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8.4. A Company with Balanced“Hardware,”“Software,” and“Regions”

HCMC has steadily improved its performance to date, although it faces barriers to achieve further gains. In addition to Komatsu from Japan, the Korean companies have focused on small-sized excavators, and apart from the world's largest construction machinery manufacturer, Caterpillar, other local companies such as Sany Group are becoming strong competitors within the Chinese market.

Ever since the economic crisis, Sichuan redevelopment construction and government economic stimulus measures worth four trillion yuan (approximately JPY 56 trillion) for projects such as public works infrastructure in the Sichuan Province, the demand for construction machinery has increased in the country's interior. However, HCMC's resellers have a weak presence in the interior, which has caused a drop in market share. Furthermore, an increase in demand stemming from public works investment in China ceased, causing a larger than anticipated drop in demand for construction machinery.

According to HCMC's general manager, “the question of which is better, a JV or wholly owned subsidiary, depends on the JV partner. We had disagreements with our partner, and therefore chose to create a wholly owned subsidiary, but I think there are positives to a JV if one can find a good partner. For example, foreign firms find it difficult to obtain information regarding contracts for public works projects, and a company with a JV partner might be able to win more contracts.”

Another issue is the best use of high-quality workforce. For example, when HCM implemented finance and accounting systems in China, a young Chinese employee was sent to Japan for 4 months. Before his visit, the employee understood no Japanese, but studied Japanese during the non-working hours during his 4 month stay, learning to read and write the language for the most part. China has many human resources who possess a strong desire and extensive ability to learn, and using them well has many advantages for HCM on a whole.

HCM Global is expanding production not only in China, but also in the emerging markets such as Indonesia and India. In September 2007, the company built a manufacturing facility in Indonesia for ultra-large hydraulic excavators used in large structures in the Cibitung plant that has operated since 2001. In India, HCM sells hydraulic excavators through Tercon Construction Equipment as a JV with the Tata Group (of which HCM has 40 % ownership). This venture has approximately 50 % of the Indian market. In March 2010, HCM increased its ownership in the JV to 60 %, and has aggressively begun to operate as a subsidiary within India.

HCM's 2011–2013 mid-term plan titled “Go Together 2013” lists the three axes of its management foundation: hardware (products), software (services), and regions. The plan states that a balanced strengthening of these axes is critical.

The theme of the first axis “hardware” is “strengthening what is already strong.” For example, the company aims to further improve the development, production, sales, and service capabilities of its cornerstone product—hydraulic excavators— and thereby accelerate its growth. In addition to hydraulic shovels, the company aims to increase its competitiveness in mini excavators, wheel loaders, dump trucks, cranes, and forklifts as its next cornerstone product. Due to increased awareness of rising energy prices and global environmental issues, HCM aims to focus on the development of energy-saving technologies. In terms of “software,” HCM aims to differentiate itself from its competition by providing a total solution that combines qualities of all its group companies in system sales, repair services, rentals, used and refurbished equipment, financing, and logistics.

Finally, HCM aims to strengthen its sales and service network and expand its market share in emerging markets, or “regions.” To quickly provide products that precisely respond to market needs in each region of the world, HCM is aiming toward the localization of its business by locating engineers throughout the world. They are exploring diversity in its organizations, including new human resource systems that provide positions to quality local personnel. Caterpillar, Komatsu, and other global players are also committed to emerging markets, and Korean firms must be analyzed closely, due to their low cost strategies. For the HCM group, moving ahead toward the localization for each country and region may lead to decentralization of management resources. HCM stands at a strategic crossroads as it moves forward with global-minded management, whether to further strengthen its response to the Chinese market that accounts for a large share of its global revenues or to make long-term investments in regions such as India.

8.5 Importance of This Case Study and Suggested Questions

HCMC entry into the Chinese market started as a JV with a local firm. However, it is an important case study from the standpoint of a company that ultimately became a wholly owned subsidiary after facing several drawbacks, the process of which has been depicted vividly. It unfolds the realities of the post-hoc JV risks, as explained in Chap. 7. HCM perhaps did not have the option to set up operations in China as a wholly owned subsidiary because companies entering the Chinese market in the mid-1990s did so at the behest of the government. This situation is far widely different from the foreign capital deregulation that companies enjoy today, but it nevertheless provides valuable information to global companies as they consider how to balance reducing market entry risk as a JV versus the increased risk they experience from entering into the JV.

There are hints to be gleaned and considerations to be made regarding the necessity of alliance strategies in light of increasing competition between foreign and local firms. Furthermore, HCM operates worldwide, and not just in China. This case study provides the basis for further reflection regarding the positioning of Chinese operations and the integration of management strategies on a global level.

Using this case study, the following questions can be considered to further deepen the understanding of global strategy.

• What are the various strengths and weaknesses of JV's and wholly owned subsidiaries as a company expands into foreign countries?

• What did the mayor of Hefei mean when he said, “You will find it difficult!” after the HCM JV was dissolved?

• As competition with other foreign and local firms increases, what strategy should HCMC pursue?

• For HCM overall, should its focus be on strengthening operations in China or in Indian and other emerging markets?

Reference

Japan Association for the Promotion of International Trade. (2004, February). Kokusai Boueki.

Tokyo: Japan Association for the Promotion of International Trade.

 
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