Last Name: Click here to enter text.
Question 1:
What are possible reasons for the outsourcing strategy of the Indian subsidiary of Schindler? What allowed them to pursue this strategy?
Question 2:
What are the arguments to consider Schindler India a “Strategic Leader” and what are the arguments to consider Schindler India a “Black Hole”?
Answers:
Answer 1:
For a company to think of outsourcing, there are usually driving forces to this decision. Schindler was driven by various reasons into this decision. It was realized that the traditional manufacturers in India were becoming increasingly complicated and specialized which resulted in increased demand for better facilities and services. Additionally, elevators which were of high quality, safety and constructed with advanced technology were needed. Among the local companies, there was high competition and low end market; however, there was anticipation of making the elevator market segment better to woo more global players. The company anticipated high market share as a result of fast urbanization of India which led to shortage of space in Mumbai as well as the rapid-growth in other cities. At the top end of the market, there was a steadily increasing demand in top quality office fittings, particularly from transnational companies. The tourism industry was expanding significantly, and this helped the domestic hotel industry grow. These market segment is known for buying top-line elevators. Outsourcing was necessitated by the increase in demand in high quality elevators. The strategy of outsourcing succeeded as a result of assorted reasons. The company made efforts of keeping its overheads low. It came up with a plan of a radical concept to source Schindler 001 and this accounted for 75% of the sales. The plan suggested a strategy of not having a logistic infrastruture, no in-house manufacturing and not having a centralized assembly. The manufacturing of the most of the components for the dominant Schindeler model was to be outsourced to approved local suppliers. The entire logistics function was to be dealt with by logistics service provider with international recognition.
Answer 2:
In India, Schindler can be considered as a 'Strategic Leader' as well as a 'Black Hole'. Schindler is a strategic leader on the basis that it came out being unique in its products. The manager, Napoli, understood that the company was unable to compete adequately by offering what had been offered by its competitors. The company utilized this to benefit in the market. The manager undertook a research on the market in India, which resulted into conclusion that Schindler had to focus on a particular product line. This was to constitute of products which were simple but standardized. This approach was different from that used by potential competitors. There was a strategic proposition of building business around S001 and S300P products. There was to be customization of these products to meet the Indian customer requirements. This strategy was recieved positively by the Indian management team and put in place an approach through which the standard line of products were to be sold. There was to be differentiation of services and sales. Schindler could also be considered as a Black Hole because of certain factors. In India, there was high import duty on some products, elevators being one of them. There was an increase in transfer prices to 30% above the intial product cost which proved to be high for production. Introduction of new transfer costing systems further complicated issues. The company was significantly affected by the increase in the transfer price. In addition, it was a requirement for all the elevators to be fitted with glass walls, and this was challenging to the Schindler company. The different aforementioned factors had a negative impact to the company operations.
