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SellingintoIndia:LessonsFromSilvioNapoli
ByLouisColumbus CRMBuyer 04/22/055:00AMPT

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NoamountofprocessredefinitioncouldhavesavedSchindlerthepainsassociated withattemptingtomoveintoIndiawithalowcoststrategy.FundamentalassumptionsaboutIndia justwantinglowcostelevatorswherecustomizationwasn'tarequirementtooktheeffortof creatingasubsidiarytolearnfrom.

ForthelastfouryearsI'vebeenteachinganinternationalbusinesscourseoccasionallyforalocalMBAProgram.Mystudentsareallworking professionalswhocometoclassfordiscussionanddebate,notsermons.Casestudiesaretheperfectteachingtoolforthisaudiencethereis plentyofroomfordebateandanalysis.Layerinexpansionintohighgrowtheconomies,andclassattendancesoars. Theclass'favoritecasestudyis SilvioNapoliatSchindlerIndia(A),availablefromHarvardBusinessOnlinehere.Thegistofthecasestudy centersonSilvioNapoli,anambitiousstrategicplanningmanageratelevator/escalatorcompanySchindler,assignedthetaskofcreatinga subsidiaryinIndia. Hefacedthreemajorchallenges:First,hewasgoingtobesellingnonstandardproductsinIndia,wherecustomizedelevatorsarecriticalto anynewentrantstrategyhisexpansionstrategymadecostreduction,notproductcustomization,thetopobjectiveandintercompany collaborationtothenewlowcostsubsidiarywassporadic,whichdelaysinpartslists,designspecificationsandengineeringsupport. MeetSilvioNapoli Afterhavingtaughtthiscasestudyforfouryearsandhavinggonethroughthoroughdiscussionandanalysisofitspoints,Idecidedinpreparing forarecentclasstocutthroughalltheconjectureandgetrighttothesourcetoseewhatreallyhappened.IcalledSilvioNapoli.Hegraciously gavemefifteenminutesofoneofhisbusymornings. Wewentoverthecase'smoreglaringlessonsquickly,andthenSilvioprovidedsomegreatinsightsintolessonshelearnedtryingtocreatea subsidiaryforSchindlerinIndia.Herearehistakeaways: A"swatch"strategyoflowcostmarketentrywasthewrongchoice.InthecasestudymuchissaidabouthowSchindler'sCEO wasfascinatedwiththesuccessoflowend,massproducedSwatchwatchesa90'sphenomenonmorethanoneGeneralManagerof ManufacturingOperationsstrovetoemulatethislowendproductionstrategy. Schindler'smanufacturingcoststructureswerecompatiblewithcustomization,notcommoditization.Silviosaidthatwasoneof thebiggestchallengeshefacedasgettingtransfercostsforelevatorstoapricepointinternallywherebuildingelevatorsmadesense. ThecasestudydetailstheveryslowrampforsalesSilviosaysthiswasagreatlessonlearnedasayoungmanager. Exchangeratesandunforeseendutiesfurtherfrustratedmarketdevelopmentefforts.Makingthetransferredsubassemblies evenmoreexpensivewasthefactthattherewereexchangeratefluctuationsfavoringIndiancurrencies,andthedutiesthatwere increasedfrom22to56percentfornoncoregoodsduringthefirstsummerofSilvio'sefforts. CreatingasourcingfunctioninIndiatooklongerthanexpected.Toovercomethedutiesandequalizetheexchangerates,Silvio andhisrecruitedmanagementteamstartedsourcingeffortsinIndia.Theseeffortstookmoretimethanexpected. Culturaldifferenceswereimmediateandcostly.Thissoundslikecommonsense,butSilviosaiditsonethingtosayit,andquite anothertoliveit.FromreadingthecasestudyitsclearthatSchindlermanufacturingseeshighcustomizationdrivinghighergross margins,andthatthisnewSwatchstrategyisadefinitethreattotheirapproachtobusiness. Don'tconfusetacticalwinswithstrategicvictoriesinforeignmarkets.WithinsixmonthsSilviohadopenedofficesinNewDelhi andMumbai,hiredfiveIndianmanagers,eachoneveryskilledinlocalelevatormarkets,andbeguntoaggressivelyimplementthe businessplanforthesubsidiary.Still,nonewbusinesswaswon.Tacticallytheexecutionhadbeenperfect,yetstrategicallytheswatch strategywasnotwinninganydeals. Chinaisatoughsell.SilviorelayedhowthelessonslearnedinIndiaareusefulforsellingintoChinayethesaystheeffortrequiredis significantlygreaterthangettingsalesinIndiaonceSchindlerbegancustomizingitselevators.HesaystherearesuccessesinChinabut hethinkscompaniesarethinkingit'smuchmorepainlessthanitreallyis. Don'ttakethealliancebetweenIndiaandChinalightly.Silvioseesthisdevelopmentasfundamentallyredefiningtheregionand havingglobalimpactveryquickly.AnexcellentanalysisofthestrategicimpactofthisrelationshiphasbeenwrittenbyJairamRamesh,a memberoftheIndianparliament,intheApril18theditionofthe WallStreetJournal.Thearticleishere,andyou'llneedWallStreet Journalonlineaccesstoretrieveit.YoucanfindJairam'sWebsitehere.There'sanotherverygoodarticleonthisalliancewrittenbyPaul McDougallof InformationWeekhere. Bottomline:NoamountofprocessredefinitioncouldhavesavedSchindlerthepainsassociatedwithattemptingtomoveintoIndiawithalow coststrategy.FundamentalassumptionsaboutIndiajustwantinglowcostelevatorswherecustomizationwasn'tarequirementtooktheeffort ofcreatingasubsidiarytolearnfrom.Oneofmybeststudentsputtogetherthisfinalpresentationofhisresearch.Ifyou'reinterestedyoucan gettheslideshere.

Finally,lastweek'sarticleonGartner'sMagicQuadrantgeneratedsomehilariousemailsasmanypeoplehavecreatedtheirownquadrantsof justaboutanythingyoucanimagine.ThebestlinkhowevercamefromTekrati'sBarbaraFrenchwhoprovidedthislink.Thankyouallfor sharingyourownmagicquadrants.

LouisColumbus,aCRMBuyercolumnist,isaformersenioranalystwithAMRResearch.Herecentlycompletedthebook GettingResultsfromYourAnalystRelationsStrategies,whichis availableonAmazon.com.

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