad4
2005
Acquisition of
Bosch In
arillZH
2009
1965
PrMfloce In
C.ntral"'""..Carlblwftn fl
SoulhameriCG
2001
OAKO
E.o.pan,lon
Mereosur
G£o.v.o e
ceE .....pllm<li5
1987
J<llnt
Venture
GE
2008
Acqulsltlon of
46. Atl.~ In COSlll
Ric ..
••Commerd<ll
O~tionsln
Ru",;I."nd
ChUe
Source: COmpany files.
EXHIBIT 2: MABE'S HISTORICAL REVENUES, 1987 TO
2010
mabe
US $6
'0' '06 '08
Source: Company files,
az _ -
Mabe: Learning to be a Multinational 155
Page 11 9B13M042
EXHIBIT 3: MABE INCOME BY REGION, 1990 TO 2011
mabe HISTORIC REVENUE
SALES PERFORMANCE (BILLIONS USD)
$3.9 $3.6
47. $0.1
$1.3
$0.6
"0 -sa '", -se '9S '00 '0' ."" '06 '0' '10 '11
Source: Company files.
I 156
9B13M042
Page 12
EXHIBIT 4: MABE'S BALANCE SHEET 2006·2008 (OOO'S
USDj
Balance Sheet
December 31st (USD) 2006 2007
2008
ASSETS
Cash And Equivalents 149,100 211,055
204,883
Total Cash & ST Investments 149,100 211,055
204,883
Accounts Receivable 890,903 989,319
912,774
48. Other Receivables - -
22,789
Total Receivables 890,903 989,319
935,562
Inventory 412,894 492,095
539,670
Prepaid Exp. 12,764 14,931
7,189
Total Current Assets 1,465,662 1,707,399 1,687,304
Net Property, Plant & 674,744 715,333 704,727
Eauioment
Goodwill 197,382 208,398 163,547
Other Long-Term Assets 208,759 365,315 363,830
Total Assets 2546547
2919408
LIABILITIES
Accounts Payable 904,777 1082,663 989,910
Accrued Exp. 4,625 3,939 3,235
Short-term Borrowings 54,294 186,322 637,870
Curro Income Taxes Payable 34,130 49,649 49,028
Other Current Liabilities 12,487 14,473 13,587
Total Current liabilities 1,010,313 1,337,046 1,693,630
49. Long-Term Debt 733,663 692,065 429,249
Pension & Other Post-Retire. 142,163 142,352 109,127
Benefits
Oef. Tax Liability, Non-Curr. 27,656 32,244 39,826
Other Non-Current Liabilities 78,990 128,703 95,684
Total Liabilities 1,992,785 2,332,411 2,367,517
Common Stock 553,762 616,950 534,782
Total Common Equity 553,762 616,859 534,782
Minority Interest - 47,176 17,110
Total Equity 553,762 664,035 551,891
Total liabilities And Equity 2546547 2996445 2919408
Note: Exp. = expenses; Inc. = Income; EBT = Earnings before
taxes; Excl. = Excluding' Incl = Including; Cont. Ops.
Continuing operations ' .
Source: www.capitaliq.comlhome.aspx. accessed November
21,2012 .
.........:.-_------------
Mabe: Learning to be a Multinational 157
Page 13 9B13M042
EXHIBIT 5: MABE'S INCOME STATEMENT 2006-2008 (0005
USD)
Income Statement
December 31st (ODDsUSD) 2006 2007 2008
Total Revenue 3,156,260 3788,084 3404,803
Cost Of Goods Sold 2,441,751 2.940.567 2,499.649
Gross Profit 714,511 847,517 905,153
50. Selling General & Admin Exp. 492.716 592,034 683.088
Other Operating Exp., Total 492,716 592,034 683,088
Operating Income 221,801 255,482 222,065
Interest Expense -81.700 -88,800 -86.800
Interest and invest. Income 12.394 13,649 11,646
Net Interest Exp. -69,300 -75,100 -15,200
Currency Exchange Gains -5,500 9.344 -101,400
Loss
Other Non-Operating Inc. (Exp.) -30,900 -16,900 -6,800
EST Excl. Unusual Items 116,173 172,856 38,604
EST Incl. Unusual Items 116,173 172,856 38,604
Income Tax Expense 34.685 46,168 27,174
Earnings from Cant. Ops. 81,487 126,688 11,430
Net Income to Company 81,487 126,688 11,430
Note: ST = ShofMerm; Exp. = expenses; Post-Retire. = Post-
Retirement
Source: w.NW.capitaliq.comihome.aspx.Accsssed Nov 21 st,
2012
Com an
EXHIBIT 6: GLOBAL APPLIANCE PLAYERS, 2011
Head uarters Sales
1. Whirl 001
Sweden 11 000,000
United States 14,000,000
2. Electrolux
3. BSHI German 10,000,000
China 8000,000
4. Samsun South Korea 9,000,000
5. Midea
51. 6. LG South Korea 7,000,000
4,000,000
7. Haler China 6,000,000
6. GE US
EXHIBIT 7: APPLIANCES MARKET SIZE IN CHINA, INDIA
AND RUSSIA 2005 TO 2010
Country 2005 2006 2007 2008 200ge 20lOe
9. Mabe
Source: Annual reports and press releases.
China
India
Russia
63,687,000
5,930,900
11,043,300
4,000.000Mexico
71,381,700
6,725,300
12,368,300
79,654,800
7,756,200
13,408,400
86,378,000
9,377,200
52. 11,369,000
93,421,300 104,157,600
11,467,300 13,404,200
11,706,400 12.597,600
Source: Euromonitor International, Maior Appliances: Recovery
and the Future for Core Categon'ss D April 2011.
158 Intematlonal BusinessStrategy
Page 14
9B13M042
EXHIBIT 8 : MARGINAL CONTRIBUTION PER APPLIANCE
IN CHINA, INDIA AND RUSSIA
2008 (PER CENT)
India 6-8
Russia 10-12
China 16-18
Source: Company files.
EXHIBIT 9: MABE'S PRODUCT LINE IN RUSSIA
• o o
,
Source: Company files.
53. D
159Mabe: learning to be a Multinational--r-.......,=- ...
Page 15 9B13M042
EXHIBIT 10: MAIN APPLIANCE PLAYERS IN RUSSIA
Source: www.gfk.comllndustriesiconsumer-goodslhome-
spplianceslPagesidefault.aspx, accessed November 25, 2012,
EXHIBIT 11: MABE'S ENTRY STRATEGY AND
POSITIONING, 2008 AND 2012
2008 2012
PRODUCT Cooking: Butlt-ln: Wall Ovens, Cooktops, Ranges,
Cooker Wall Ovens & Ranges
Hoods & Dishwashers
Refrigerators: 2 Door, Top Mount Refrigerators: 2 Door, Top
Mount
Laundry: Top-Load Washers & Washer/Dryers Top-Load
Washer
DISTRIBUTION National & Regional Chains National &
Regional Chains
CHANNEL Wholesalers Regional Distributors
Chefs Distribution Channel
MARKET SHARE 0.90% 4.90%
(at year's end)
PRICE High Medium
54. POSITIONING
VALUE Products for market niches Positioned with DeDielrich
PROPOSITION brand
Complementary products from Mabe/Fagor fines Post-sales
service expertise
Experience in international markets Integration with external
IOQisticsoperator
DeDietrich and GE brands for luxury segments Focused to
medium market
seoments
Access to low cost resources Product quality
Post-sales service expertise
Niche market (high-end, built-in, comfort products)
Excellent image of an European product (GE)
Integration with an external logistics operator
Distributor willingness to introduce new products and
brands
Product quality
Source: Company files.
, .... i
160 International Business Strategy
HARVARDI BUSINESS SCHOOL
9-513-058
REV, JANUARY 2, 2013
55. RAJIV LAL
STEFAN LIPPERT
NANCY HUA PAl
Dl DENG
SANY: Going Global
April 17, 2012, was a special day for SANY Group and for its
founder Liang Wengen.
Headquartered in Changsha, SANY Group had transformed
itself in two decades from a small
welding material factory in 1989 to a leading global
construction equipment manufacturer with 5
industrial parks in China; 5 R&D and manufacturing bases in
America, Germany, India, Brazil, and
Indonesia; and 21 sales companies worldwide (see Exhibit 1a
for SANYGroup's subsidiaries, Exhibit
1b for locations worldwide, and Exhibit 2 for its product Iines).
SANY Heavy Industry Co., Ltd.
(SANY),SANY Group's major subsidiary, engaged in the
construction equipment business and was
number six on lnternational Constmction's 2012 Yellow Table, a
ranking of the world's largest
construction equipment manufacturers (see Exhibit 3 for the
YellowTable list).
On this significant day, SANY completed the acquisition of
Putzmeister Holding GmbH
(Putzmeister), the world's leading concrete machinery
manufacturer, based in Germany. Putzmeister
founder Karl Schlecht pointed out that it was the first time a
Chinese enterprise acquired a famous,
medium-sized German industrial company. He described the
56. merger as "a model transaction
between China and Germany" that received the positive
acknowledgment of the industry.' Most of
the Chinese media applauded the deal, though a few expressed
concerns about merging with a
foreign company, because in the past, few Chinese companies
had been successful in doing so. The
coverage in the German media was neutral, objective, and
balanced. Germany had been a leader in
exports until 2009, when it was overtaken by China. China saw
the active global integration of its
economy as advantageous for the country. Accordingly, the
leading news magazine, Der Spiegel,
pointed out that "the acquisition could be the start of a new
strategy as China tries to transform itself
into a high-tech economy,'? and added that lithe Germans might
even benefit toO."3The mainstream
media emphasized the strategic fit of the acquisition and
highlighted the fact that, compared with the
$25 billion of German investments in China, the Chinese
investments in Germany were modest.
After the acquisition, Putzmeister would maintain an
independent operation. SANY made a
commitment that no Putzmeister employee would be laid off
because of the acquisition. Norbert
Scheuch, Putzmeister CEO, would continue to run Putzmeister.
Together with his German team he
would be responsible for merging SANY's concrete machinery
business with SANY operations in
Professor.Rajiv ~l, r~ofessor Stefan ~Ipperl of Temple
University, HBS-APRC Senior Researcher Nancy Hua Dill, and
Assistant Professor Di
Deng of jinan University, prepared this case. HBS cases are
developed solely as the basis for class discussion. Cases are not
57. Intended to serve as
endorsements, sources of primary data, or lliustrarlons of
effective or ineffective management.
Copyright 0 2012, 2013 President and Fellows of Harvard
College To order co res or . .
7685, write Harvard Business School Publtshlns Boston MA
02163 P request pemussion to reproduce materials,
call1..soo·545--
0' ' , or go 10 www.hbspharvardedu/educators This bll ti l be
digitized, photocopied, or otherwtse reproduced, posted, or
transmitted without th :. " .':" pu rca Ion may no, e permIssion 0
Harvard BUSinessSchool.
a,, _
SANY:Going Global 1
513-058 SANY: Going Clobal
China and overseas. Schlecht would join SANY Group as a
consultant; Afchtal, Germany, would
become the new overseas headquarters for SANY concrete
machinery products.
Liang was very happy about this acquisition and the media
response. Meanwhile, he was thinking
about the following issues: How should SANY use Putzmeister
to implement the goals of the
international division? And how should Putzmeister be merged
into SANY?
The Construction Equipment Industry
58. The Global Market
The construction equipment industry Included equipment for
earthmoving, road construction and
maintenance, concrete, and other construction. Globally, the
industry experienced strong growth over
the past decade, driven by infrastructure investment. It suffered
a decline in 2008 and 2009 due to the
global financial crisis, but rebounded in 2010 due, in particular,
to demand in China because of its
government's economic stimulus package. According to
International Construction, the sales of the
world's 50 largest construction equipment manufacturers
increased from US$55.5 billion in 20024 to a
record high of US$182 billion in 20115
Globally, the U.S. company, Caterpillar, and the Japanese
company, Komatsu, had ranked number
one and two, respectively, for over a decade. In 2011, they
recorded US$35.3 billion and US$21.8
billion, respectively, in sales of construction equipment,
accounting for 19.4% and 12% of the total
sales of the top-50 manufacturers. One noticeable change i.nthe
top-50 list over the years was the rise
of the Chinese manufacturers, which began to take shares from
European and North American
manufacturers. In the 2003 Yellow Table, 4 Chinese
manufacturers were on the top~SOlist, with
US$841 million of combined sales, accounting for only 1.6% of
the top 50's total sales.v In the 2012
ranking, 10 Chinese manufacturers were listed among the top 50
and claimed a 16.9%share of the top
50's sales, with combined sales of US$30.6 billion in 2011 (see
Exhibit 4 for equipment top~50
percentage share by country and by region). These Chinese
59. manufacturers first ventured into the
overseas markets by exporting their products. Later, they set up
their sales, manufacturing, and R&D
facilities in foreign countries. More recently, they accelerated
growth by acquiring foreign firms that
were leading players in their product segments. In 2008,
Zoomlion acquired the Italian concrete
pump manufacturer Cifa, made Cifa's ItaHanheadquarters its
new European, Middle East, and North
African concrete machinery center, and set up a European spare-
parts center in Milan with a joint
European and Chinese marketing and service team.
Demand for construction machinery in developed countries was
driven by the need to maintain
and improve existing infrastructure, while the demand in
developing countries was driven by new
construction and govemment spending on infrastructure?
Demand in industrialized nations in North
America and Europe was expected to improve, but the BRIC
countries (Brazil, Russia, India, and
China) represented the most attractive growth opportunities,
with Africa and the Middle East
becoming more appealing, according to a Roland Berger market
survey based on interviews with 50
industry experts in key markets in 20118 (see Exhibit 5 for the
most attractive regions for the
construction equipment industry). Survey participants identified
engines and transmissions as the
most differentiating key components because of their role in
fuel efficiency and emission reduction.
Quality, price, and availability of replacement parts were the
most important distinguishing factors in
the market despite regional differences in ranking (see Exhibit 6
for regional rankings of product
characteristics). In addition to differentiated equipment, leasing
60. and aftermarket services were also
important to customers. Leasing was most important in
countries like Brazil, Russia, Chine, and
Gennany. The survey identified availability of replacement
parts, professional key account
2
162 International Business Strategy
513-058
SANY: Going Global
management, and round-the-clock services as the three most
important aftermark~t services.
Emissions regulations, import duties and restrictions, and
pres~ure frOl,n . eme.r~g market
competitors stood out as the top-three key market challenges,
~ith reglol~l variations m u,nportance:
regulations were most important in Europe and the U.s., while
competition from emerging market
competitors was the key challenge in the BRlC countries.?
The China Market
Driven by China's strong economic growth and government
spending on infrastructure, the
construction equipment industry in China had experienced a
golden age since the 20005. The
industry also benefited from a number of policies the
government had announced since 2008 that
promoted the development of large-scale construction
machinery and allowed exemption from the
value-added tax that some imported spare parts and components
61. for technologically advanced
products were subject to. Sales of construction machinery in
China accounted for 9% of global sales in
2005, but rose to about 40% i.n2010, while the global share of
sales in North America and Europe
dropped from 36%and 30% to 20% and 18%, respectively,
during the same period." Total revenue of
the Chinese construction machinery industry increased by
almost 10 times from 2001 to 2011 (see
Exhibit 7 for revenue numbers).
Major foreign construction equipment manufacturers entered
China after it joined the World
Trade Organization (WTO) in 2001. With their advanced
technology and strong brands, they got a
head start over Chinese manufacturers. However, Chinese
manufacturers learned quickly and caught
up with the foreign players. From 2010, Chinese manufacturers
seized about 90% market share in
concrete machinery, earthmoving mach.inery, and pavement
construction and piling machinery."
SANY and Zoomlion had nearly a 90% market share in concrete
machinery. XCMG, Zoomlion, and
SANY had an almost 90%market share in cranes. Among all
segments, the excavator market was the
most fragmented and competitive segment in the industry.
Foreign companies, especially Korean and
Japanese firms, had dominated the excavator market in China
for the past two decades, but domestic
companies had entered this segment in recent years. SANY
overtook Komatsu to become the
number-one player in China in 2011, with a 12.7% market
share. In a China Association for Quality
(CAQ) user-satisfaction survey, based on users' perceptions of
product and service quality and price,
domestic brands outperformed foreign brands in all product
62. categories, except in cranes and rollers
(see Exhibit 8 for scores of Top-Two Chinese brands and major
foreign brands). Chinese
manufacturers achieved higher user satisfaction due to a number
of factors: basic product functions
of the Chinese brands no in.ferior to those of foreign products;
high operation efficiency and good
performance of major systems, such as the engine and electrical
systems; excellent service; and a good
price-performance ratio (Chinese brands were priced about 40%
lower than foreign brands)."
However, the survey also showed that Chinese brands needed to
learn from foreign brands to
imp.rove the quality of design, product controllability, and
comfort level of U1e operation
envtrorunen t.
Despite the global financial crisis in 2008, the construction
equipment market in China maintained
strong growth due to the Chinese government's Urillion
renminbi (RMB) (US$586 billion) stimulus
~acka~e. However, th~ .co~str~ction ~qulpmel1t Industry in
China faced a series of challenges-
including wea.k capability m mnovatton, lack of differentiation,
and lack of technology for core
components-m order to get to the next level.
When the Chinese.govern~le~t started to tighten monetary
policies and restricted investment in
the real estate mar~et tn 2011, It SIgnaled that the construction
equipment industry in China would go
from a stage of lugh growth to a stage of stable growth. Chinese
manufacturers began to look
3
63. SANY; Going Global
513-058 SAN': Going Global
overseas for more growth opportunities. In 2011, export of
Chinese construction equipment rose by
over 50% and reached US$15 billion, 13 For most major
Chinese construction equipment
manufacturers, the percentage of overseas revenue to company
revenue was likely to increase from
10% in 2011 to about 30% in the next three to four years."
From 2011 to 2015, China was estimated to maintain a 20%
growth rate of fixed asset investment
in major projects such as affordable housing construction, water
conservancy projects, railways,
roads, urban transportation and infrastructure projects, and
development of the western regions.
Based on the demand in the domestic and overseas markets, it
was estimated that the revenue of the
Chinese construction machinery industry would maintain an
average annual growth rate of 17%
from 2011 to 2015 and reach RMB900 billion (US$l42 billion)
in 201515 (see Exhibit 9 for 2015 targeted
sales volumes of Chinese manufacturers' construction
equipment).
SANY in China
Company History
In 1989, Liang wengen, together with Tang Xiuguo, Mao
Zhongwu, and Yuan [inhua, his three
colleagues from the Hongyuan Machinery Plant, founded a
64. small welding material factory in
Lianyuan, Hunan Province. They wanted to create an
experimental area in which to explore modem
management for the benefit of China's national industry and to
build a world-class brand from China.
Liang, chairman of SANY Group, thought that China's
industries needed management more than
technology, and devoted most of his time at the university
studying management instead of material
science. Tang Xiuguo, President of SANY Group, and Liang
were classmates who had studied
material science in the Central South Institute of Mining and
Metallurgy (now the Central South
University). Together with Xiang Wenbo, CEO of SANY; Yi
Xiaogang, executive president and chief
technology officer of SANY; and several other senior
executives, they formed a passionate,
complementary, and stable management team.
The factory produced special welding materials and artificial
diamonds. Tang recalled, "The
market for special welding materials was only RMB3 million.
Big companies did not manufacture
these products because the scale was too small and small
companies could not manufacture them
because the quality requirement was high." When they faced
technological difficulties, they sought
help from the Central South University. Because China suffered
from product shortages, their
products were easy to sell. The factory became the market
leader in special welding materials in two
years. The founders then set their vision on building a first-
class enterprise, fostering first-class
employees, and making first-class contributions to society.
SANY's Chinese name = (pronounced
"san yi"), meaning "three first," came from this vision.
65. In 1994, they set up SANY Heavy Industry Co., Ltd., and
entered the construction equipment
sector. Tang explained the rationale for this move:
The market for special welding materials was too small to allow
us to realize our vision.
The construction equipment industry was a very important
industry closely related to China's
economic development. China's development needed
construction and, therefore, needed
construction equipment. This industry can create big companies.
With years of GDP growth
over 10%, urbanization, and industrialization, it is common for
construction equipment
manufacturers to grow at 1.5 to 2 times that of GDP growth, and
great companies can even
grow at 3 to 5 times that of GDP growth. We did not enter
industries such as health care or
4
International Business Strategy164
513-058
SANY: Going Global
cosmetics, nor did we choose hot industries like real estate,
because anyone can do that, but the
capability of the construction equipment industry represented
the strength of a country.
SANY entered the construction equipment industry during its
downturn and started. with
66. concrete machinery, a special-purpose, niche product category
with a small market that did not
interest the big players like Caterpillar and Komatsu. Scheuch
gave an example, "In 2004, about 6,000
truck-mounted concrete pumps were produced and sold globally,
including 4,000 units sold to the
Ll.S. and Europe and 2,000 units sold to China. Today, about
12,000 units were sold globally, with
10,000 units sold to China." Tang observed. "Even today big
companies do not carry concrete
machinery. They did not believe it would be a big segment in
China. Today this segment is big
enough in terms of sales, second only to excavators. U the big
players had entered this segment,
SANYwould not have grown to the scale it is today."
With a bank loan of RMB20million (US$2.4million), SANY set
up the plant to produce concrete
pumps. It hired many talented people from traditional military
factories, because the factories had
little work and had to adapt to the transformation from a
planned economy to a market economy.
Every day, the management team began with a 7:30 a.m.
meeting to discuss various issues, such as
how to develop a product, how to improve product quality, and
how to sell its products. The team
ran into many problems. Component sourcing posed one
challenge. From the beginning, SANY used
first-class components from Bosch Rexroth, Cummings, and
Mitsubishi Electric. For core products
like concrete pumps, SANY used Mercedes or Isuzu truck
chassis to ensure the quality, but for other
products it would produce the chassis itself. Tang explained,
"We knew very clearly that we may
have a very good design due to our innovation, but we could not
guarantee product quality without
67. very good components. We did not lag behind the good
companies in manufacturing and quality."
However, even the simplest product had over 500 components,
so SANY could not use imported
components for all of them. Tang noted, "It is not enough to get
core components such as hydraulic
systems from Bosch Rexroth and engines from Cummings.
There are many other components that
require high reliability and we want tile quality of these
components to be higher than the quality of
"made-in-Chine" components." SANY helped suppliers to
improve the quality of their components;
if it failed to find good suppliers, it produced some components
itself.
Making sales was challenging, too. (Liang, who trained the first
group of sales managers, initially
had to show customers his card as a representative of the
National People's Congress to win their
trust.) At that time the average price of a concrete pump in the
market was RMB400,000(US$47,360),
but SANY decided to sell the pump at an average price of
RMB600,000(US$71,040),20% lower than
imported pumps. T~ng recalled, "Peopl.e within .our ~o~pany
had different opinions. Some thought
we could sell more If we lowered the price, but LIang insisted
that we should price our products at 85%
of the price of Putzmeister products, and in the future our
products should be sold at the same price
as them because price represents the quality and value of a
product."
. W~th an annual ca~acity of 50 units, SA.NYwas already the
largest concrete pump manufacturer
in China; the market size was about 150 uruts. When SANY
became number one in market share in a
68. product or p~oduct c~tegory,. it would d.iversify into other
related products or product categories in
the construction eqULp~,ent Industry. Since 1995, SANY had
expanded its product portfolio to 25
categones of construction equlp~ent,. ~lth products as diverse
as Concrete machinery, excavators,
truck cranes,. crawler cranes: pile-drrvmg machinery, and road
construction machinery. It was
number.one III market share m China in truck-mounted concrete
pumps, concrete pumps, and full
hydra~lic compactors and number one globally in its output of
pump trucks. Since its foundin ,
SANY s output had grown at an annual rate of 50%.In 2011, it
recorded revenues and net profits ~f
5
SANY: Going G-.:.lo-.:.b.-.:.'_+o.....!1':l6=.:S'-...I
513-058 SANY: Going Global
RM1l50.8 billion (US$8 bilJion) and RMB8.6 billion (US$1.4
billion), respectively, with an increase of
50% and 54 % during 2010. (see Exhibit 10 for SANY's revenue
from 2004 to 2011)
During this period, SANY Group ventured into a few other
businesses, such as vertical parking
lots, the optoelectronic business, and buses, but exited these
after realizing they were a strategic
misfit. However, it applied the capabilities it developed in these
industries in its construction
equipment business. For example, it learned the characteristics
of the electronic components from the
69. optoelectronic business and applied the knowledge to produce
controllers, displays, and sensors in
CPS terminals for construction equipment.
Two subsidiaries of SANY Group were listed on stock
exchanges. SANY was listed on the
Shanghai Stock Exchange in 2003 (stock ticker: 600031).
SANYHE International Holdings Co., Ltd.,
which was set up in 2004 with coal-mining machinery as its
main business, was listed on the Hong
Kong Stock Exchange in 2009 (stock ticker: 0631). In 2011,
SANY Group achieved revenue of RMB80.2
billion (US$12.6 billion) and net profit ofUS$1.37 biUion and
employed over 50,000 staff globaUy.
Key Success Factors
Besides its good timing and being in the right industry, SANY's
success carne from its innovation
in technology and management. SANY Group's mission was
"Quality Changes the World." Every
year, it invested 5% to 7% of its group revenue in R&D to
develop world-class products for customers.
It had a well-developed R&D process, and attracted and
developed a team of experts ill different
product categories. To motivate R&D staff, SANY rewarded
them with bonuses, development
opportunities, and company shares, if they came up with
breakthrough ideas. For example, Vi, who
had worked for the Beijing Research Institute of Automation for
Machinery Industry, started to work
for SANY on a project basis in 1995 when SANY encountered
difficulties in developing concrete
machinery; he later joined SANY. Under his leadership, SANY
developed a series of innovative new
products, such as the 66m, 72m, and 86m concrete pump trucks
70. that, according to the Guinness
World Records in 2007,2009 and 2011 respectively, were the
concrete pumps with the longest arms. It
also made the 62m concrete pump that it provided free to the
Tokyo Electric Power Company to
support the water-spraying operation in the nuclear plant after
the Fukushima Daitchi nuclear
disaster. Because of Vi's contribution, he became director of
SANY Group and executive president of
SANY, holding 2% ofSANY Group shares.
Another success factor was that SANY ranked number one in
user satisfaction in eight product
categories and number two in four categories in the 2011 CAQ
user-satisfaction survey. High
customer satisfaction not only resulted from SANY's high
quality products, but also from its high
standard service. Zhao Xiangzhang, director and senior vice
president ofSANY Group, noted:
We have two standards for excellent service: one is to exceed
the industry standard and the
other is to exceed customers' expectation. The purpose is to
create value for customers. Our
products will exceed the basic industry tech.nology
requirement. Our company standard is
higher than the national standard. And besides basic services
such as providing components or
repair, we provide services to customers faster. If customers
have large gasoline consumption
every day, we will try to provide them with gasoline-saving
products and services. We also
provide total solutions to customers, including visual identity
design, helping them to improve
management, providing them with technical support to get
orders, or leveraging SANY's huge
71. network in China to help them find customers.
SANY established a strict process for providing service before,
during, and after sales. After a
customer placed an order, the customer service department of a
SANY saJes subsidiary conducted a
6
International Business Strategy166
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SANY: Going Global
comprehensive inspection of the equipment on behalf of the
customer, before the formal delivery.
Staff people turned on the equipment. ran an onsite trial, and
made adjustments. They would
formally approve the equipment for the customer only after the
equipment ran smoothly for seven
days. SANY also provided customers with inspection and repair
service every month, a compuls~ry
service and the most important measure for reducing sudden
breakdowns. In the construction
equipment industry, only one major competitor of SANY
followed SANY's example and set similar
standards regarding this service. For after-sales service, SANY
offered on-call service with specific
requirements.. When a customer's equipment broke down on a
work site, the customer could call the
4DO-nllmbercustomer service line at SANY's headquarters.
Whenever SANY received a customer's
service request, the service engineer had to leave for the site in
72. 15 minutes, arrive there in 2 hours,
and solve the problem in 24 hours. SANY's service engineers
had to have their mobile phones turned
on 24 hours a day and provide service for their customers
whenever needed. SANY was able to
deliver these services in China, but it was difficult to replicate
them globally.
Foreign manufacturers had initially dominated the market in
China because of their advanced
technology and strong brands. For example, Putzmeister, the
market leader in concrete machinery in
the rest of the world, introduced concrete machinery into China.
In the late 199Os,Putzmeister and
Schwing dominated two-thirds of the concrete pump market in
China, the world's largest consumer
of concrete, but their combined market share slipped to less
than 5% by 2004. SANY eventually won
the competition for three reasons. Tang explained:
First, our products and service fit the needs of the China market
better. The quality
requirement for concrete in China was not as high as that in
Europe. We call satisfy customers'
needs and transport any kind of concrete, but European
companies blamed Chinese customers
for using poor quality concrete and argued that their equipment
had no problem. They had
good technology and good product, but they were too ahead of
the market. They did not have
in-depth understanding of China's situation. Therefore,
customers thought our products were
better than European ones and our products were also cheaper.
And customers have high
service requirements today. Besides basic services, we equip
our machinery with a highly
73. intelligent system to help customers monitor the operation
status of the machinery and
provide warning to them whether the machinery needs repair or
maintenance. Putzmeister
can't provide this kind of service in China. Second, customers
evaluate suppliers based on the
val.ue ~f their products and services. We create more value to
customers than competitors.
Third, m any country, people have loyalty to their national
brands.
. Thrau.gh its Enterprise Control Center (ECC),SANYcould
monitor the status of all its equipment
m operation globa~ly;customers could also access the
information via the Internet. They could see the
equipment's working hours, workload, potential problem, the
service vehicles within a lOO-kilometer
radius of the equipment, and the closest warehouse to a
customer's site. When a machine broke down
SANY could send an engineer and components from the nearest
warehouse in a vehicle close to the'
customer's site. To ensure fast delivery. of co~p~nents to
customers, SANY established 15 logistics
cente.rs ~I ~'6sS~~re-p~rtswarehouses WIth logistics and
service systems worldwide. It also had 13
prcvtncta service centers and about 400 service stations in
China. It based what it called 6S
service ce.nters on the sales, spare parts, service, and survey
concept (the 45 concept) learned from the
commercial truck sector and passenger vehicle sector with two
added 50' I' Id. for new equi ,rvlCes: exc langmg 0
equipment or new equipment and staff training,
7
74. SANY: Going Global 167
513-058 SANY: Going Global
Cnallenge and Latest Move in China
As the technology gap between foreign and domestic
manufacturers narrowed, some
ma~ufacturers competed on price to win deals. Customers were
used to paying full price for
equtpment p~rcha~es, but now they demanded more financing
options. This was a major challenge
SANY faced U Chma. Zhu Dan, vice general manager of SANY
and executive vice general manager
in charge of marketing, observed:
In a rational situation, Chinese customers will first consider
brand, quality, service, and
then price. However, when the price gap among manufacturers
is as large as 20% to 30%,
customers will consider sacrificing brand and quality to get the
short-term gain in price. Take
concrete machinery, for example. On average our products are
priced 5% to 10% higher than
other Chinese brands and 15% to 20% higher if our products are
newly developed or have
higher teclmology content. If customers buy our Chinese
competitors' products, the
purchasing cost for them is usually 15% to 20% lower and in a
few cases 30% lower, including
the interest-free benefit, gifts and other benefits they get.
SANY responded to price competition by improving its product
design and components, by
conducting more in-depth market research to understand
75. customer needs, by improving product
quality and differentiating itself through innovation to satisfy
the needs of different customer
segments, and also by providing comprehensive service and
educating customers to consider value
and long-term benefits over price and short-term benefits. Zhu
cited some examples:
Instead of giving a RMB300,OOOor RMB500,OOOprice cut, we
train customers' operation and
management staff; help them with planning, medium- and long-
term financing; or offer them
reproduction service, trade-in, or other value-added service.
And we try our best to quantify
the value of the service we provide. We can respond to
customers faster by reducing the time
to repair a machine to increase customers' equipment
utilization. We can also improve the
energy efficiency, environmental friendliness, and product
reliability. We hope to c.reatevalue
for our customers, and lead the industry to compete in an
orderly manner and to develop
healthily by providing our customers with services that cover
the entire value chain and life
cycle, because price competition among equipment
manufacturers will eventually lead to price
competition and negligence of service quality among our
customers.
In 2012, as SANY grew bigger and the customer base and
industry structure changed, it decided
to move away from a direct sales model to a distributor model
for mature products with large sales
volume. In 2000, construction companies had accounted for
30% of SANY's sales, and over 50% of the
construction companies owned their machinery. Now they
76. preferred renting to buying the
equipment, so fewer than 30% of the construction companies
owned the equipment. As a result, local
rental companies and installation companies increased their
share of SANY's sales to 80%. With the
distributor model, SANY sold equipment to distributors with
cash-on-delivery payment; distributors
then sold the equipment to rental companies, most of which
used bank financing for their purchase.
The construction companies then rented the equipment from the
rental companies.
SANY continued to sell some products to construction
companies directly, but the percentage was
shrinking. Zhu commented, "The distributor model is more
compatible with the renta.! market. More
and more companies will provide professional service in the
future. TIley will be more professional
and grow bigger." The distributor model also better served the
growing scale of SANY. Zhu
explained, "For example, it is fine if you sell directly to your
customers when your revenue is below
RMBSbillion, but your resources can't keep up once the scale is
too big. The labor cost is too high and
the management scope is too big." Huang Jianlong, vice
president of SANY Group, added, "The
8
168
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SANY: Going Global
77. distributor model will have lower cost and facilitate faster
decision making. For example, 1 or?
people at a distributor's company can decide whether they will
take a customers order, but for a big
company, the order will have to be reported back to the
head~ua~ters to g~ through, the app~oval
process, which may involve 8 to 10 people." SANY selected 30
dlstnbutor~ With extenslV~expenenc~
and local resources as its provincial distributors and provided
them With the following support.
brand building; assisting them in negotiating with the local
government to get relatively cheap land,
preferential tax treatment, and other resources; assisting them in
negotiating with banks to get loans;
and organizing distributors from different business units to
participate in bidding for large, complete
sets of equipment.
Many distributors had once been SANY sales staff. Liang Zhi,
chairman and general manager
of SANY South China Co., Ltd., a sales subsidiary ofSANY that
became SANY's exclusive distributor
for Guangdong Province, commented on the pros and cons of
this transition:
1 used to care mainly about how to achieve better performance
during my term of office
since SANY changed the general manager of a sales subsidiary
every three years. Now Ican
develop a strategic plan for the next 5 or ]0 years based on the
local conditions and from the
perspective of achieving long-term benefit. Of course,
independent distributors have their own
interests, but we are different from a usual distributor. We came
from SANY.
78. Liang's company planned to make all investment of over
RMB200 million (US$31.64 million) ill
the relatively underdeveloped eastern, northern, and western
regions of Guangdong in order to
establish complete dominance in these regions in three to five
years.
To be recognized by SANY, distributors were required to
provide evidence of their financial
capability. For example, the registered capital of SANY South
China was RMB 10 million (US$1.58
million). SANY asked that distributors sell only SANY products
and would give them more products
to sell if distributors' management capability and resources were
satisfactory. Distributors provided
after-sales service to customers, for which SANY paid them a
fixed amount. For example, SANY paid
distributors a service allowance of RMB670 (US$106) for each
concrete pump truck every month. In
comparison, Putzmeister paid its distributors a onetime, lifelong
maintenance fee of RMBl0,OOO
(US$1,582).
SANY placed great importance on service. Ren Yuan, vice
president of sales and board member of
SANY South China Co., Ltd., noted, "In the China market,
where the protection of intellectual
property rights is not strong, our competitors' products will be
more and more similar to our
products. Service will be the final battlefield." SANY took
several measures to ensure the service
quality of its distributors. Zhu explained SANY's approach:
If distributors don't have the capability to service customers, we
will not allow them to do
so. 1£ ~e~ service capability doesn't meet our requirement
79. within a certain period, we will take
back.Its nght to.servlce.custo~ners. ~fter the~ meet the
requirement, if they don't share SANY's
service mentality or if their service quality is not satisfactory
when we evaluate th if
performance, we will take back its right to service customers. If
they don't improve their
service, then we will take back its distribution right as well.
SANY set explicit requirements for the distributors' service
resources. Take SANY South China
Co.,. Ltd., for example. E~ery se.rvice en~eer w~s in charge of
maintaining 17 to 19 pieces of
equipment, and every serv~cevehicle provided service to 25 to
28 pieces of equipment. With over 150
staff people, customer service was the largest department in
SANY South Chi C L d Th . f. taff t . . . tI na 0., t. e ratio 0
servrce s a equipment muse IJ1 te market was about 1:13,
compared with 1:18 for domestic
9
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SANY: Going Global 169
513-058 SANY: Going Global
co~petit~rs. (For many years, Putzmeister had had only one
sales representative and one service
engmeer m Guangdong, where the market size was RMB4
billion to RMB5 billion [US$633 million to
$791 million]). SANY's pricing and payment settlement system
also contributed to its control of the
80. distributors' service quality. A distributor's net profit margin
was about 1% to 2% and, in some cases,
close to zero if it fought with competitors for a customer, but
SANY's yearend rebate to a distributor
could be over 2%. SANY based the rebate on a comprehensive
evaluation of distributors with key
performance indicators (KPIs) such as market share and
customer satisfaction. SANY would call
some customers, calculate complaint rates, and use "mysterious
customers"16 and other means to
obtain customer satisfaction data.
In contrast, SANY's major competitor which also had a sales
system made up of provincial
subsidiaries further enhanced its management of the subsidiaries
by adding regional Layers,such as
an eastern region or a southern region, between its headquarters
and its provincial subsidiaries.
SANY in Overseas Markets
Globalization Road Map
As SANY became a leading player in the home market, it
started to export its products overseas
and set up sales subsidiaries in foreign countries in 2002.Once
it learned that a particular market had
great demand, it would set up assembly factories. Chairman
Liang explained SANY's rationale for
market selection:
SANY set up factories in India and Brazil, because we believe
these countries will have a
big market for construction equipment in the future. The
purpose of being in India and Brazil
is to replicate SANY Heavy Industry. TIle path will be the
81. same, but the scale may not be as
large. Why did we set up companies in Germany and the U.S.?
It is because we need standards,
technology, and talents from these countries. The market in the
U.s. and Europe is not large,
but it provides us with R&D capability that aUows us to be
competitive in China. This global
expansion allows us to raise our product and technology
standard to that of Europe and the
U.S., while having "made in China," "made in India," "made in
Brazil," "made in Germany,"
and "made in Ll.S." manufacturing costs to satisfy different
customer needs in different
countries.
Liang added:
We went to India because it is similar to China: it is a
developing country with a large
population and fast-growing economy. The purpose of setting
up a factory there is to produce
locally and sell locally to achieve scale. Germany is a different
story. We want to do R&D and
production in Germany. In the minds of the Chinese people,
Germany is a country for high-
end manufacturing. In order to learn from German companies,
we need to set up a company
there. It will be a window for us to attract talents who might not
be willing to come to China,
but who might want to work for our company in Germany.
SANY had to learn the different market demands and conditions
in order to come up with a
proper strategy for each country. For example, customers in
developed regions such as Europe and
the u.s. were less price-sensitive and paid more attention to
82. quality and brand than those in
developing countries. Tariffs for importing construction
equipment varied greatly among countries:
in Germany, the tariff was about 5% to 10%, but in india, the
tariff was over 30%. Africa seemed an
attractive market, but SANY decided not to set up factories
there because of concerns about stability.
10
170
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SANY: Coing Global
India and China were both developing countries, but their
market maturity and customer needs were
different. Liang elaborated:
TI,e construction equipment market in india is about US$5
billion, about ~~ same size as
China 15 years ago. Indian customers demanded lower prices.
They can sacrifice features. of
comfort, such as air-conditioning, for lower price. ln India,
operators of construction
equipment are not the owner of the equipment, but in Chtna. it
is usually the same people that
own and operate the equipment. Besides, the workload of the
construction equipment in .~h.ina
is more than three times that in India, so operators in China
can't do without an air-condItiOner.
And 70% of the Indian customers need financing or leasing
83. service, while in China, only 35%
of the customers buy construction equipment with financing
from banks or financing
companies. In addition, we must use engines from Cummings in
India because other engine
suppliers in India do not have the same level of after-sales
support due to small sales volume,
but in China, customers are willing to accept engines from
Europe, the U.s., or Japan.
SANY India
SANY established its first overseas subsidiary in Pune, India, in
2002. In 2007, it set up a new
340,OOO-square-meter assembly plant in Pune with an
investment of US$60 million and an annual
capacity of 500 pieces of concrete equipment. SANY sent 20
staff from China to India and hired most
of the 700 employees locally because 01 the low labor cost.
Most of SANY's products sold in India
were manufactured in China and shipped to India because of the
lower production costs with large
volume in China. The Indian factory supplied only some
components. The leading players in India
were multinational companies that had factories in India, such
as JCB from the U.K in excavators,
and Putzmeister and Schwing in concrete machinery. SANY had
about a 20% market share in
concrete machinery, over a 20% share in crawler cranes, and
about a 3% to 4% market share in
excavators, due to its short history in the country. After its
acquisition of Putzmeister, SANY
transferred the concrete equipment business in India to
Putzmeister's Indian subsidiary. With the
exception of the concrete equipment business, SANY worked
with six distributors in India that took
84. care of sales, marketing, and after-sales service for other SANY
products and paid them for the after-
sales service. These distributors set the price, but SANY did not
allow them to carry the construction
equipment of other brands. After 10 years of operation, the
Indian subsidiary broke even in 2011 and
expected to achieve sales of about US$100 million in 2012,
SANY Brazil
With a la.rge population~ rich resources and land, and as the
venue for the 2014 World Cup and
2016 Olympic .Games, Bra~il was .a~other very attractive
market for construction equipment. SANY
~tarted to sell Its produc~ I.nBrazil til 2007. In 2010, it set up
an assembly plant in Silo Paulo with an
investment of US$200 million. The plant started producing
hydraulic excavators in December 2010
and assembling and producing truck cranes in March 2011.
SANY Brazil had a strong team to
provide technical support to its Brazilian distributors. SANY
expected to reach US$160 illi '
I 'B 'I' 2 d 5 nu on insa es 111 razt 111 012 an U $1 billion in
five years.
SANY America
SANY America was set up in 2006 with an investment 01
US$30 million, In 2011, it finished
construction of a new 400,OOO-square-foot assembly plant and
corporate I d ' P h. .. . lea quarters til eac tree
CIty, Georgia, WIth an investment 01 US$60 million, SANY
America employed over 100 staff
including an R&D team of 60 from the world's leading research
institutes. It developed and sold
85. 11
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...:S...:A:.:.NY:.:.:.:G:::oi...:ng'C.G:::lo:::b:.::a_I_~....:.1&..17'1
.... ..1
513·058 SANY: Going Global
crawler cranes, rough terrain cranes, concrete pump trucks,
motor graders, and excavators for the
North American market, with many more global products in the
pipeline. In faU20n, SANY America
announced that it was building a US$25 million R&D center
alongside its headquarters and
manufacturing facility and employing 300 hydraulic and
mechanical engineers.
Goals and Challenges
In 2011, the overseas market contributed 5% to SANY's total
revenue. Except for Germany and the
.U.S., SANY's subsidiaries in other countries were all
profitable. SANY hoped 30% of its revenue
would come from overseas in five years and 50% from overseas
eventually. SANY's medium-term
goal was to exceed Komatsu in 2022 and become number one or
two globally in the construction
equipment industry.
However, to achieve these targets, SANY faced a number of
challenges. Zhao elaborated:
SANY has little gap in technology compared with leading
86. global companies, but SANY lags
behind them in building a global brand and in managing global
operation. Outside China,
people know Caterpillar and Komatsu, but they may not know
SANY. And our employees
lack experience in global business operation. We need sales and
management staff for foreign
markets. OUf service staffs need to develop English language
skills. Besides, cross-cultural
integration takes time.
The Putzmeister Acquisition
SANY Germany
SANY first entered Germany in 2007 and set up its German
subsidiary in Cologne in 2008. In
January 29, 2009, SANY signed an investment agreement to
invest f100 million (US$l44 million) to
build a 250,OOO-square-meterR&D center and machinery
manufacturing base in Bedburg. Chinese
Premier Wen Jiabao and German Chancellor Angela Merkel
witnessed the contract-signing ceremony
for this, the largest investment a Chinese company had ever
made in Europe.
The plant produced concrete mixers; it also conducted new
product R&D that targeted high-end
markets globally, with total output in the next five years to
reach 1,800 units. Liang introduced
SANY's plan for the German base:
We sent our product drawings, sample machinery sold in China,
and a few technicians to
Germany. Based on the product in China, they can develop a
new product that meets the
87. European standard in six months. Without a factory in Europe,
we would need at least three to
five years to do that. For the next step, we will supply some
components from China for
products made in Bedburg. We chose Bedburg and Cologne
because they are close to the port
city of Antwerp, Belgium. We can send components from China
to Bedburg through Antwerp.
We will not only have German standards, technology, and
quality, and made-in-Germany
products, but also low-cost components from China.
At the current stage, sales were not the priority for the German
subsidiary. Huang noted, "We
care about how many new and competitive products it has
developed. We are not selling our new
products in the market yet. We want customers to test them for
a long time before we launch them in
the European market." For example, an Italian customer was
testing new concrete machinery
12
International Business Strategy172
513-058
SANV: Coing Clobal
developed in the German plant. Because the labor costs in
Germany were much higher than those in
China, SANY was very careful about adding new staff in
Germany.
The Putzmeister Deal
88. Founded by Karl Schlecht in 1958, Putzmeister was a world
leader in high·quality concrete
pumps, with 40% global market share for many years (see
Exhibit 11 for the company's structure).
Putzmeister was held by the Karl Schlecht Foundation. With
about 3,000 employees, Putzmeister
had a niche focus and strong engineering capability. It was a
typicallfhidden championF (a little-
known world market leader with less than $5 billion in revenue,
as defined by Hermann Simon 18)
and represented "the backbone of the German
economy."19Putzmeister located its first overseas
subsidiary near Paris in 1974. Then it set up over 10
subsidiaries in Italy, Spain, the U.K., Brazil, the
U.S., and Japan. It broke many world records. Its equipment
was used to cool the damaged
Fukushima nuclear reactors and to construct Bur]Khalifa, the
world's tallest building.
Putzmeister set up a manufacturing base in Shanghai in 1996.
CEO Norbert Scheuch recalled, "In
the best time, we had a 30% market share in China. Now we
have 1.2%, but the market is bigger."
Scheuch explained:
We have been an export world champion, but not a real global
player. An export world
champion has one location and says, "I manufacture the best
product. Take it or leave it. I ship
it to the whole world." You c,anuse that approach when you do
have leading-edge technology,
but not when you manufacture a machine like a concrete pump
that others can disassemble,
make a deep analysis, and rebuild. We stuck too long to this
German approach, which created
89. problems for us in India, Brazil, and Chi.na. In other markets,
we did not have strong domestic
players, but the Chinese companies copied the Putzmeister
machine, made it cheaper, and
adapted it to the Chinese quality level and expectation. They
also built up the scale advantage.
In addition, as China gradually opened the construction
equipment industry to foreign
investment, foreign companies faced restrictions in investment
in some special purpose equipment
segments such as production of commodity concrete
machinery.P Foreign companies also had to
pay import duties for machine parts from outside China.
Putzrneister was hit hard during the 2008 and 2009 financial
crisis. Its 2009 revenue was £440
million (US$630 million), falling by more Ulan half, compared
with 2007 sales of €I billion (US$1.5
billion)." SANY overtook Putzrneister as the largest concrete
pump manufacturer in sales volume in
2009. In 2011, Putzmeister's revenue was £570 million
(US$738million). Ten percent of its sales came
from Gennany and 90% from overseas markets.
Liang continued to explain the reason for buying Putzmeister,
"Without the acquisition, we are
only number one in China, especially considering the fact that
Putzmeister is our major competitor in
expanding our concrete machinery business globally. We
become number one globally after the
acquisition, which also turned our competition into
cooperation." Xiang added:
Even if the deal costs RMB20billion, we will still pursue it.
RMB20billion is only two years
90. of P~O:I.tfor o~r concrete m~ch~ery .business. This kind of
resource is irreplaceable. This
acquisition can t be measured m financial terms. Putzmeister's
technology b d d tw k, b db" ' ran ,an ne or
can t e measure y money. ThIS acquisition can bring us
something" t d ., p . I .' rna money an time
can t buy. utzmeister ras 52 years of history and has built up a
net k i 52 '. . wor ut years. You can t
measure Its value With money. Our products are mainly sold in
rt.:. d .
th 5
" f I v.runa, an our export IS less
an ;0 0 our revenue. SANY has the largest sales globally but
SANY . I b, IS not ago al brand.
13
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93UPSin India-A Package Deal?-~~-=---'
CASE 26 I UPS m India-A Package Deal? C413
it possible to overcome the numerous challenges that
this highly regulated yet underdeveloped economy
presented?
Which global strategy should they apply? Could they
decentralize decision making and adopt a strategy that
would make it easier to incorporate the diverse local
conditions of India? Which segment would prove to
be most profitable: business-to-business, consumer-