Danfoss' Business Strategy in China

            
 
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Case Details:

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.



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"A key component of our global business strategy is to make China our 'Second Home Market' following Europe by continuing to invest in manufacturing capacity and R&D, and developing a world class technical and sales support team in China." 1

- Jorgen M. Clausen, CEO and President of Danfoss in 2006.

"Here in China, key success parameters for us will be responsiveness, price competitiveness and quality performance through all our activities. This we will obtain through a lean, action-oriented approach with the right degree of coordination between relevant functions." 2

- Claus Toennesen, General Manager, Danfoss (Tianjiin) Limited in 2005.

Introduction

On November 01, 2005, Danfoss China, the wholly owned susbsidiary of the Denmark-based Danfoss Group, a leading manufacturer of valves and fluid handling components for heating, ventilation & air conditioning equipment, acquired Zhejiang Haili Electronic Technology Company Limited3 (also known as Holip).

Holip was a Chinese manufacturer of low cost frequency converters.4 This was Danfoss' first acquisition in China since it entered the country in 1994 through a wholly owned subsidiary.

The acquisition was important for Danfoss, since the company would now have access to the rapidly growing low-end frequency converters market.

Danfoss retained the Holip brand name and used its own sales network to sell variable frequency converters to the low-end market in China, where the company had no significant presence. Holip was brought under Danfoss Motion Controls Division.

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Commenting on the acquisition, Jorgen M. Clausen (Jorgen), President and CEO of the Danfoss Group said, "The acquisition, which is Danfoss' first acquisition in China, is in line with Danfoss' growth ambitions in China in making it our 'Second Home Market.'

It will speed up the Danfoss frequency converter business in the Chinese market. Low cost frequency converters with basic features like those in the Holip range comprise 30 percent of the Chinese market, which is growing rapidly at 25 percent annually. Holip variable frequency converters meet the demands in this market, making the acquisition a perfect match for the Danfoss Motion Controls business in China."5 Danfoss, which had entered China in 1994, recorded US$ 120 million in revenues in 2004, a 40% increase from 2003. The company had set a sales target of US$ 480 million (approx.) by 2008. Danfoss China had been making losses until 2001, after which the company was broke even and started making profits.

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1] "Danfoss Introduces Innovative Energy Efficient Solutions in China," www.danfoss.com, April 20, 2006.

2] www.danfoss.com.

3] Holip was founded in 2001 in Haiyan, 100 kilometers from Shanghai. It has about 200 employees engaged in manufacturing and marketing variable frequency converters.

4] A frequency converter is an electronic device that converts alternate current (AC) of one frequency to AC of another frequency. (Source: www.wikipedia.org).

5] "Danfoss Acquires Chinese Frequency Converter Company," www.danfoss.com, November 03, 2005.

 

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