XAVIER INSTITUTE OF MANAGEMENT & ENTREPRENEURSHIP

Schindler India a Case Study

Submitted by
Jaspreet Singh-51 Jenkin J S-52 Jnanashankar H-53 Kalyani Burman-57 Kamini Sharma-58

Contents
Background of the case........................................................................................................................... 3 New Subsidiary in India ....................................................................................................................... 3 Establishment of team for new office: ............................................................................................... 5 Developing synchronisation among the team .................................................................................... 5 Elevator Industry: Indian Scenario .......................................................................................................... 7 Competitor Analysis ............................................................................................................................ 8 Challenges faced in Indian operations ................................................................................................ 9 Strategy Analysis: .................................................................................................................................. 10 Global Staffing....................................................................................................................................... 11 Selection criteria for Global Staffing ................................................................................................ 12 Analysis of Cross Cultural issues: .......................................................................................................... 13 Hofstede cultural dimensions: Swiss Vs India ................................................................................... 13 Trompennars cultural dimensions: Swiss Vs India ........................................................................... 15 Recommendations ................................................................................................................................ 17

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Background of the case

This case deals with expansion plans of Switzerland based company Schindler in India. It was established in 1874 in Switzerland by Robert Schindler, the company began manufacturing elevators only 15 years later in 1889. Alfred Schindler was the fourth generation to lead the company in 1987. Being young and dynamic, he transformed the companys culture from an engineering-based manufacturing company to a customeroriented service company. Within a decade, the worldwide revenues touched 6.6 Billion Swiss Francs (US $ 4 Billion), and were perceived as the technology leader in elevators and its number one producer in the world. It employed 38000 people in 97 subsidiaries, but failed to have its own operations in India. Schindler did not have a very great experience in the Indian market. Although its first elevator was installed in 1925, it was not until 1958 that it entered into a long-term distribution agreement with ECE. In 1985, it terminated its agreement and entered into a technical collaboration with Mumbai-based Bharat Bijlee Ltd. to manufacture market and sell its elevators. It acquired 12% stake in this venture and supported it completely, resulting in it climbing up to the second spot in the Indian elevator market and a market share of about 1015%. In 1995, Schindler took time off his regular schedule just to review the companys long-term strategy. He travelled to China, Japan and several other Far-Eastern markets to explore opportunities. He spent several weeks in India and saw a huge growth potential. In 1996 when a separate joint venture talks did not materialize with Bharat Bijlee Ltd., it started considering options to establish its own operations in India.

New Subsidiary in India

Silvio Napoli, Harvard graduate joint the company as Head of corporate planning and he resided in an office in the same floor as that of the top three executives of the company. This in turn helped him get respect and adulation in the hierarchical organization from his colleagues and other employees. Being the head of Corporate Planning, he was responsible for coordinating the annual strategic review process and undertaking external benchmarking and competitor analysis. Napoli was made in-charge of this assignment because he was

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familiar to India because of his nine months stay .Also he was generalist, not specialist which was required for this position. His Important contribution came as a member of VRA- corporate executive committee of the organization. Once the co-operation with BBL failed, the VRA hired BCG to find an ideal partner in India. Though BCG shortlisted 34 prospective partners, they could not zero down on any. This resulted in company contemplating the establishment of a fully owned subsidiary in India for the first time. VRA asked Napoli and the head M&A to explore the options. Napoli spent nine months developing a detailed analysis of the market size, legal environment and competitive situation, and had made a business plan based on his research. He was put in-charge of the new subsidiary set-up. After finalising the plan company was exploring the options for selecting the ideal person to head the implementation. Finally, without any scope for surprise, Napoli himself was chosen owing to the following reasons: Cross Cultural Suitability: Top management considered Napoli capable of handling different culture as he was an Italian who underwent education in U.S and had given good results working in Swiss environment. Age: His young age brings enthusiasm, drive and thrives to show his capabilities to the world. Courageous and Hardworking: Inherent attitudes like Courage and hard work are required for establishing a whole new subsidiary in country like India, which was present in Napoli according to top management. Generalist: To set-up a company in a new country, a person has to be all rounder and not a specialist. Napoli was a generalist hence was best suited for the role. Exposure to Indian culture: Napoli stayed in India for 9 months and was exposed to Indian culture to some extent which was a positive attribute to his skills to handle Indian clients and employees. Flexible: Napoli was flexible in his working and he had quality to adapt to different working conditions. He had proved his credibility in his previous assignments. MBA from Harvard Business School: HBS products are globally acknowledged for the quality they bring on to the desk. Faith of top management: He was a confidante of the top management which made him an obvious choice.
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Establishment of team for new office:

Napoli visited India a few times for laying the groundwork and then after settling the relocation package, moved to India with family. He established offices in Mumbai and Delhi, hired five Indian top officials and climbed the ladder of his plan implementation with all zest. Given below are the profiles of all the five members of the top team and the reason for selection. Mehar Karan Singh, 42, BE Mechanical Engineer from IIT Delhi & MBA from IIMA, as Managing Director reporting to Napoli and eventually to head the subsidiary. He had vast experience behind him in Hotel Industry and he was in the customer side then which made him capable of relating well to the prospective clients of the company. He was patient, easy going and friendly, but tough at times. T.A.K. Matthews, 35, B.Sc Civil Engineer from Tanzania and MBA from BIT, as Vice-President Field Operations sales, installations and maintenance. He brought business expertise owing to his prior experience in Otis. Ronnie Dante, 39, as General Manager Engineering. He had vast years of hard-core elevator experience at Otis. He was a real hard core elevator engineer and was one of the best in his profession. Pankaj Gupta, 32, as Head of Human Resources. He was selected on board because of his sheer determination to care for employees, which made him apt for the role. Jujudhan Jena, 33, Chartered Accountant from ICAI, as Chief Financial Officer owing to his qualifications.

Developing synchronisation among the team

This aspect is one of the most important and obvious factor to consider while forming a team that comprises of people from different countries, cultures and experiences. Even if all other factors work in favour, if the cultural differences is not clearly understood and acknowledged, the future of any organization can be in peril. Napoli was aware of this fact and hence he gave utmost importance to develop relationships among the members of the top team. As a background work, he organized undercover meetings with the other members at night in Delhi hotel lounges, where they contemplated on the first project offer they got and selection of employees who would report to the top team.

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He instilled a sense of belongingness and motivation among the employees that bound them together in a constructive team. Character traits of Napoli as recalled by his colleagues: Strong headed and single minded manager. Wants everything done yesterday, which means he was very time conscious. Also there is a general understanding that to survive in India one has to be Half Monk and Half Warrior. As per his superior Napoli was way ahead in Warrior ship, but he had to work on the Monk part. Driving hard, impulsive and at times over communicative.

These were in contrast to the character of M.K.Singh who was friendly and easygoing and was tough only when the situation demanded. The character of the other three members also would have been different. But, according to T.A.K Mathews, although there were differences among the members during the discussions, by the end of the day, they did bring out a balance as all the aspects were considered and the best options emerged out. So, it can be concluded that the new organization of Schindlers in India under Napoli used the cultural differences in mutually reinforcing manner.

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Elevator Industry: Indian Scenario

India had an installed base of 40,000 elevators by the end of 1997. China and Japan were way ahead of India with 140000 and 400000 units respectively. However, Schindler realized the significant growth potential of India. The residential segment which accounted for 70% of the total demand subscribed to single-speed elevators. Though the metros were to remain as the stronghold in terms of the number of elevator units sold, the demand in smaller cities were also likely to see a big rise due to better purchasing power and rapid urbanization. The commercial segment accounted for 20% of the market with office buildings and shopping centers requiring variable frequency elevators. The balance was accounted for by hotels (4%) and others (6%). The market saw a steady growth of 17% in units and 27% by value till the slump in real-estate surfaced in 1996 which brought down the CAGR to 10%. Mumbai and Delhi accounted for 60% of the total Indian elevator market. The elevator industry in India was revived with the dawn of liberalization in India in the early 1990s. Low technology manual elevators accounted for about 50% of the total demand. Schindler didnt have any offerings in this segment. Meanwhile, the Indian government banned collapsible gate elevators. The ban was a source of interest stimulator towards this segment for the international players like Schindler. The lower segment of the market was characterized by intense competition among the local players. Schindler had S001 to cater to this segment. The middle segment was the most interesting arena due to Indias rapid urbanization which resulted in space constraints in metros like Mumbai and Madras besides the fast-growing cities like Pune and Bangalore. Low and mid-rise buildings were mushrooming. The traditional builders were drifting towards sophistication and professionalism which lead to higher emphasis on better services and facilities and on higher quality, safety, and technologically superior elevators. This was a major factor in steering Schindlers culture in India from that of an engineering-based manufacturing company to one of a customer-oriented service company. The top-end of the Indian elevator market was characterized by growing demand for topquality, high-rise office premises as well as housing facilities, particularly from multinational companies. The major buyers of top-line elevators were the hotel and tourism industries. Although the top-end segment was small, the average value per elevator was five to six times that in the low end. Schindler had S300P to offer to this segment.
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The Indian market was biased towards the simplest products (Single-speed elevators: 65%). However, a marked shift towards two-speed or higher-technology products was bound to occur. The Indian market was also highly price-sensitive. Elevators were bound to become commodity products and price pressures were bound to attenuate.

Competitor Analysis
The below graph gives the market share captured by major players in elevator industry in India

Market Cap

23%

Otis BBL Finland's Kone 50%

8.40%

Hyundai

ECE
1.00% 8.80% 8.60% Other Regional Players

Otis was one of the most profitable industrial companies in India with an installed base of 26000 elevators. All the buildings in India which had more than 15 floors had an Otis elevator. 16000 of their units were under maintenance contracts. The distinct feature of the elevator industry was that most of the money made in the elevator business was not in terms of new equipment sales but from maintenance and servicing. Since over the 30-year lifecycle of the elevator, the engineering, production and installation accounted for one-third of labor content bur only 20% of the profits whereas service, repair, modernization and replacement accounted for two-thirds of labor but 80% of profits. As a result, annual maintenance contracts covering both routine maintenance and breakdown service were highly essential.

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Challenges faced in Indian operations

The transfer prices on the standard elevators were 30% above the costs which was used to prepare the plans as costs had increased. The import duties were increased sharply by the Indian government, leading to added cost. Indian managers had approved an order for non standard product, which was completely in opposition to agreed strategy of standardisation. The requests of parts lists, design specifications and engineering support were not forthcoming from Schindlers European plants which were a challenging situation.

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Strategy Analysis:
Conceptualised low-cost market entry: It is depicted that the company wanted to follow the low cost strategy of Swatch. But a company of the reputation of Schindler should have incorporated more aspects in to their strategy. Pressure of Forex-Fluctuations and other duties. The unfavourable Forex movements and duties that were increased from 22 to 56 percent for non-core goods during the first summer of Silvio's efforts crippled his efforts even further. Napolis main objective was to develop a unique competitive advantage by outsourcing the manufacturing to local companies. This would allow Schindler India to avoid the excessively high import duties and transfer pricing while keeping overhead cost extremely low. Napoli can even make Mr.Schindler to give attention and settle the transfer pricing issues. Outsourcing Strategy: Napoli decided to adopt an outsourcing strategy to keep overheads low with neither in-house manufacturing nor a logistics infrastructure. This would help maintain low costs as the import duties had also been increased. He believed he could set up a local manufacturing network that would preserve Schindlers quality reputation. Standard Product Strategy: According to Napoli the most effective way for Schindler to enter Indian market would be focus on standard product i.e standardized elevators. It was considered by him as unique source of advantage. Sourcing The sourcing efforts of the company in India also took more than expected time. Customization vs. Commoditisation It turns out from the case that the company had huge pressures of transfer pricing which was not anticipated initially and hence, they should have tweaked the strategy a bit to incorporate this as well. So, company should have provided more avenues for customisation by which they could have commanded better prices and even ramped up their sales. Napoli acknowledges this as a great lesson learned as a young manager

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Global Staffing
The various practices followed by different global companies in sourcing manpower for an international assignment are: 1. Ethnocentric In Ethnocentric practice strategic decisions are made at headquarters, i.e parent nation. Here key positions are held by headquarters personal. Subsidiaries in other nations are managed by Staff from home country (PCN). Reasons for Ethnocentric practice o Perceived lack of qualified host country staff (HCN). o Need to maintain good coordination, control and coordination with corporate headquarters. o At early stages of company going global ethnocentric is good practice to avoid risk. Also when a foreign firm is acquired it can be build according to acquirers culture. Disadvantages of Ethnocentric practice o Promotion opportunities for HCNs will be less and hence turnovers among them. o Adaptations for PCNs take longer time. o Huge difference in HCN and PCN compensation.

2. Polycentric In Polycentric practice each subsidiary is treated as a distinct national entity. Subsidiaries are usually managed by local nationals (HCNs). PCNs are rarely transferred to foreign subsidiary operations Advantages of Polycentric approach o Elimination of Language Barriers and Adjustment Problems. o Less expensive. o Avoids turnover of key employees.

Disadvantages in Polycentric approach o Isolation of foreign subsidiaries from corporate headquarters. o Limited exposure for PCNs to global operations.

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3. Geocentric Global approach is taken for operations. Worldwide integrated business and nationality is ignored in favor of ability. PCNs, TCNs and HCNs can be found in key positions anywhere. Advantages to Geocentric approach o Global perspective is developed and internal pool is available for deployment throughout global organization o It overcomes the drawback from Polycentric approach Disadvantages of Geocentric approach o Expensive training and relocation cost o Huge documentation required, Work permits etc o Host governments want a high number of local hires Regio-centric: A midway between purely ethnocentric or polycentric to geocentric approach. Here manpower is sourced with respect to geographical regions. Selection criteria for Global Staffing Various factors are considered before selecting a person for international assignments. They are: 1. Technical Ability: Relevant technical skills should be possessed by candidate. 2. Cross Cultural Suitability: Person must be capable of working in new environment. He must be adaptable to different culture. 3. Family Requirements: The candidate must be able to manage family dependency on him/her. 4. Language: The candidate must be familiar with language prevalent in new location. For example if new location is France he must have required knowledge of French. 5. MNE Requirements: Companys approach towards staffing is very important, ratios of hcn tcn pcn as per prevalent practice in multinational enterprise must be taken care. 6. Country Legislation Requirement: Legislation requirement of country must be taken into account. For example work permit policy, the nations demand for hire of local nationals etc in taken into account.
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Analysis of Cross Cultural issues:

Hofstede cultural dimensions: Swiss Vs India

90 80 70 60 50 40 30 20 10 0

Switzerland India

Swiss: Uncertainty avoidance: Switzerland has a relatively low uncertainty avoidance index of 58, compared to the average European value of 74 and the average World value of 64. This reflects that industries within the country do not face extremely strict laws or regulations that discourage engaging in risk or idea growth and generation. Individualistic vs. Collectivist: Swiss population has a more independent nature where the people tend to take care of themselves and their close family, but tend not to 'meddle' in the matters of others. Power Distance: Swiss population has a relatively equal distribution of power across the population's societal structure. That is, there is an expectation by the general population that power and control of the society shall be more equally distributed among all the members of the society. Masculinity vs. Femininity: Switzerland scored high on Masculinity. The implication is strong gender differentiation in which the male population is competitive and assertive relative to the female population.

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Long term vs. Short term Orientation: Swiss people are more short term oriented. It means the way they conduct business demands more quick result orientation and concern with possessing the truth. India: Uncertainty avoidance: India scored low on Uncertainty Avoidance (UAI) at 40, compared to the world average of 64. On the lower end of this ranking, the culture may be more open to unstructured ideas and situations. The population may have fewer rules and regulations with which to attempt control of every unknown and unexpected event or situation, as is the case in high Uncertainty Avoidance countries. Individualistic vs. Collectivist: India is more towards collectivist culture like western. This has major difference between Swiss and India. Power Distance: India has Power Distance (PDI) as the highest Hofstede Dimension for the culture, with a ranking of 77 compared to a world average of 56.5. This Power Distance score for India indicates a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the population as a cultural norm. Masculinity vs. Femininity: India has Masculinity as the third highest ranking Hofstede Dimension at 56, with the world average just slightly lower at 51. The higher the country ranks in this Dimension, the greater the gap between values of men and women. It may also generate a more competitive and assertive female population, although still less than the male population. Long term vs. Short term Orientation: Indians more long term oriented than their Swiss counterparts. Indian organizations are driven by thrift. So its better for Schindler to go with economical equipments which are lower in cost compared to Otis to arm wrestle with the competitors. The Indian team headed by Napoli has a well drafted plan in hand at the moment, its better to follow that with patience and perseverance toward slow results. As Napoli rightly points out nothing is done yesterday in India.

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Trompennars cultural dimensions: Swiss Vs India

Although Mr. Schindlers road trip proved to be successful and he saw lot of potential to escalate billions of people every day, when Mr. Napoli started to schindlers establishment right from the scratch, he found that if they want to escalate without de railing, the cultural nuances should thoroughly analyzed. Here, 7d model is used to analyze the various cultural differences between India & Swiss, and the possible pitfalls for schindlers top executives if they are not watchful. Universalism Vs Particularism: The dilemma in this dimension is between universalism and particularism. That is whether to go with rules, codes and laws like western countries or to go with exceptions, circumstances and relations like Asian countries. Swiss along with the other Nordic country is shows high univerlistic tendencies and India exhibits particularistic characteristic. When Napoli colleagues said you have to work on your monk part, they clearly indicate that he should improve his relationship with his sub ordinates to do business in India. Universalism Swi India Particularism

Individualism Vs Collectivism: More specifically do individuals in a culture expect individual or group recognition for accomplishment. Would individual recognition cause loss of face. Swiss is among the highly individualistic culture identified with competition, personal growth and self reliance and India in early nineties was exhibiting characteristic of a communitarian society with existence of public relationship and unions. So Napoli should be able to combine competition & co-operation and build a co-petition approach. Individualism Swi India Collectivism

Specific Vs Diffuse: This dimension has proved to be relevant in comparison between the India and Swiss culture. Because Swiss is highly specific than diffuse, and on contrast for doing business in India on has see the holistic picture rather than concentrating on specific details.

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Specific Swi

Diffuse India

Achievement Vs Ascription: Swiss along with the major countries in the world prefers ascription over achievement. But not as strong as what existed in Indian culture. Hiring of Napoli from Harvard business School itself clearly indicates that the society prefers someone from elitist class over some with prior work experience from another graduate school clearly indicates that the society favours ascription. So schindlers wont having an problem with this cultural dimensions but still he has move forward with caution in building the organisation structure because he should not end up in forming a ivory tower which is formal bureaucrat system in India. Ascription India Swi Achievement

Sequential Vs Synchronic: Here the dilemma is between monochronic and polychronic. Swiss is among the lower tier of countries which rely on synchronic timing where as India shows a favourable tendency of sequential timing. Napoli has already started to experience the way things are done in India, so its better for him to educate his colleagues with the definition of deadlines before its too late. And its better for Napoli to keep in mind that Indian trains dont run by IST. Sequential India Internal Vs External Control: This dimension is clearly explained by the difference between Alexander the great and Sun tzu in winning the war, one believed war can be won by the resources available in the hand and Latter relied on studying the environment carefully before fighting. Swiss is more internal oriented and Indian culture is in favour on external oriented control. Internal India
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Synchronic Swi

External Swi
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Recommendations
Cooperation from Global teams: Cooperation from European plants should be obtained so that leadership team be get linked with corporate and other parts of Schindlers operation for better cooperation and efficient handling of day-to-day activities. Global Culture: Indian team should behave like an extension of the global structure of Schindler and they should seek help and get support from the global operations whenever there is a unique client situation, design requirement or technical issue. This will help Schindlers clients to get the best of Schindlers global expertise and value. Customization of products: Napole was unable to understand the market conditions in India and adapt his business strategies: Silvio was determined to follow his business plan even if the market revealed better alternatives. Customers were pretty clear that the standard product line would not be acceptable for the first two orders that Schindler India received. Hence customization of products must be considered and rigid strategy of standardization must not be followed. Flexible Management Style: Silvio was a task oriented individual. Also the company was a start up in India hence the flexibility in working is required out of him to achieve success in completely different cultural environment. Training programmes: The cultural awareness- pre departure training programmes are another way of assisting the employees to perform well in a foreign country. A well designed cultural awareness training can be extremely beneficial as it seeks to foster an appreciation of host country culture. So that the expatriate can behave accordingly or at least develop appropriate coping pattern. In this case Silvio could have been provided with necessary training to prepare him for new assignment. Along with Silvio his family also can be included in pre- departure training, which will help the family to settle down easily. Laying the emphasis on Service: From the survey on factors influencing the customer purchase, it turns out that customer give utmost importance to price and the quality of service. But the firm has been working only on the price aspect and not the service aspect. So, in order to have better penetration in the market, the company should give presidential importance to the quality of service.
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Organizational structure: While the current division based organization structure is good for cross-integration it fails to promote technical skills and expertise in selling. There is also a need to separate new installation and service functions.

Brand Image and positioning: It can be easily deciphered from the case that Napoli failed to establish a respectable brand image for his company which would mean he failed to exploit the global image in India. He was more engrossed in team building and other related activities. So, the company should give more focus on brand building and related marketing activities.

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