Danfoss' Business Strategy in China
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Case Code : BSTR220
Case Length : 15 Pages
Pages Period : 1994-2006
Organization : Danfoss
Pub Date : 2006
Teaching Note :Not Available
Countries : China, Denmark
Industry : Air-conditioning and refrigeration equipment
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
The China Strategy
During the early 2000s, Danfoss was registering about 35% annual growth in revenues in China, but was yet to become profitable. The company was still importing a number of products from other countries to cater to the local market and sold them through its Hong Kong division (as imported goods were not allowed to be sold in China).
However, things changed dramatically after 2001. Toennesen, who was appointed as the General Manager of Danfoss (Tianjiin) Limited in October 2001, managed to convince the company's top management and to get permission to move the company's manufacturing operations from the leased premises to its own manufacturing facility. The new factory began production in December 2002.
In addition, the factory was also equipped to produce refrigeration and air conditioning products. Danfoss also started work on expanding the factory to include the production of scroll compressors for air conditioning units. This facility became operational in mid 2004...
The Road Ahead
By mid 2006, though Danfoss had established itself in China, counterfeit products formed a big obstacle to its future growth. A number of local manufacturers copied Danfoss products and sold under the same name with similar packing.
In one such instance, Danfoss was informed of its counterfeit products being sold at very low prices. Danfoss discovered the company which was doing this and reported the matter to the police. The company also started working closely with the local police and government officials to deal with the copycats. However, the company believed that while the problem could be mitigated, it would be difficult to eradicate it completely.
Another problem for Danfoss was that the air-conditioner market in China had become extremely competitive. By 2005, 33 out of 66 brands had exited the market, and according to analysts, around 10 more brands could go out of business in 2006...
Exhibit I: Danfoss Organization
Exhibit II: Air Conditioning and Refrigeration Industry in China
Exhibit III: Danfoss in China
Exhibit IV: Danfoss - Product Categories in China
Exhibit V: Cold Food Chain in China