Gino SA is a leading burner manufacturer facing a strategic dilemma between accepting an OEM proposal from Feima or maintaining its established distribution channel through Jinghua, its largest distributor in China. The decision involves balancing potential revenue growth in the industrial segment against the risk of damaging distributor relationships. A financial analysis supports accepting the Feima offer as it aligns with Gino's long-term strategy and aims to increase annual sales while managing inventory efficiently.

1. GINO SA:
DISTRIBUTION
CHANNEL
MANAGEMENT
HARVARD CASE STUDY ANALYSIS

2. What is
GINO SA ?

3. GINO SA
• One of the largest burner
manufacturer and exporter in the
world and enjoys up to 14% market
share
• Set-up in France

4. THE PLAYERS
• David Zhou - China marketing manager
of Gino SA
• Jean Michael Pierre - Asia Pacific Area
Manager
• Henry Gong - Gino’s largest distributor
Jinghua’s general manager

5. Market
Segmentation

6. SEGMENTS
• Domestic Boilers
• Commercial Boilers
• Industrial Boilers
Segments Manufacturers Average Price Market Size
Domestic Boilers
and
Water Boilers
310 RMB 2500 per unit RMB 194 million
Commercial
boilers
RMB 9000 RMB 198 million
Industrial Boilers 60 RMB 65000 RMB 221 million

7. RANGE SYSTEM
• Estimated sizes in unit sold
RANGE MARKET SIZE
Domestic 79,900
Commercial 20,080
Industrial 2,920
Total 102,900

8. DISTRIBUTION NETWORK
• The distributors:
1. Jinghua (also sold boilers)
2. FUNG’s (textile industry) accounted 90%
of
annual turnover
3. Wayip (sold only GINO burners)
• Revenue split between burners and spare
was 80/20

9. DISTRIBUTION NETWORK
• Performance Statistics
Jinghua FUNG’s Wayip Total
Domestic 4,354 3,075 3,458 10,887
Commerc
ial
876 433 568 1,877
Industrial 37 48 52 137
Total 5,267 3,556 4,078 12,901

10. What is
the problem?

11. THE PROBLEM
• Choosing between an OEM proposal
from Feima and agitating its well-
established distribution channel,
especially Jinghua.

12. WHO ARE INVOLVED?
• GINO- the main producer
• Jinghua- largest distributor of GINO in
China and accounted 40% of GINO’s
China revenue - the distributor
• FEIMA- potential OEM and major
client of Jinghua - the buyer

13. AIM
• Grow its annual unit sales by 20%,
industrial sales by 200 units
• Build two OEM & end user channels
by improving service standards

14. RISK INVOLVED
• Feima’s OEM businesses may lead to
frayed relationship with existing
distributor, Jinghua.

15. OBJECTIVE
• Choose between pleasing distributor
or setting up OEM.
• If OEM: create a pricing strategy for
potential OEM’s including Feima.

16. What can be
the advantages?

17. ADVANTAGES
Why Zhou wants Feima’s OEM business?
• Developing OEM business was one way
to combat increasing power of
distributors
• Good opportunity to break into a well-
entrenched customers in industrial

18. ADVANTAGES
• Success with Feima would make it easier
for Gino to develop OEM business in
other distributor’s territories

19. What can be
the disadvantages?

20. DISADVANTAGES
Why Jinghua was adamantly opposed?
• Jinghua strongly believed that Gino
should not develop distributor’s existing
costumer as OEM
• The practice would set a bad example,
which could destroy their confidence in

21. SWOT
analysis

22. SWOT ANALYSIS

23. STRENGTH
• Global presence, well established
channel network and strong brand
reputation
• Price gap from competition of up to
30%
• Contribution margins (30%- industrial,
25%- commercial, less than 20%-

24. WEAKNESS
• Reliance on oligopolistic distribution
channel for meeting the sales targets
• Unable to take over industrial burner
market
• Unable to steal major market from
competitors

25. OPPORTUNITIES
• Increased demand (20% higher in
the next five years) in industrial
range.

26. THREATS
• Political influence of local
manufacturers leading to increased
output and selling power
• Declining growth in western markets

27. What can
be done?

28. ALTERNATIVES (1/3)
1. Reject Feima’s offer

29. ADVANTAGES
• Strengthening of ties between
manufacturer and distributors
• Maintain its leadership position in
Domestic Segment

30. DISADVANTAGES
• Revenue lost from potential new orders
• Conflict with strategy of adding more
OEM accounts
• Opportunity cost in high margin Industrial
Segment
• Increase in distribution power

31. ALTERNATIVES (2/3)
2. Accept Feima’s offer for industrial
segment and leave other segments
to Jinghua

32. ADVANTAGES
• Increase in revenue and profits with
penetration into industrial segment
• Completely in line with management
strategy goals
• Jinghua also making more revenue and
profit
• Warehouse will solve inventory problems

33. DISADVANTAGES
• Getting distributors on their side can be
a tough task despite more profits

34. ALTERNATIVES (3/3)
3. Offer the discounts to Feima through
Jinghua

35. ADVANTAGES
• Good relationship with Jinghua and
other distributors
• Continuation of the existing relation with
Feima

36. DISADVANTAGES
• Alternative not aligned to Gino’s
strategy
• Can impact the overall margin of the
industry
• Other distributor’s OEM accounts will ask
for same margin

37. Financial analysis
of alternatives

38. FINANCIAL ANALYSIS FOR
ALTERNATIVE 1
Domestic Commercial Industrial Total
Units sold by a distributor 10887 1877 137 12901
Transfer Price (RMB) 2500 9000 65000
Revenue from burners
(RMB)
27217500 16893000 8905000 53015500
Revenue from spares in
USD (80/20) split
6804375 4223250 2226250 13253875
Net revenue of Gino in
RMB
34021875 21116250 11131250 66269375
Net revenue of Gino in
USD
4099021 2544126 1341114 2984262
Total Contribution Margin $819804 $508825 $268222 $1596852

39. FINANCIAL ANALYSIS FOR
ALTERNATIVE 2
On the next page

40. Domestic Commerci
al
Industrial Industrial
Direct
Total
Forecasted Units 11810 2003 165 36 13978
Transfer Price (RMB) 2500 9000 65000 120575
Revenue from burners
(RMB)
29525000 18627000 10725000 4340700 62617700
Revenue from spares in USD
(80/20) split
7381250 4506750 2681250 1085175 15654425
Net revenue of Gino in RMB 36906250 22533750 13406250 5425875 782772125
Net revenue of Gino in USD 4446536 2714909 1615210 653719 9430376
Total Contribution Margin
(20%, 25%, 30%, 30%)
$889307 $678727 $484563 $196115 $2248713
Setting up
warehouse(30000*12/8.3)
$43373
Shipping, Insurance etc.
(48.4% of Cm)
$94920
Outsourcing cost (5% of
CM)
$14096
Net contribution $889307 $678727 $484563 $43725 $2096323

41. FINANCIAL ANALYSIS FOR
ALTERNATIVE 3
Domestic Commercial Industrial Total
Forecasted Units 11810 2003 198 13978
Transfer Price (RMB) 2500 9000 65000
Revenue from burners
(RMB)
29525000 18627000 12870000 60422000
Revenue from spares in
USD (80/20) split
7381250 4506750 3217500 15105500
Net revenue of Gino in
RMB
36906250 22533750 16087500 75527500
Net revenue of Gino in
USD
4446536 2714909 1938253 9099698
Total Contribution Margin $444653 $407236 $387650 $1239540

42. FORECASTING NUMBER OF UNITS
Current Industry
Growth
(2%, 5%,
20%)
Addition
in Feima
sales
Projecte
d sales
2000
Projecte
d sales
2001
Projecte
d sales
2002
Domesti
c
10887 11105 705 11810 12047 12288
Commer
cial
1817 1971 32 2003 2104 2210
Industrial 137 165 33 198 238 286

43. EVALUATION OF ALTERNATIVES
Resolve
Jinghua’s
problem
(0.35)
Revenue
and profit
(0.3)
Industrial
Segment
penetratio
n (0.25)
Bargaining
of
distributors
(0.10)
Total
Alternative
1
1 1 2 1 1.25
Alternative
2
3 3 3 2 2.9
Alternative
3
2 2 1 3 1.85

44. Recommendation
of strategy

45. RECOMMENDATION
• From financial analysis & pros and cons
of all Alternative 2 is recommended
• It is aligned with Gino’s long term
strategy and achieve the target of 200
Industrial burners.

46. RECOMMENDATION
• The warehouse will house Industrial
burner inventory which will reduce
inventory cycle time for other distributors
giving Gino a competitive edge.

47. Contingency
Planning

48. IMPLEMENTATION
• Feima would be happy about the deal
as it is getting the percentage discount it
demanded
• If Jinghua does not agree to the plan
due to fear of losing the industrial market
a contract may be signed stating that
Gino will not acquire any industry burner

49. IMPLEMENTATION
• If Other OEMs ask for the same margin
then the discount must be compensated
by increase in purchase

51. Presentation created by-
ROHIT, NSIT Delhi
During an internship by-
Prof. Sameer Mathur, IIM
Lucknow
www.IIMInternship.com