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RANDY D.

DAYRIT OTIS ELEVATOR COMPANY (A): CHINA STRATEGY What management options would Otis undertake to proceed with its investments in China Tianjin Otis Elevator Company (CTOEC); 1. Curtail further investments; do nothing 2. Develop Otiss long-term strategy for China; be aggressive Relationship deterioration: Otis primary concern is to penetrate the Chinese market, while Tianjin Elevator Company (TEC) clearly wanted technology, export and equity participation from Otis. a. The heavy reliance of Otis group on Bank of China (BOC) to borrow foreign exchange and working capital while CTOEC likes to export to supply the venture with hard currency. b. Unwillingness of Otis group to provide newest technology to China. c. Otiss unwillingness to commit on specified level of exports but rather to a besteffort export target of 25% of sales by the 6th year. Competitors move in securing the market: 1. In 1980, Schindler won the first equity contract in elevator production with Chinese government. In 1988-89, Schindler agreed forming venture with Suzhou Elevator Works (SEW). The Otis move: 1. In 1984, the venture on CTOEC by Otis (30%), TEC (65%) and China International Trust Investment Corporation (CITIC) (5%). In 1987, the venture of CTOEC with Otis (30%), SEW (50%) and CTOEC (20%). Why curtailment? 1. TECs unwillingness to enter into a venture or expansion where it doesnt control. TEC rejected the SEW deal in 1988. High expatriates and staff reimbursements were not welcome with the TEC group. 2. Weaknesses of CTOECs financial controls and slow decision making. 3. Lack of trust from the Chinese partner in capital investments. They have viewed SEW entry to the CTOEC as an Otis maneuvering to control the venture. Why stay aggressive? 1. Build long-term strategy for China, building an Otis-China group. Although there is depression in 1989, the longest will be in 1991, and after that, exceptional growth will follow. It is only in Asia & Australia that Otis ranked lower than no.1 in the whole world. 2. There was desperation in China to build business stability and growth potential after the 1989 crackdown and Otis group viewed it at the most opportune time to press on their demands. 3. Propose more corporate control and exemptions from exclusivity clause to go with increased equity. THE CONCLUSION Otis must stay in China to further strengthen its competitive position. The problem with TEC will be resolved by capitalizing on the damaged political reputation of China and to project to China that Otis is a reliable partner amidst all circumstances. The problem with the equity, export and technology transfer will be allowed at the minimum level but comes with a.) additional ventures with other companies and b.) more power in both management and financial aspects in CTOEC.