What is driving CUMI's success? Is it sustainable?
Guide Questions: 1. What is driving CUMI's success? Is it sustainable? Which part of it is transferable internationally? 2. What is driving CUMI's internationalization strategy? Specifically analyze the industry level drivers as well as country (India) level drivers? 3. Evaluate CUMI's Russian and South African ventures. What is the level of success in each of these two markets and to what would you attribute the success or failure? 4. Evaluate CUMI's experience in China. What is CUMI's problem in China? Why do you think CUMI is not able to translate its Russian success to China? 5. How important is China to CUMI? Is the management right in thinking about a China-centric strategy? 6. What are CUMI's options in China? What would you recommend to CUMI as China strategy? How would you implement this?1. CUMIs successful business presence over five decades is a testimony to its business portfolio management capability and also for the good organizational structure. This structure facilitates the function of focused business, segment development and encouraging specialization. CUMIs shares are movable property and transferable like any other property. Transfer of shares is one of the beneficial features of a public company. Transfer is a voluntary act of parties which results in transfer of ownership.
2.CUMIs internalization strategy had successfully expanded operations in Russia and South Africa, where it was seen more as a partner than a conqueror in its acquisition strategy. In 2006, the company entered China through a joint venture with a Chinese state company but subsequently bought out the partner. Even though the company was facing several problemsin India with its stand-alone operation there, especially in terms of maintaining its workforce and hiring local managers, it was clear that winning market share in China was necessary, but the complexity of the Chinese market had proven to be a challenge. The managing director had to present a strategy for working successfully in China to the board.
3. (CUMI) was a leading abrasives manufacturing company based in India with global operations in Russia, South Africa and China. In the global abrasives business, China held 50 per cent of the raw materials for the industry. China was also the largest market for abrasives worldwide and was expected to contribute to one third of the global demand for abrasives. CUMI had the vision to become a global leader in the abrasives industry within 10 years.
4. The problems in China arose primarily due to differences in management styles of CUMI and their Chinese partner, Jingri Industrial Diamond Company. Even though Jingri was aggressive in their support of setting up factories; they did the first one in 3 months, there were differences in business philosophy. The Chinese believed primarily in striving for volume and that profits were secondary. CUMI wanted to make small, incremental investments and try markets out before moving to the next stage. CUMI and Jingri finally decided to part ways after three years. CUMI seemed to have misread the political and social forces in China. They initially attempted to have an Indian "superhero" leader in China, but this did not work and they later replaced the leader with a Chinese executive.
Further, when CUMI was operating as a joint venture in China they were profitable, however, when they were an independent organization they were unable to reach profitability. This was due to raw material cost disadvantages in the grinding wheel business that was now separated. When CUMI was part of the joint venture, they had access to preferred raw materials and capital, but that was no longer the case as a stand-alone business. The case referred to this phenomenon as not being able to obtain "Chinese prices."
Unlike in China, in Russia CUMI retained the local management and utilized cross functional teams from both India and Russia. The lack of a cross functional team in China meant that there was an abundance of Indian team members, resulting in higher costs for the expatriates. Additionally, the cost of Chinese capital was high once they dissolved the joint venture as they were unable to experience the benefit of government support. Lastly, although CUMI initially approached China as a joint venture similar to Russia, they ultimately reverted to a standalone venture.
CUMI's entry into South Africa also involved the purchase of an existing company, Foskor Mineral Zirconia, but they rolled out a 100 day integration plan that was too aggressive and encountered unforeseen internal and external challenges. For example, material costs in South Africa increased more than 200% during the time of their expansion, similar to the expense increase in China when CUMI operated as as standalone venture. Both the existing company's leadership team and work culture in South Africa were substandard in CUMI's view and resulted in CUMI letting the head of Foskor go and sending in a manager from India, again similar to China.
5. China possessed more than 50% of the raw materials that CUMI required to manufacture their abrasives globally. Additionally, China was projected to become the largest abrasives market by 2015. CUMI believed that China would be setting global standards for pricing, quality and delivery. CUMI had the goal of becoming a global leader in the abrasives industry within 10 years. All of these factors combined prove that a China-centric strategy is extremely important for CUMI. A China-centric approach is correct for CUMI as long as it is approached by reviewing the positives from their Russian experience and by reviewing what they would do differently from their time in South Africa.
6. The following are the options that CUMI may consider:
Transactions - CUMI could consider stepping even further away from their investment in China. They have experimented with direct investment in China with limited success. While a transactional strategy may be less risky and less capital-intensive up front, it may cost CUMI more in the long run, especially since China is such an important part of their strategy into the future.
Direct Investment - CUMI has engaged in both a joint venture and a wholly owned subsidiary in China. The joint venture was not successful due to differences in management styles and country cultures and norms. These differences are more philosophical in nature and seem to be concerns that would continue. The wholly owned subsidiary model has been working but may not be reaping all the benefits that a different option would present.
Transnational - This approach seems to be a good fit in that it recognizes the resources and capabilities of each country while driving for efficiency and innovation across the organization. The opportunity for this approach will only be realized if the company sets clear corporate objectives, develops managers with broad perspectives, and builds supportive norms and values across the organization.
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