GINO SA CASE STUDY PRESENTATION AND ANALYSIS. Burners sold in China. Sales and Distribution, channel conflicts, organizational behavior, etc

1. GINO SA: DISTRIBUTION CHANNEL MANAGEMENT
GROUP ONE PRESENTATION
DATE: 30/01/2015
TONY RICHARDS C FT151015
DEPANSHOO SHAKHANDA FT153065
VARUN VENUGOPAL FT151002
VENKATESH K G FT151095
VIVEK KHATTAR FT154063
VARUN SINGH FT153111

2. EXECUTIVE SUMMARY
PROBLEM STATEMENT:
Resolve the confusion in the distribution channels
BACKGROUND INFORMATION:
Protagonist: David Zhou, marketing manager for Gino SA
Henry Gong, general manager Jinghua
Feima-OEM
• Feima wants to start dealing with Gino directly instead of through a dealer
CONCLUSION:
Do not break the channel as the company can not afford to loose the dealers.
Exception could be negotiated for industrial segment.

3. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
 Electromechanical device which provides a
controlled flame
 Boilers and furnaces
 The body, the head
 The body consists of electric circuits, dumper, fan,
valve, pump and control box. Power cable & oil or
natural gas supply
 No single method of classification. Gino classified
based on capacity of the boilers the burners were fit
with (Domestic, Commercial & Industrial)
PRODUCT:BURNERS

4. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
 The industry does not follow a single standard to
classify burners
 Becket is the market leader in U.S.
 U.S. market has high entry barrier
 China is a rising star
WORLDWIDE MARKET IN THOUSANDS
 Developed markets of Europe and U.S. have become
saturated
 Highest growth in Asia, Middle East and Africa
 Demand was increasing in domestic and commercial
INDUSTRY
SEGMENT BOILER CAPACITY USES
DOMESTIC upto 0.5 ton households/sauna
COMMERCIAL 0.5 to 2 ton offices/shops/restaurants
INDUSTRIAL >2 ton
absorption type
chillers/boilers

5. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
HOFSTEDE’S
DIMENSIONS
POWER DISTANCE
INDIVIDUALISM vs
COLLECTIVISM
MASCULINITY vs
FEMINITY
UNCERTAINITY
AVOIDANCE
LONG vs SHORT TERM
ORIENTATION
INDULGANCE vs
RESTRAINT
CHINA 80 20 66 30 87 24
• Renminbi(人民幣) is the currency used in China
• Guanxi: Connection and Obligation
• The country is unique and isolationist
• Strong heritage and imperial tradition
• Was an empire for more than 2000 years

6. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
Before 1990:
 China rich in coal-low efficiency and polluting-coal combustion boilers and hence no burners
BURNER MARKET IN CHINA
1995-1998:
 New applications for burners & demand for commercial range began to increase
 Price became an issue-Local manufacturers-only 5000 units-5 years to become a threat-small burners
 Gino- price leader in domestic range (reference point for competitors)
 Domestic-14% Commercial-8% Industrial-less than 3%
 Despite offering 10% to 20% less than Weishaupt low penetration in industrial burners
Post 1999:
 Domestic- price wars ; commercial – mainstream market
 Industrial burners – growth expected at 20% for next 5 years
1990-1995:
 Emphasis on pollution control, replaced with oil combustion boilers
 Weishaupt (Germany), Baltur & Ridello (Italy), Elco (Germany), Quenod (France), Corona (Japan)

7. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
 Gino Burner Co. was founded in 1931
 Headquartered in Paris, France
 Wide product line: 50+ models
COMPETITIVE ADVANTAGES
 Gino had cost advantage and was known for
providing “best value”
 Gino was best known for it’s domestic burners
 Margins were higher in developing countries
 One of the largest manufacturers in the world
GINO
In-house production capablity
Well established channel network
International exposure
SEGMENT
OUTPUT
RANGE(kcal/hour)
GINO
PRODUCTION -
1999
MARGINS
DOMESTIC 50,000-300,000 329 <20%
COMMERCIAL 300,000-2,000,000 49 25%
INDUSTRIAL >2,000,000 3 30%
Total 381

8. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
 Gino, Beijing, 1995
 Market research and campaigns, administration of
distribution channels, technical support and
counselling, key account and OEM business
development, identifying partners for JV
 Gino is an aggressive company with good budget
 Field technical training to customers and distributors
 Bonus- sales target- RMB8,000 to RMB10,000
 Total compensation three times the average
 Jean-Guy Picher, Director of Commercial Department
 Jean Michael Pierre, Asia Pacific Manager
 David Zhou, China marketing manager
 Three assistant marketing managers
 Peter Wang, Technical manager
 Two tech support engineers
GINO CHINA PEOPLE INVOLVED

9. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
BURNER CHANNELS IN CHINA

10. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
 Most manufacturers relied completely on
distributors
 Weishaupt : own sales force and distribution
network
 OEM’s often tried to bypass distributors
 Manufacturer’s refrained from giving quotations
 Issues: Services, spares and pricing going to OEM
 OEM Customers and End user customers
 Decisions made independently – 3 step process
 Word of mouth, design institutes and frequency
 (1)Price (2)Reputation (3)Service (4)Spare
(5)Supply
(6)Reliability (7)Technical (8) Personal connections
 Commercial and technical
 Importance of price inverse relationship with
capacity
 Buys boiler and burner separately to negotiate price
 Public tendering – (1)Price (2)References
CUSTOMER BUYING PROCESS OEM Customers
End User Customers

11. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
Domestic Boilers & Water heaters:
 310 Major manufacturers; Avg. Price: RMB2,500; Size: RMB194 million
SEGMENTATION
Commercial Boilers & Industrial applications:
 Avg. Price: RMB9,000; Size: RMB198 million
Domestic Boilers & Water heaters:
 60 Major manufacturers; Avg. Price: RMB65,000; Size: RMB221 million; Weishaupt
ESTIMATED SIZES IN
UNITS SOLD

12. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
DISTRIBUTION NETWORK
 Three distributors were set up in 1995
 Revenue: burners/spares :80/20
 Wayip-Gungzhou-100% Gino (HVAC)
 Fung-Shanghai-Textile machinery(90% revenue)
 Jinghua-Beijing-50% boilers
DISTRIBUTOR PERFORMANCE STATISTICS

13. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
DISTRIBUTOR FUNCTIONS PRICING
Percentage USD RMB
Transfer Price 100
Import Duty 15
Value Added Tax 17
Shipping and Insurance 5
Domestic Transportation 3
Miscellaneous and Handling Fee 2
Transfer Price in USD * 12.32
Base Price 142 1232
60% Grossing up Of Base Price gives the
Public Price or Listed Price 227.2 1972
Contract Price is equal to a discount of 20% to 25% on
Public Price
Contract Price 181.81 1578
Gross Profit to the distributor=(Contract Price-Base Price) 39.87 346
Profit % 28
Credit Function: line of credit
Stock Function: 10 major
models accounted for 80% of
sales
Sales & Service Function

14. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
Product line + Geographic coverage
Gino in domestic is unshakable
 Achieve annual sales of 15,000 units
 Industrial burners >200 units
 Optimize the channels to cover more area
 2 OEM accounts + 2 End user accounts in 2 years
 Improve service and spare supply
 Build the brand image
THREE YEAR GOALS DISTRIBUTOR BEHAVIOUR
Demand for better
terms
Stolen Sales
Reluctance to stock
industrial burners

15. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
No other dealers available. Weishaupt’s dealers not ready to switch.
No current warehouse of Gino in China. Existing workforce can not provide service.
40% of total sales from Jinghua (Henry Gong)
Do not break the channel as the company can not afford to loose the dealers.
Exception could be negotiated for industrial segment.
FEIMA ANALYSIS • Response of Fung and Wayip
• Message sent to competitors
• Corporate management – Picher
• Feima’s Response
• Legally Gino allowed to develop OEM business
• Short term profit v/s long term co-operative
relationship
• Industrial segment 20% to 30% cheaper - Gino
RANGE VOLUME
CURRENTLY FROM
GINO
OFFER
DOMESTIC 1055 350 1055
COMMERCIAL 163 50 81
INDUSTRIAL 71 3 35
TOTAL 1289 403 1171

16. INTRODUCTION CHINA COMPANY ANALYSIS SUGGESTIONS LEARNINGS
TRUST and REPUTATION with dealers is vital in B2B
Channel power is required to negotiate effectively
Customer says “price” but wants “experience”
Look for long term RELATIONSHIPS not immediate profits

18. Q&A