CUMI India's China Strategy - My Take

CUMI aims to convert its strategic objective of capturing the Chinese market, both on the material sourcing and market share capture front. It looks to create a unique, defensible and valuable position in China.

Its time tested strategy that worked in Russia and South Africa doesn’t seem to be working in China for CUMI.

To aid in the analysis, data pertaining to competition (local players, international players in the same arena as CUMI is looking to expand in), and data pertaining to successful strategies of international companies that set up in China can be looked at. However, this information is missing in the case.

I think CUMI failed to identify, analyze, and pursue a tailored strategy for China. Using the three Key Performance Indicators of Quality, Time and Cost involved in the process of setting up in China, I can see that a move into China, based on the information presented in the case gives the company a strategic edge in the Time to manufacture same Quality at significantly low Costs, is the logical step forward.

To analyze the political, economic, socio-cultural, technological, environmental and legal situation (PESTEL), I will attempt to break the value chain from the point of CUMI. Further, I will try to evaluate the strategic fit of each element of the value chain into the PESTEL components.

The value chain could have the following components: Product Design, Manufacturing (Raw Materials, Parts Production, Assembly), Marketing, Distribution and Service. Product Design is an element that creates a unique, defensible and valuable position for CUMI at the moment. The objective behind getting into China is gaining a competitive edge in the Manufacturing front. But what I believe CUMI failed to look at could be Marketing, Distribution and service. I will expound more on the marketing and distribution strategies later in the paper.

Russia and China provides a similar political environment, but when the other factors in a PESTEL analysis are considered, China and Russia differ substantially, especially, when it comes to the Economic, Socio-Cultural and Legal factors. Therefore, what may work in Russia or any other country might not necessarily work in China.

The manufacturing component interacts with the political, environmental, economic and technological feasibility of China favorably, making the manufacturing process a good entry point. The various clauses that dictate partnership agreements with the investing companies create a barrier to entering the markets influencing the Legal aspect of a PESTEL analysis.

The other aspects of the value chain require further research in the PESTEL analysis to determine the interactions within.

The country strategy of CUMI seems to have been partner with a local business, enter into a joint venture and then either buy out the partner or stabilize the business.

A successful manufacturing venture in China’s political, economic and legal system in China entails a tough choice between giving up the competitive product development and manufacturing processes for achieving success basis the key performance factors.

The socio-cultural make-up of the Chinese manufacturing industry focuses on collectivist growth. The risk appetite of the Chinese market is far beyond what CUMI is willing to take. Sure the risks are big, but rewards are big as well assuming the company can capture its targeted geographic resources and competitive labor.

I feel one aspect to succeed in a business environment is by attaining resonance with the value chain that you are trying to enter. For example, if CUMI is trying to enter the Chinese market, it should identify what location in the value chain of the Chinese manufacturing industry it will capitalize upon. The opportunities that CUMI can explore is by giving up its edge with regards to the design and process, however create another unique, defensible and valuable position with regards to the value chain. It can explore areas such as distribution and marketing. This would solve the twin objectives of gaining market share and creating a sustainable source of profit that it can leverage.

One very important, yet neglected aspect of the value chain, that I feel CUMI failed to look at is how businesses would use their products. I talk about this from a business-to-business perspective. To elaborate, to create a valuable and defensible position, if the distribution channels for adhesives can be identified, modified and manipulated there is a distinct possibility of coming up with a feasible Mc. Kinseys Game Board (copyright McKenzie).

The other alternative that CUMI can explore is creating a joint venture, this time, however focused on acquiring an adhesive manufacturing company, similar to its strategies in India, Russia and South Africa. This of course would mean giving up its technological expertise (IP), but establishing an R&D facility to enable it to come up with newer products in other geographies would mean that it keeps its position in the value chain outside of China.

Another expensive, yet viable option could be to set up a manufacturing facility that contributes to the production of specific product components and then look at importing to India to deliver the finished product.

The key decision that CUMI needs to make at this juncture is whether it can really risk losing its production intellectual property. This is at the core of the adhesive industry. By production IP, I mean all aspects of its production process, from sourcing supplies, to the workflow, to the finishing of the product.

The implications of such a decision would require CUMI to look into the future to see where the company is headed, re-look at their mission and vision statement to see if the consequences of such a move would require it to invest in certain strategic areas such as R&D and securing the sales and distribution channels of its business-to-business model of operations.

I think CUMI should also revisit the position it aspires to target with regards to the current international value chain. If it currently leverages on just the production processes, CUMI should explore what more can it offer at the other geographic locations that would enable the company to grow sustainably.

If I were asked to suggest a course of action in this case, I would suggest setting up a joint venture to achieve its key objectives of producing cheap, and timely. This would, however, mean that CUMI needs to go back to the drawing board to figure out where in the value chain it would want to be to make it a market leader in terms of strategic positioning. One possible alternative could be that it places itself in the marketing and distribution segment as an innovator due to its product offerings and key strategic partnerships with other national and international steel manufacturers.

The company can then re-look at charting out a definitive plan in terms of where the R&D should be in order to come up with suitable innovations in its product lines so that it can remain an attractive choice for its overseas markets.

To really capture and gain a strategic advantage in China over other players is a challenge. Some ventures have managed to capture the unique opportunities that China has to offer (such as Boeing), however many have failed. For example, Mahindra and Mahindra’s strategic partnership in manufacturing engines and parts has failed in China.

Given the evidence of failures, I feel CUMI should be open to the possibility of establishing and growing alternate lines on business in China, as opposed to the manufacturing edge it is looking at. This, perhaps, is a conservative outlook, but something that the board should be open to adopting if the situation presents itself.