Danfoss Business Strategy in China Research Proposal

Excerpt from Research Proposal :

Danfoss HR managers had to understand these cultural clashes and devised extensive employee training programs and personality development seminars. The management also devised a platform to address employee grievances. It is necessary to conduct such seminars and employee training programs to provide the Chinese employees the cultural orientation to equip them with the skills necessary for working in a global concern. Danfoss management has learnt from its initial experience the importance of understanding and appreciating the cultural differences involved in globalization. The human resource department of the Chinese subsidiary focuses on bridging the gap and promoting a more efficient working platform, which would contribute to the overall profitability of the company. As one of the Supply chain managers at Danfoss put it ' adapt to the Chinese way on the outside and doing things our own way inside the company'. [Jonathan Story]

As discussed above Danfoss has huge market potential in China, which is emerging as a fast growing economy with huge demands for its products. China offers a business proposal, which would be a dream for any business venture. It has a large and expanding market base, it offers cheap land and labor, and the entry of China into the WTO has further facilitated the business operations for foreign companies. By acquiring material locally and by producing the components locally, Danfoss was able to compete both with the local companies as well as make products cheaper for its western customers where there is increasing demand for reducing prices. Furthermore, western markets are more or less saturated in the HVAC product segment and are not as lucrative as the emerging markets such as China, which is poised to grow at a significant pace with huge growth in this segment that Danfoss caters to.

The implications for Danfoss are immense. China offers great promise but it also demands meticulous planning and strategic thinking in order to reap the benefits. The Chinese market is also intensely competitive and therefore a hasty or unplanned venture would only backfire as can be witnessed in the exit of several multinational firms in the HVAC sector in the last couple of years in China. As one of the early birds in the Chinese market, Danfoss has a good foothold and is well poised to realize the Chinese dream. On the other hand, Danfoss also has to deal with a huge outcry in Denmark and its other facilities in Europe as its Chinese expansion has affected the employees and the employment prospects across Europe. China attracts more foreign direct investment than India, Russia and Brazil put together. With Israel being the third largest trading partner of China it is only natural for many Israeli firms to venture into China. [Deloitte] Thus Israeli firms which have plans to enter into China would do well to take Danfoss as an example and study how an effective and well formulated strategy would contribute to stable and steady business prospects in the growing Chinese market economy. In particular, cultural considerations have to be thoroughly understood and cultural orientation is key to better employee contribution. Also, companies should focus on low-end segment as well as they contribute a huge market base.


Harmony, hierarchy, responsibility are Confucian elements of Chinese culture. Chinese management principles include these Confucian values of mutual obligation, hierarchy and harmony. [Huibert de Man] Danfoss did well to consider these traditional Chinese ideals and applied them effectively. For instance the Danfoss was very intent on maintaining excellent relationship with the Chinese government officials (Guanxi) and made it a point to invite the top officials for every important strategic event. For instance, for the opening of its manufacturing plants Danfoss invited important government officials. This according to Danfoss management 'indicated to the local people and corporates that the government supported the company and its products'. [Vinaya Kumar] Danfoss also made it a point to invite government officials to its plants in Europe. Danfoss also proclaimed its business strategy of making China its 'Second home market'. These initiatives were aimed at improving and maintaining good relations with the Chinese government and to obtain the support and confidence of the Chinese public.

For its groundbreaking ceremony of its second factory in China, the company invited top government officials. As Mr. Jorgen Clausen, the CEO of Danfoss said, "the opening is not just an expansion of our activities and manufacturing facilities in China. More significantly, it is a manifestation of our long-term goal of building our 'second home market' in China." [Vinaya Kumar] The 'Second home concept' worked wonderfully for Danfoss as very soon the employees and customers showed a more positive attitude towards Danfoss. As Mr. Jorgen used to tell his employees and the public 'only he was Danish, whereas the products and technology they bought were all Chinese'. [Vinaya Kumar] For Danfoss, the entry into China has been a rough but successful phase and it is well poised to emerge successful in the growing Chinese market. However, there are some issues that have to be attended to. With the company diversifying its market base and catering to high end as well as the low-end market segments, finding an effective distribution strategy and effectively managing it are vitally important for sustained growth and profitability. Finding the right distributors and training them are critical for Danfoss as it continues to expand its market base. Also the current legal system in China leaves much to be desired. It is well-known that Chinese markets are a high-risk market for credits. Hence it would be forthright to plan a good and measured accounts receivable system in order not to entail too much risk with its customers.

With significant groundwork done as an early international entrant in China, Danfoss is already well poised for success. From this point onward it is essential to focus on maintaining a good HR system to continually train and retain good productive employees, establish and maintain an efficient distribution network and continue to be competitive in the different market segments. It is also important to protect the intellectual property rights and to lookout for the large number of counterfeit products which flood the Chinese products. With the Chinese economy withstanding the global economic depression there is little doubt that Danfoss Chinese venture would contribute significantly to the overall profitability of the global enterprise.


1) William G. Sutton, 2002, 'China's Transition in full Swing', Viewed 2nd June 2009, http://www.appliancedesign.com/Articles/Departments/efbe75132f938010VgnVCM100000f932a8c0

2) Jonathan Story, 2004, 'Danfoss in China (A&B): Taking the Family Firm Global', Viewed 2nd June 2009, http://www.managementtoday.co.uk/search/article/548055/danfoss-china-a-b-taking-family-firm-global/

3) Deloitte, 'The Israeli China Desk', Viewed 3rd June 2009, http://www.deloitte.com/dtt/cda/doc/content/chinaDesk.pdf

4) Dr. Huibert de Man & Yang Xiong, 2005, ' Selective Implementation of Management Knowledge. The Case of HRM in China', Viewed 2nd June 2009,


5) Danfoss ' Facts in Brief', Viewed 1st June 2009, http://www.danfoss.com/AboutUs/FactsAndFigures/

6) Jim Herlihy, 2005, 'USMEF Cold Chain Project Begins With Two-Day Seminar And Training Course in Beijing', USMEF, Viewed June 3rd 2009, http://www.usmef.org/TradeLibrary/News05_0720a.asp

7) M. Vinaya Kumar, 2006, 'Danfoss Business Strategy in China', ICFAI

8) Danfoss, 2005, "Danfoss acquires Chinese frequency converter company" Viewed June 3rd 2009, http://www.danfoss.com/NewsAndEvents/Archive/Corporate+News/Danfoss_acquires_Chinese_frequency_converter_company/460738 BC-920A-49C5-B713-8E850B291709.html

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