MGT 554: International Business and Law Silvio Napoli at Schindler India (A) – A Case Analysis ____________________________________________________________ __________________ CASE ANALYSIS – SCHINDLER INDIA Schindler Holding Ltd, a respected Swiss elevator company, was established in 1874 by Robert Schindler and the first Schindler elevator was installed in India in 1925. After technical and sales collaborations with Indian companies, ECE and Bharat Bijlee Ltd. (BBL) in 1958 and 1985, Schindler Ltd decided to setup a wholly owned company in India in 1998.
The Indian economy had been liberalized in 1991 and the economy was growing at a rapid clip with many commercial buildings, hotels etc, being setup. Sensing the growing opportunity, Alfred Schindler, Chairman and 4th generation founder family member, decided to invest in India. But he also knew that Indian elevator market was very demanding requiring customization even at the lowest elevator product range and very price sensitive. The market was also competitive and he was also aware that almost 50% of the market was captured by their worldwide competitors, Otis, and the remaining 24% by other well known brands like Finland based Kone etc.
It was clear to him that entering this competitive yet potentially lucrative and profitable market would require services of a person with qualities of having a long term vision, foresight, be able to take high risks, be decisive, require thorough understanding of the local elevator market and to be able to adapt to the ever-changing local market conditions. Mr. Silvio Napoli seemed to have the right qualities for the job. Graduating with MBA from Harvard Business School, Silvio was appointed as head of corporate planning and was involved in strategic review processes, benchmarking and competitor analysis etc. hereby gaining good understanding of the global elevator market. He also gained good MGT 554: International Business and Law Silvio Napoli at Schindler India (A) – A Case Analysis ____________________________________________________________ __________________ experience managing a project that developed a standardized, low cost elevator for the highly saturated western elevator markets of France, Spain etc. , an experience that could also be leveraged for the Indian market.
Silvio was also assigned with the task of evaluating the Indian elevator market for potential joint ventures, understand prevailing legal systems, estimate market size etc. and with this knowledge Silvio presented a India specific business plan to the corporate headquarters, which was quickly approved. So, Silvio should have been the right person for the job, but after reviewing his progress after 7 months, it became clear that he lacked essential qualities of having a long term vision, foresight, inflexibility and patience.
Yes it is true that Silvio did a research about India and could get all the necessary information to start the wholly owned subsidiary of Schindler in India, but he lacked in understanding the cultural preferences and local preference to customizations. Silvio was strong headed and single minded, impatient and short tempered and also over communicative. He was not open to ideas communicated by his senior management, including managing director, Mehar Karan Singh, who emphasized on the need to have patience in the Indian market and develop relationships with customers.
All these qualities of Silvio are not exactly appropriate in the Indian elevator market and could also lead to ineffective management control and dissatisfied subordinates. Given that Schindler was expecting large growth in a short period of time (sell 50 units in first year and have 20% of the market share within 5 years), it is clear Silvio also lacked execution capabilities. In the 7 months since Schindler established a dedicated presence in India, not a single elevator was installed in the country. Future prospects also looked bleak with no new concrete orders and escalated cost of elevators.
Mr. Luc Bonnard, Vice Chairman of the MGT 554: International Business and Law Silvio Napoli at Schindler India (A) – A Case Analysis ____________________________________________________________ __________________ company, naturally was not pleased with Silvio’s performance. From Luc Bonnard’s perspective, Silvio had managed to setup the entity in India in a very cost effective manner, without incurring major investments. The company had no dedicated elevator manufacturing facilities, no elaborate logistics or distribution investments and infact office space and furniture were also rented.
Silvio had also hired some of the best local talent in key managerial and technical positions in the country. But these measures per se will not lead to profitability and it is recommended that for Silvio to succeed, he would have to first increase product offering in the country, showcase latest technology though it may be expensive in the price conscious market, start setting up a manufacturing facility and not overly depend on outsourcing every aspect right from assembly, be updated with the latest pricing from corporate headquarters and establish tighter communication and rapport between the local and corporate facilities of the company.
Silvio formed new management team, which seemed to have a better grasp of the local elevator market conditions, was not comfortable with Silvio’s rigidity in concentrating on standardized elevators without much customization and seriously doubted if the company could be successful with only one low end, standardized elevator, S001. So, when there was a sales opportunity for some elevators, even though they required customization, the management team grabbed this opportunity without Silvio’s knowledge.
But Silvio seemed to disagree or unhappy with this order since it went against his policy of minimizing elevator customizations and using only standardarized product offerings. There was no adaptability in Silvio’s business plan and he rigidly believed in global standardization strategy to focus on increasing profitability and profit MGT 554: International Business and Law Silvio Napoli at Schindler India (A) – A Case Analysis ____________________________________________________________ __________________ growth.
Napoli’s plan called for Schindler India to sell 50 units in first year and to win 20% market share. The company has a strong pressure to reduce cost and limited pressure to adapt to the Indian market. It is recommended that for Silvio to succeed in the Indian market, he must immediately alter his plan and introduce elevator customizations. In the short term, his technical staff must be sent to the corporate headquarters for training on existing standardized elevator design, understand the technical specifications and explore possible customization options in the current range of elevators.
In case if the existing team was still felt to be too inexperienced to handle this new range of elevators, then Silvio must also have options to bring in technically qualified personnel from the headquarters. For a long term strategy, it is recommended there are flexible technology transfer agreement between the Indian subsidiary and the corporate headquarters for multiple elevator product ranges that allows high degree of elevator customization.
It is also highly recommended to set up a Greenfield manufacturing facility in the country to leverage on the cost and labor arbitrage, instead of extensively outsourcing and depending on external vendors for elevator assembly and spare parts. In addition to the problems faced in executing elevator orders due to elevator customization issues, Silvio also erred in formulating appropriate pricing strategy for India.
His business plan did not consider important financial related factors like effect of Government policies on elevator industry, fluctuations in the currency exchange rate, effect of changes in the new transfer policy introduced by the corporate headquarters etc. As it is known, transfer pricing is determined various factors but primarily on profit earned by the subsidiary and also takes into account difference in the currency exchange
MGT 554: International Business and Law Silvio Napoli at Schindler India (A) – A Case Analysis By Satish Krishnamoorthy, Ramya Narayanaswamy, Karthik Chittatoor, Kamalendra Velendra ____________________________________________________________ __________________ rates. To handle the current pricing crisis, in the short term, it is recommended for Silvio to immediately negotiate with the corporate headquarters to revert back on the old transfer pricing method hat he had used to calculate pricing. For the long term, Silvio should enter into a mutual agreement with corporate headquarters that there will be no changes in transfer pricing methodology and changes in prices of essential imported elevator spare parts, without adequate prior intimation. Alternately, Silvio can also mutually agree on the transfer prices of some of the models transfer prices in his yearly budget and thereby shielding from sudden changes in the pricing.