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Grundfos Case

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GRUNDFOS A/S
IN AN INTERNATIONAL PERSPECTIVE

Case updated by MSJ Center for International Business Department of Business Studies September 2009, Aalborg University
(updated August 2011)

Table of Contents
A. The World Pump Market: ........................................................................................................................ 3 1. Introduction: ........................................................................................................................................... 3 2. Major Markets: ....................................................................................................................................... 3 3. Technological Developments (Brief History):............................................................................. 4 4. Main applications of Pumps: ............................................................................................................. 4 5. Industry drivers: ................................................................................................................................... 5 6. Major Players and the Level of Competition: ............................................................................. 5 B. Grundfos: ...................................................................................................................................................... 6 1. Company Profile: ................................................................................................................................... 6 2. Products: .................................................................................................................................................. 6 3. Ownership: .............................................................................................................................................. 7 4. Business Divisions: ............................................................................................................................... 7 5. Global Procurement: ............................................................................................................................ 9 6. CSR (Corporate Social Responsibility): ........................................................................................ 9 C. Internationalization process:……………………………………………….………………………….……….…. 11 1. History: ................................................................................................................................................... 11 2. Research and Development: .......................................................................................................... 12 APPENDIX: ....................................................................................................................................................... 14 (a) List of Grundfos group companies: ............................................................................................ 14 (b) Historical developments in Grundfos Group: ......................................................................... 15 (c) Grundfos Acquisitions: .................................................................................................................... 16 (d) Grundfos Global Regional Breakdown: ..................................................................................... 16 CASE QUESTIONS: ....................................................................................................................................... 17 Notes .................................................................................................................................................................. 18 Grundfos India Private Limited (GIN), India .................................................................................. 18 Grundfos Pumps (Suzhou) Ltd (GPC), China ................................................................................. 19 Grundfos Pumps SDN BHD (GPM), Malaysia.................................................................................. 25

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A. The World Pump Market:
1. Introduction:
Pumps are the vital element in an enormous range of fluid handling applications ranging from small household pumps to immense units utilized in the water, chemical and energy industries. Pump performance requirements and duties vary considerably in terms of material of construction, wide range of temperature, pressure, viscosity, density, etc. Pumps are employed in almost all industries. It is estimate that the total value of the world pump market is around 22 billion Euros in the year 2006 and the value of the centrifugal pump market is around 12 billion Euros. World Pump market for the year 2006 was as given below: Billion Euro AMERICAS (U.S.A. + Other America) EUROPE (GERMANY + Other Europe) ASIA (JAPAN + Other Asia) 7.0 7.5 7.5 22.0 This market was shared as following: Market Share Top 3 Companies Top 25 Companies 19 – 20 % 50 %

Top 800 Companies 90 % Source: http://www.worldpumps.com/

2. Major Markets:
China in 2010 experienced the largest growth rate, outgrowing the USA market (3-3.3 billion euro). In China, large investments are expected to be made in a wide range of applications from semiconductor ultra pure water to boiler feed water. China will build nearly half of the world’s new coal-fired plants in the next five years. The United States is still one of the largest purchaser and expected to remain so for the next 5 years (2.8-3 billion euro), with Japan (1.2-1.4 billion euro), Germany (1.1-1.2 billion euro) and France (0.7-0.8 billion euro) following next. Significant pump markets exist in 80 countries and regions. In Chile the largest pump purchasing segment is the copper industry whereas in Germany it is the chemical industry. The Middle East is a big pump market due to oil & gas industries. The Canadian market is distinguished by a large pulp & paper segment. The market for pumps in buildings in Europe is much bigger than in the U.S. because Europe depends on water rather than air for heat1. According to a new research report by The McIlvaine Company, while world gross domestic product will grow by only 4 percent per year during the next 10 years, the pump market is expected to grow at 5 percent per year. This is despite growth of only 1-2 percent per year in some regions and sectors such as European basic industry (steel, chemicals, pulp and paper). This growth is mostly driven by the urbanization of Asia, which involves the relocation of more than one billion people from the farms to the cities. This will create a huge need for infrastructure, including delivery of drinking water and removal and treatment of wastewater. Rapid growth of the pump market in Asia will also be aided by large investments in pulp and paper, chemical, steel, and other basic industries.

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http://www.worldpumps.com/articles/green/business.html

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3. Technological Developments (Brief History):
Although some pumps were used in 19th century, the real growth of the Pump Industry took place in 20th century: 1905: Multistage Centrifugal Pumps were developed. 1929: Considerable light was thrown on the vexing problem of pressure pulsations in large hydraulic turbines & pumps. 1932: Proper understanding of the origin and nature of pressure pulsation and the accompanying, vibratory, structural and mechanical response. 1955: Dependence of cavitations erosion on liquid was established. This led to an understanding of why high-energy pumps are more likely to suffer from this damaging phenomenon. 1956: It was found how the thermodynamic vaporization properties of the pump liquid could lead to reduction of cavitations activity at high temperatures at the same NPSH (Net Positive Suction Head) when Liquid pressure head in excess of vapour pressure head. 1994: It was discovered how cavitations can cause profound instabilities in pump and inducer operation. 1990-2000: It was found that sometimes obscure fluid phenomena can produce mechanical instability in rotor dynamic pumps. The current generation of pumps is typically fitted with electronic control devices which control the flow and pressure and this enables the pump to operate at optimum efficiency level with minimum power consumption. These pumps are called E-products. The embedded software application is the key for the development of such type of pumps.

4. Main applications of Pumps:
Various applications of pumps are listed below: Transportation: It is a prime function. Circulation: For homogenizing the temperature and/or composition of fluid. Mixing: Two or more streams can be connected at the suction of pump and mixing can be achieved. Injecting: High pressure can be developed by using pump and fluid can be injected into pipes or tanks. Metering: Pumps can be used as metering device. Pressure Reducing Device: Rotary pumps can be used for reducing the pressure in polymers. Agitator Pump: Submersible pump keep the solids in suspension and prevent setting. Vacuum Generation: Liquid ring vacuum pumps are well known. Dry vacuum pumps are also developed. Reactor: When two liquids are to be reacted with very small residence time then pump can be used. Cavitations Reactor: When one liquid and another in vapor form are to be reacted, the principle of cavitations can be used.

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5. Industry drivers:
What are the drivers of the pump industry? 1. Industrial Revolution: Pump industry had been fuelled by the massive demands of the industrial revolution that built our modern society. 2. Post World War II Expansion: In order to satisfy the pent-up demand that had gone unfulfilled in war years. Here the emphasis was on large, multistage electric utility boiler feed water pumps & oil-field injection & pipeline pumps. 3. Energy Crisis: Energy crisis all over world led to lot of research & development work for developing energy efficient pumps & systems. 4. Environmental Challenges: Curbing emissions was the paramount concern. This influence has led to better sealing of pumps including seal less, magnetically coupled chemical pumps. The ultimate product in this regard could be ‘integral motor pump’. 5. Globalization: The fluid engineering & other technical challenges are assumed to be solvable by the MNC who emphasize quality, productivity & faster delivery of the product in order to battle global market share. The apparently mature pump products have a lot of room for improvement. The technical improvements will continue to be necessary to maintain global competitiveness. This includes much emphasis on integrating software into pumps to optimize their functions.

6. Major Players and the Level of Competition:
The World pump market is a very mature market. It is estimated that there are around 5000 large and small pump manufacturers in the World. However, even today, top three pump manufacturers control around 20% of the world pump market and level of competition in this industry varies based on product application. For instance, not many companies in the world can manufacture variable speed pumps used for Air-conditioning systems. Hence, in such areas of business, level of competition is comparatively low where as in case of pumps used in water management, many players around the world are active, which means a fierce competition among different manufacturers. Some of the world’s leading pump manufacturers are ITT (American), Grundfos (Danish), KSB (German), Wilo (German), Kirloskar (Indian) and Armstrong (American), etc. ITT fluid division is the leading pump manufacturer in the world. ITT is an American conglomerate with a turnover of around 7.8 billion USD (2006 financial year) and ITT fluid division is one of its many business divisions, which accounts for 38 percent of its turnover. This segment contains ITT's pump businesses, including brands such as Flygt(Swedish), Goulds, Bell & Gossett(American), A-C Pump(American), Lowara(Italian) and Vogel(German), making ITT the world's largest pump producer2. KSB, a German company has more than 30 manufacturing sites in 19 countries and service centres in more than 100 countries3. KSB offers a wide range of products for different hydraulic applications and is very strong in Europe. Armstrong is also an American company with four manufacturing facilities, two in America and two in United Kingdom4. It has a strong distribution network around the world and all the products are sold through the distributors. Kirloskar is an Indian conglomerate with a turnover of 600 US million dollars. The company has a wide presence in India with a strong distribution network and sells products abroad through distributors in around 80 countries5.

2 3 4 5

http://www.itt.com http://www.ksb.com/ http://www.armstrongpumps.com http://kirloskarapps.kirloskar.com/

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B. Grundfos:

1. Company Profile:
The Grundfos Group is a Danish private company owned by the Poul Due Jensen Foundation. With an annual turnover of around two billion Euros (2006 financial year results) and fifteen thousand employees Grundfos is one of the leading pump manufacturers in the world. Grundfos was established in 1945 by the late Poul Due Jensen. At first he gave his company the name of "Bjerringbro Pressestøberi og Maskinfabrik" (Bjerringbro Die-Casting and Machine Factory) and not until 1967, after several changes of names, did the company get its present name, GRUNDFOS. The Mission: It is our mission - the basis of our existence - to successfully develop, produce and sell high-quality pumps and pumping systems world-wide, contributing to a better quality of life and a healthy environment. The Vision: Our vision - the future we are striving for - is that:
  Our customers acknowledge us as the leading producer and partner when it comes to highquality pumps - both in terms of performance and the environment. Our employees thrive and demonstrate their satisfaction because their jobs and working conditions provide them with great opportunities for professional and personal growth and development. In addition, their satisfaction stems from a good work environment that takes the individual’s wishes and qualifications into consideration. The rest of society recognizes and regards Grundfos with respect as a result of our responsible conduct in relation to the laws of our society, the principles of democracy, local traditions and the environment - as well as our relations to the people whose lives and circumstances we touch.



The current strategy based on Grundfos management expectations: (Source: Grundfos Annual report 2008) “2008 saw the initiation and launch of our new Innovation Intent and the introduction of a new Group strategy process. While Innovation Intent determines the direction of our longterm innovation until 2025, the Group strategy determines the direction for the coming five years. The new Group strategy process is focused on a direction from the top but with major involvement from the strategic units in the Group to ensure ownership of the strategy and alignment across the individual units.

2008 also saw us the first step towards the establishment of a governance model with the purpose of ensuring that we, in our core organization, also master radical innovation while at the same time remaining among the best for incremental innovation.”

2. Products:
Grundfos produces more than 16 million pump units annually. Circulator pumps (UP), submersible pumps (SP) and centrifugal pumps (CR) are the three major product groups. Today, Grundfos is the world's largest manufacturer of circulator pumps, covering approximately 50 per cent of the world market for these pumps. In addition to pumps, Grundfos manufactures electric motors for the pumps and has a considerable production of

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electric motors for separate merchandising. Furthermore, Grundfos develops and sells state-of-the-art electronics for controls for pumps and other systems6.

3. Ownership:

The Poul Due Jensen Foundation was established as a self-governing institution in 1975. Today, the foundation owns about 84.5 per cent, staff about 3.4 per cent and the founder's family about 12.1 per cent of the shares in Grundfos Holding AG. The aim of the foundation is to consolidate and expand the economic basis of the continued development of the Grundfos Group. The capital and the profits of the foundation are to be utilized solely for the aim of the foundation and profits are to be re-invested in the Grundfos companies.

The Grundfos Group is represented by companies in all parts of the world. In addition, Grundfos products are merchandised by distributors in a large number of countries. Currently, the Grundfos Group is represented by 72 companies in 41 countries. The pumps are manufactured by Group production companies in 14 countries i.e. Brazil, China, Denmark, Finland, France, Germany, Hungary, Italy, Switzerland, Taiwan, United Kingdom and the United States.

4. Business Divisions:

Carsten Bjerg

Søren Ø. Sørensen

Lars Aagaard

Heine Dalsgaard
Chief Financial Officer Group Exec. Vice President

CEO and Group President Group Exec. Vice President Group Exec. Vice President

Figure 1: Grundfos Group Organizational Structure
Source: Grundfos website, 2010

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http://www.grundfos.com/

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Grundfos’ products are primarily sold through Grundfos’ own national companies. Grundfos is represented by sales companies (see appendix a) in all parts of the world, and in addition, local distributors in a number of countries also sell Grundfos pumps. Grundfos markets its products through Business to Business (B2B) marketing, i.e., Grundfos is a sub-supplier to large projects and the end-user is rarely involved in the pump buying process. In the pump industry, consultants (technical consultants) and contractors are very important and are the integral part of the buyer decision-making process for pumps. Consultants are specialized engineers who provide technical advice and in some markets recommend what kind of pumps to be used for a certain application. On the other hand contractors are the ones who build such systems. For example, if a fire fighting system has to be built in a commercial complex, the construction company hires a technical consultant. The technical consultant will then prepare a bid (offer) with all the technical details. The contractors will use this offer to compete in order to win the job (contract). Finally, the winning contractor together with the consulting engineer will buy all the parts such as pumps, controllers, pipes, etc., required for the fire fighting systems and will install the system. Hence, it is very important from Grundfos’ standpoint to have good relations with the technical consultants as well as contractors. Based on the customer groups and product applications Grundfos business areas can be broadly classified into the following main areas: 1. Development and Engineering 2. Research and Technology 3. Building Services a. DBS (Domestic Building Services) b. CBS (Commercial Building Services) 4. Industry a. General industry b. Industry water c. Process Industry d. Machine tools 5. Water Utility a. Networks b. Treatment plants c. Agriculture 6. HEVAC & OEMs Market classification: Grundfos segments the entire pump market into three major groups i.e. A, B and C markets where, Market A is defined as the market for high quality and high priced products Market B is defined as the market for medium quality and medium priced products Market C is defined as the market for least quality and least priced products In general, Grundfos positions itself as the main competitor in Market A (according to Grundfos there are not many players in this Market A). However, in Market B there are plenty of players who constantly try to compete and capture Market A. Thus, it is inevitable that Grundfos will compete with the both players Markets A and B.

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Grundfos Regions and Regional Head Offices: As indicated in Figure 1, Grundfos segments the world markets into six different regions and has a regional headquarters in each region. The regional head quarters are as following: These Grundfos regional headquarters were selected based on three factors: 1. Bureaucracy in that particular country 2. Infrastructure 3. Local/Regional Market conditions For instance, Singapore is the Regional headquarter for Grundfos Asia pacific operations. Singapore was chosen because of wellregarded infrastructure (Ports and Cargo) and business friendly policies of the local Government.

5. Global Procurement:
Grundfos procures raw material as well as semi finished parts from the suppliers all around the world and this process is centrally coordinated and synchronized within all Grundfos manufacturing and assembly sites across the world. Grundfos suppliers are chosen based on a long term contracts at a certain fixed price. According to a senior marketing Analyst at Grundfos “These long term contracts not only guarantee continued supply of material but also reduce the market risk of volatility in prices for Grundfos. With such contracts in place, any sudden changes in the price levels will give Grundfos ample time to react to the market volatility”.

6. CSR (Corporate Social Responsibility):
Grundfos considers its CSR activities a demanding learning process, where new goals are constantly set. Until now, the Grundfos Group’s Danish manufacturing company has had an advisory and controlling role for the entire group with regard to environmental issues. As the Grundfos globalization activities increased, Grundfos started acquiring new companies. This has put a lot of pressure on Grundfos to integrate and maintain the same working standards as in Denmark. In order to counter this problem, in 2006 Grundfos decided to establish an independent Group Environmental Division, which coordinates environmental activities internally in the entire group and maintains strict rules regarding product development, production, use, and disposal of products. This is the reason why some times Grundfos may not be able to take a complete leverage of operating in a low cost country. Irrespective of the country where Grundfos operates, it maintains certain standards regarding the working environment, quality, and production facilities. Since 2002, Grundfos’ core values have been further supplemented by the principles in the UN’s Global Compact and together they provide the foundation for Grundfos’ holistic approach to CSR. Grundfos defines CSR as, “the way in which we integrate social and environmental considerations in the operation of our business on and in our interaction with 9

interested parties on a voluntary basis”. Grundfos’ tradition for social responsibility dates back to the time when the company was established, but the world has changed and they still want to be frontrunners within CSR. Therefore in 2008, Grundfos adopted a strategy for the next four years of their CSR activities. Their strategic themes focus on: • Excellent CSR performance • Climate • Dialogue with interested parties • Sound business ethics • Access to water for the poorest people

7. Financial Performance7:
Table 1: Consolidated Profit and Loss Statement (Amounts in millions DKK) 2008
Net Turnover Operating Profit Earnings Before Interest and Tax (EBIT) Cost of Financing Profit before Tax Consolidated Profit after Tax Profit for the Year (Excluding minorities8) 19,019 1,333 1,269

2007
16,814 1,610 1,490

2006
15,376 1,534

2005
13,422 1,353

2004
12,153 1,328

2003
11,152 1,154

2002
10,703 913

2001
10,214 814

1,503

1,297

1,281

1,087

903

795

(310) 959 569 479

(117) 1,373 860 736

(24) 1,479 923 796

(43) 1,254 807 701

(49) 1,232 794 690

(9) 1,078 673 579

(177) 726 441 373

(177) 618 388 336

From the above table it can be understood that over the years Grundfos has been consistently posting positive results. Capital Investments: The graph 1 depicts that Grundfos has been consistently investing in order to consolidate its position in the market. This is the result of the Grundfos consolidation efforts, which required Grundfos to acquire companies and invest back into the market.

Graph 1: Grundfos Yearly Investments

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Grundfos Annual Report, 2008 Refer: http://www.investopedia.com/terms/m/minorityinterest.asp

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C. Internationalization process:
1. History:
Grundfos founder late Poul Due Jensen has always had a vision to mass produce pumps. The first step, towards realizing his dream was the establishment of a manufacturing plant in Germany in the year 1960 (see appendix b). The main reasons for choosing Germany were simple and straight forward. Grundfos German manufacturing plant was located just 100 kilometers away from the Danish border, hence the logistics were easy to handle. The other reason was that during that period German market was growing and became one of the biggest markets for pumps. After four years of its German establishment, Grundfos opened a sales company in United Kingdom in 1964, which later became the regional headquarters for Grundfos Northern Europe operations. In 1967, after going through several changes of its name company finally became Grundfos (Its present name). The early 1970s were the significant years in the Grundfos internationalization process. Grundfos management took some bold decisions during this period in order to make Grundfos an international company. The first move came with the establishment of a sales company in the Netherlands, the country well known for its bridges and dams and innovative water management technologies. In 1972, Grundfos inaugurated its second manufacturing plant outside Denmark in France and followed it by establishing the third manufacturing plant outside Denmark in United Kingdom in the year 1973. During the same year, Grundfos also expanded its operations outside Europe with an establishment of manufacturing plant in California, USA. Grundfos expansion into US market came almost accidentally. It was never part of Grundfos strategy to move to USA that early. In the early 1970s a person from California who had some Danish ancestral connections visited Denmark. This is when he came to know about Grundfos pumps. After examining Grundfos products carefully, he thought there will be a big market for Grundfos products in USA and decided to distribute Grundfos products himself in USA. In the next few years encouraged by the sales growth, Grundfos finally decided to enter the USA market by establishing a manufacturing plant in 1973. In the year 1976 Grundfos established a sales office in Belgium in the following year i.e. in 1977, the Grundfos founder, Poul Due Jensen, died at the age of 65. In 1978, his son Niels Due Jensen took over as the President of the Grundfos group. He served as the Group’s President until 2003. During this period, Grundfos went through a major transition from a European company into a Global company. In 1978, Grundfos has started its Swiss operations by opening up a local sales office. From the year 1980 to 1989, Grundfos entered 11 new countries in three different continents with own sales offices. This resulted in Grundfos becoming a truly global company. In 1980, Grundfos entered Sweden and Australia and followed it by Spain in 1982. In 1984, Grundfos established a regional head quarters in Singapore in order to look after its Asia-pacific operations. This is Grundfos first office in Asia pacific and it also acted as a bridge for Grundfos to enter other Asian markets. During this period Grundfos built up its network around the world and tried to solidify its position in the market by being close to the customer and by establishing local sales offices. As a result of this, new sales offices were opened in Japan, Hong Kong, Italy, France, United Arab Emirates, Korea and Portugal. In the year 1988, Grundfos acquired a German company called “LOEWE PUMPENFABRIK”. This is Grundfos first ever acquisition. In 1990 Grundfos entered Norway, which meant that Grundfos is now present in the entire Scandinavia. During the same year Grundfos established sales offices in Malaysia and Indonesia. In 1992, Grundfos opened offices in Finland and Canada and a manufacturing plant in Taiwan. This manufacturing plant was to support Grundfos Asia-Pacific operations. In 1993, Grundfos registered its second acquisition by acquiring a Swiss company called “Biral”. The motive behind this acquisition was to consolidate Grundfos position in Swiss and German market. Biral AG still operates under the same brand name and has offices in Switzerland, Germany and Netherlands. Biral offers products for large Heating and cooling systems.

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In the year 1995, Grundfos set up new manufacturing plant in China and opened sales offices in Poland and Argentina. In 1996 Grundfos successfully acquired an Italian pump manufacturer called “DAB”. This is Grundfos’ third ever acquisition. DAB still operates under the same name and has operations in seven countries. During the next three years Grundfos entered 8 new countries. In 1998, Grundfos acquired another Italian pump manufacturer called “Leader”. Soon after this, in 1999, Grundfos acquired another German company called “Vortex”. According to senior marketing analyst at Grundfos “all these acquisitions have strategic importance”. Two main motives behind these acquisitions are 1. Expand Grundfos product portfolio 2. Consolidate Grundfos position in the local market Ever since 2000, Grundfos acquired 11 new companies, among which Paco acquisition is very significant. Paco is an American pump manufacturer with an extensive product range. This acquisition not only meant that Grundfos can have access to its wide product range but also to the experienced staff and the technical know-how for building cooling systems. Grundfos is continuously striving to obtain closer contact with customers. This is also the case within production and this means that once again in 2008 they have opened new factories around the world, including a recently built factory in Mexico and a factory in China specifically for producing wastewater products. In the autumn of 2008, Grundfos decided to invest in land in Serbia where they expect their next production factory to be built. One of the reasons for choosing Serbia is that the country is favorably located in relation to Russia and other growth markets.

2. Research and Development:
In order to maintain a leading position, Grundfos attaches great importance to R&D. DKK 543million was used for R&D expenses in the financial year of 2004. In an interview with WORLD PUMPS MAGAZINE in 2006 July, Søren Sørensen, group executive vice president Grundfos Group said “These days 4.5% of our turnover goes on R&D, which last year (2005) represented €75 million. We are trying to invest in all the segments where we want to be serious players. One area where we have made a considerable investment is waste water because that is a new area that we are going into. Waste water probably has the highest potential and is the fastest growing market and there will be a lot of infrastructure construction going on in East Europe and Russia”. This focus on re-investing into R&D continues to remain very strong today as seen by the figures for 2008, where Grundfos used DKK 998million for R&D costs. According to a senior marketing analyst, “Grundfos R&D facilities not only develop new products and innovative technologies, but it is also the job of R&D facilities to look after adaptability of each product line to the local design regulations. No one pump with same design can be sold around the world. Each pump has to be modified and re-designed according to the each market needs and regulations”. Historical developments: In 1985, Grundfos established its own Electronics production and in 1991, Grundfos Electronics was inaugurated, including a Hybrid Factory with clean room production. In May 1990, the Grundfos Technology Center was inaugurated in Denmark. This Center is to ensure that Grundfos will always have sufficient capacity to maintain and expand its leading position as regards vital aspects of research in new materials, development of process technology and construction of advanced production equipment and machines. In 1993, Development, Design and Product Management moved into a newly built Innovation Center. However, until 1999, Grundfos performed all its R&D activities in-house in Denmark. In 1999, the first step towards the globalization of Grundfos R&D process started with India. Grundfos bought a local Indian software company in New Delhi, in order to support 12

its R&D activities and to look after the development of embedded pump software and PC software. The main motives behind this move were the potential cost savings and availability of qualified IT personnel in India. Despite the initial problems, the current R&D facility in New Delhi is running smoothly with twenty employees. At the same time Grundfos acquired a Finnish pump manufacturing company and this company already had ten employees working in its R&D facility. This Finnish company still operates as an independent unit and R&D facility is primarily being used for its local needs. However, Finnish R&D facility does exchange knowledge with Grundfos R&D facility in Denmark. As a next step, in 2001 Grundfos established an R&D department in Hungary, situated at Grundfos main production facility of motors. Choosing Hungary for its R&D facility has a strategic importance. The main motive behind this move was to provide the knowledge assistance for Hungarian production facility to adjust and customize different products. Since 2006, this R&D facility has been playing a more strategic role for the R&D of motors and has been Grundfos Lead Knowledge Center within this field. The globalization of the Group’s R&D activities gathered momentum in 2006 with the establishment of local development centers in the USA, China, Hungary and Germany. But the main part of the Group’s product development still takes place in Denmark. Grundfos continues to place a lot emphasize on R&D. Graph 2 indicates consistent investment trends for years 2004-2006 of around 4-4.5% spending of net turnover into R&D. Moreover, the graph shows an increase of investments in recent years. This illustrates Grundfos’ intent in continuing to focus on R&D; a manufacturing company lead by innovations in technology there is a need to continuously re-invest profits back into R&D. The spike in recent years is consistent to the goals for globalizing R&D units and creating a global network.

Graph2: Grundfos yearly R&D Costs

Currently, Grundfos is focusing on strengthening its R&D facilities in China and Hungary. Part of this strategy is to attract the best engineering talent in China and some of these engineers will be selected for training in Danish universities. Once these engineers graduate, they will be posted in the Chinese R&D facility.

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APPENDIX: (a) List of Grundfos group companies:

Sales companies:
Argentina, Bombas Grundfos de Argentina S.A. Australia, Grundfos Pumps Pty. Ltd. Austria, Grundfos Pumpen Vertrieb Ges.m.b.H. Belgium, N.V. Grundfos Bellux S.A. Brazil, Mark Grundfos Ltda. Canada, Grundfos Canada Inc. China, Grundfos Pumps (Hong Kong) Ltd. China, Grundfos Pumps (Shanghai) Co. Ltd. Denmark, Grundfos DK A/S Finland, OY Grundfos Pumput AB France, Pompes Grundfos Distribution S.A. Germany, Grundfos GmbH Greece, Grundfos Hellas A.E.B.E. Hungary, Grundfos Hungária Kft. India, Grundfos Pumps India Private Limited Indonesia, PT Grundfos Pompa Ireland, Grundfos (Ireland) Ltd. Italy, Grundfos Pompe Italia S.r.l. Japan, Grundfos Pumps K.K. Korea, Grundfos Pumps Korea Ltd. Malaysia, Grundfos Pumps SDN. BHD Mexico, Bombas Grundfos de Mexico S.A. de C.V. New Zealand, Grundfos Pumps NZ Ltd. Norway, Grundfos Pumper A/S Poland, Grundfos Pompy Sp.z.o.o. Portugal, Bombas Grundfos (Portugal) Lda. Romania, Grundfos Pompe Romania S.R.L. Russia, Grundfos Russia OOO Singapore, Grundfos (Singapore) Pte. Ltd. Spain, Bombas Grundfos España S.A. Sweden, Grundfos AB Sweden, Wåge Industri AB South Africa, Brisan Turbo Pty. Ltd. South Africa, Grundfos Pty. ltd. Switzerland, Grundfos Pumpen AG Taiwan, Grundfos Pumps (Taiwan) Ltd. Thailand, Grundfos (Thailand) Ltd. The Baltic states, Grundfos Pumps UAB The Czech Republic, Grundfos s.r.o. The Netherlands, Grundfos Nederland B.V. The Ukraine, Grundfos Ukraine The USA, Grundfos CBS Inc. The USA, Grundfos Pumps Corporation Turkey, Grundfos Pompa San. ve Tic. Ltd. Sti. United Arab Emirates, Grundfos Gulf Distribution United Kingdom, Grundfos Euro Pump UK United Kingdom, Grundfos Pumps Ltd. United Kingdom, Watermill Products Ltd

Production Companies:
China, Grundfos Pumps (Suzhou) Co. Ltd. Denmark, Grundfos A/S Denmark, Sintex A/S Finland, OY Grundfos Environment Finland AB France, Pompes Grundfos S.A. Germany, Grundfos Pumpenfabrik GmbH Hungary, Grundfos Hungary Manufacturing Ltd. Italy, Grundfos Submersible Motors Srl. Mexico, Bombas Grundfos De Mexico Manufacturing S.A. de C.V. Russia, Grundfos Istra LLC Taiwan, Grundfos Taiwan Manufacturing Co. Ltd. The USA, Grundfos Pumps Manufacturing Corporation United Kingdom, Grundfos Manufacturing Ltd.

Non-Grundfos brand companies:
China, Grundfos Pumps (Wuxi) Ltd. Germany, Alldos Germany, Deutsche Vortex GmbH & Co. KG Germany, Philipp Hilge GmbH & Co. KG Italy, DAB Pumps S.p.A. Italy, Leader Pumps Group S.p.A. Italy, Tesla Korea, Chung Suk Co. Ltd. Switzerland, Arnold AG Switzerland, Biral AG

New business companies: Denmark, Denmark, Denmark, Denmark, Grundfos Grundfos Grundfos Grundfos BioBooster A/S Micro Refinery A/S, Denmark Nonox A/S, Denmark Sensor A/S, Denmark

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(b) Historical developments in Grundfos Group:
Country
Germany UK Netherlands Austria France Manufacturing UK manufacturing USA manufacturing USA Belgium Switzerland Sweden Australia Spain Singapore Ireland Japan Hong Kong Italy France United Arab Emirates Korea Norway Malaysia Indonesia Finland Canada Taiwan Switzerland (Biral) Greece Thailand Mexico Poland China Manufacturing Argentina Denmark Hungary Czech Republic Italy (DAB) New Zealand Turkey Italy (Leader) Brazil India Germany (Vortex) Russia Estonia Latvia Lithuania Hungary Manufacturing Finland (SARLIN) Korea (Chung suk) Switzerland (Arnold) Brazil (Mark Peerless) Germany (Hilge) Ukraine Germany (Alldos) Italy (Tesla) South Africa Romania South Africa (Brisan Turbo) USA (Paco) Denmark (Wåge U)? UK (Watermill) Mexico (Peerless Pumps) Korea (Keum Jung I) USA (Yeoman Chicago Corp.)

Company
GWS GB GNL GPO PGF GBW GMU GPU GBL GPS GSV GPA BGE GSI GPI GJK GHK GIT GFD GGD GPK GNO GPM GAS GSF GCA GTS BIR GPH GTH GMX GPL GPC BGA GDK GHU GCZ DAB GNZ GTR LPG GBR GIN VOR GMO GST GLA GLI GMH GEF CSK GAM GBR GHI GUA ALD TSL GZA GRO GZA GCB WGB PPX KJI YCC

Est.
1960 1964 1970 1971 1972 1973 1973 1973 1976 1978 1980 1980 1982 1984 1984 1986 1986 1988 1988 1989 1989 1990 1990 1990 1992 1992 1992 1993 1993 1993 1994 1995 1995 1995 1996 1996 1996 1996 1996 1996 1998 1998 1998 1999 1999 2000 2000 2000 2000 2000 2002 2002 2003 2004 2004 2005 2005 2005 2006 2006 2006 2006 2006 2007 2007 2008

15

(c) Grundfos Acquisitions:

Source: Grundfos corporate presentation 2009

(d) Grundfos Global Regional Breakdown

Source: Grundfos Presentation 2009

16

CASE QUESTIONS:

1. Discuss the internationalisation process of Grundfos A/S and how it has evolved over time. Base your discussion on the internationalization theories. Which theory/theories more aptly describe(s) the process. In particular, with reference to the theories of “market entry modes”, discuss Grundfos A/S’s entry strategies into the various international markets within which it operates. 2. Draw the global value chain in which Grundfos A/S is positioned. Using the theory of the Global Value Chain, discuss the type of Global Value Chain in which Grundfos A/S operates, including Governance Modes of the major links. 3. Based on the case data, on theories of strategy and strategic planning, on your analysis related to questions 1 and 2, as well as additional data you may collect, create an international strategy for Grundfos and discuss this strategy in the light of various strategic approaches.(*)
(*)

you may choose to develop a strategy for a specific market or region, or for the entire company.

17

Notes
Grundfos note 1

Grundfos India Private Limited (GIN), India

9

Grundfos note 1 is based on a recent assessment of the potentiality of the Indian Market. Establishment: In 1998, Grundfos started its Indian company under the name “Grundfos India Private Limited”. Grundfos India (GIN) belongs to the Asia-Pacific region with Singapore as its headquarters. Currently, Grundfos India serves only the needs of the local Indian market. History: In 1997, Grundfos Gulf opened a liaison distribution office in Mumbai, India. Encouraged by the sales growth Grundfos decided to enter Indian market with an establishment of a local sales office. Starting with four employees and four distributors, Grundfos India Pvt. Ltd incorporated on 13th march 1998 and ever since Grundfos expanded by leaps and bounds in India. In order to serve the Indian market better in 1999 GIN established a warehouse and training facility and a second assembly warehouse facility in 2002. In the year 2005, Grundfos India’s turnover reached Rs 500 million against around Rs 50 million in 1999. During this period, India’s economy was growing at 8 percent annually (GDP). Sensing these new opportunities in commercial building construction and encouraged by the fast growing IT industry and potential infrastructure development in the country, in March 2005, Grundfos India inaugurated a new facility with a well-equipped corporate office, training, production, testing and extensive ware-housing facilities in Chennai. This Grundfos building was immediately awarded US green building status for its environmental friendliness. The fact that there are only few of such buildings constructed in India, gives Grundfos lot of credibility. Currently, with 100 employees, Grundfos India has 10 regional sales offices located all around India and operates with 70 dealers and distributors. Market and competition: India is a very price sensitive market. It is estimated that there are around 500 local pump manufacturers in India. However, not all the manufacturers can supply the pumps for all applications. Grundfos segments the market into A, B and C categories. There are only three major players in the Indian A market i.e. ITT (American), Grundfos (Danish) and Armstrong (American) and there are plenty of other players in B and C markets. Kirloskar, an Indian conglomerate is the leading player in B market. ITT and Armstrong have no formal offices in India and its only distributors who are selling and looking after all the pre and post sales and services. Because of the price sensitivity in the market, A Market accounts for around 25 percentage of the total sales, where as B market accounts for 35 percent and the rest is for C market. Grundfos India’s main target businesses are Air-conditioning and OEM (Original Equipment Manufacturers). Fuelled by the IT growth, India is attracting huge foreign direct investments and this lead to the construction of new commercial buildings. GIN has the expertise in providing Aircon solutions. GIN supplies pumps, control panels and VFDs for centralized air-conditioning systems. Distributors: Grundfos India does not sell its products directly to the customers but through the distributors. There are 70 distributors all around the country. These distributors are responsible for the product delivery and after-sales services. Grundfos constantly provides technical assistance to all the distributors and trains them frequently in its well equipped training facility in Chennai, India.

9

http://www.grundfos.com/web/homein.nsf

18

However, Grundfos is actively involved during the pre-negotiation stage and provides all the technical consultations to its clients. Grundfos has divided the Indian market into five sales regions and each has a regional manager, who is responsible for all the sales in that particular region. HR Apart from two managers all the employees including the CEO and managers in Grundfos India are Indians. There is a special HR division in Chennai which looks after human resources and its needs in the company. Customer groups: Grundfos India divides its customers into two major groups 1. INR customers (Indian National Rupee) 2. USD customers (United states dollar) This distinction is based on the type of orders that GIN receives. INR customers are the local customers who pay in Indian currency. Grundfos supplies these products from the local assembly facility in Chennai. The second group of customers is the one who buy pay in US dollars. These customers are mostly the foreign companies who invest in India and want to build their own offices and production facilities. Since, it is an FDI, the Indian government offers some tax exemptions on all the imported goods and technologies. Hence, these foreign companies place an USD order with GIN and import the products from Grundfos Singapore in order to get tax exemptions. In recent times this has become a major business for Grundfos India and according to Grundfos all these USD orders are of type A market. Current market situation: The Indian pump market is growing around 8 percent every year as opposed to the world market growth of 4 percent. India still is the most attractive location for FDI in the information technology sector. This means a tremendous business opportunity for all the commercial building construction. Many foreign players such as ITT, Wilo, and Armstrong are looking to establish sales offices and manufacturing facilities in India and Kirloskar is trying to enter the A market. Grundfos Note 2

Grundfos Pumps (Suzhou) Ltd (GPC), China
Establishment and Role Grundfos established a sales subsidiary in China in 1995. In 1996, Grundfos Pumps (Suzhou) Ltd. (GPC) was established in Suzhou, near Shanghai – a production company to produce high quality components. At first, it was part of the sales company, but later it became a separate company. The company is located within the premises of a big and well managed industrial park, established by Singaporeans. GPC has three functions: (a) production of parts/components; (b) assembly of pumps, and (c) sales support, including inventory, logistics, and after-sales services. GPC belongs to the Asia-Pacific Region with Singapore as the Headquarters. According to Peter Krarup, Engineering Manager of GPC since 2004, the regions aim to be produce most pumps needed in the regional market, i.e. regional sourcing. What is not produced is sourced from either sister companies around the globe or independent sub-suppliers outside the region (see also section on Production). Among the regional production companies, there is a division of labor along components for different types of pumps. The production plant plays a crucial role in the region. Peter Krarup puts it this way: “The production is advanced technologically. Assembly of pumps is not”.

19

The mission of GPC is: “Produce and Distribute Quality Pumps, Pumping Systems, Motors and Components for China and the Asia Pacific Region”. The vision is “Become a World Class Company”. Development Since 1995, GPC has been extended almost every second year from 4.500 m2 to 10.000 m2 to 14.000 m2, reaching around 28.000 m2 in 2007 and when next phase is implemented in 2009/10 the floor space will be around 50.000 m2. The new extension is made to accommodate the move into the waste water treatment business – a market expected to grow at a high rate in China and Asia at large. GPC's turnover is approximate RMB .5 billion, planned to increase to around RMB 1 billion by 2010. (USD = RMB 7.5). A steady growth in sales has taken place since the establishment of the plant in 1997. For 2007, the sales forecast is more than RMB .6 billion, i.e. a growth rate of 30-40% against normally 20-25%. Prices are internal Grundfos transfer prices. Market and Competition Customers served are primarily in China and the Asia-Pacific Region. The Chinese market is growing at a high rate for most types of pumps. But Grundfos has not yet introduced its complete assortment of pumps in China. The growth in China can be illustrated by the plans to establish 80.000 waste water treatment plants in the coming years. GPC divides the market into three levels of pump quality/price, A, B, and C. GPC is in the Aleague, i.e. high quality-high price, competing intensively with the B-league, which also makes attempt to move into the A-league. The most important foreign competitor is the Swedish based ITT-Flügt, which was the first to establish production in China. Other competitors are located in the same area – Suzhou and around Suzhou, and Suzhou is almost a “pump-Mecca”. As mentioned the product portfolio is not complete, but Grundfos introduces every year one or more types of pumps, either new sourcing from outside the region or by adopting the new pump in their own production system. Grundfos has seven distribution centers around China with their own stocks. These centers are not bound together through any kind of system. The SAP system, which Grundfos uses as a main planning and operational tool, is not yet developed to coordinate the logistics. In the near future, so-called Distribution Centers (DCs) will be established. They will be responsible for logistics and in general be used for supply chain management purposes. Suppliers As mentioned, GPC was established as a component producer to primarily supply China and the Asia-Pacific Region with high quality components. The motivation for establishing the GPC in China was the size and the growth rate of the market which made it pertinent to underpin sales with a production facility. However, cost considerations also played a role and especially the access to the production of cast iron, where China is a dominant producer due to the labor intensiveness of cast iron production. GPC has approximately 100 sub-suppliers of which 43 are main one related to production of components. GPC continuously look for new sub-suppliers but “it is a long and tedious process to develop a new sub-supplier” due to the requirement of a high standard quality control system: GPC has, as one of their presentation slides indicates, a “Fanatic Focus on Quality”. This focus is backed by standards, ISP-certification, systems for quality control, etc. They have a list of potential suppliers, who are under investigation. They screen many sub-suppliers, but few gets through the tough screening. Focus is on ISO 9.000 and 14.000. In addition, the work conditions must be in order. If the work conditions are OK, 20

but the quality is not, GPC may accept the sub-suppliers and work with him to improve the quality. GPC source supplies in many areas, including cast iron, motors, cables, mechanical parts, metal parts, fittings, packaging, magnets and others. Most suppliers are on the East Coast where the infra structure is optimal. The strategy is to produce as much as possible in the region. But there is no strategy to outsource as much as possible. The sources of supplies are divided into: In-house in China; sub-suppliers in China; Sourcing from sister companies in the regions; Sourcing from sister companies outside the region, and sourcing globally from sub-suppliers. In the latter case, the Grundfos Group may have entered a global agreement with a sub-supplier which GPC then have to use. How much is sourced from which of the different sources varies very much from pump type to pump type. For example, the UPA-pump is produced based on 36% local inputs (value); 36% from sister companies and 28% from overseas suppliers. The CR-pump is produced on the basis of 26% local; 52% from sister companies and 18% from overseas suppliers. These figures are by value. If measured by items, more is produced locally. Local means both by GPC and local sub-suppliers. GPC also source complete pumps from time to time when they do not have a specific type of pump in their assortment. For example, a Greek producer supplied GPC with a specific pump for some years. In this case, GPC made the quality control, relabelled the pump so that it is a genuine Grundfos pump. Today, GPC has in-sourced the pump. GPC has as mentioned a strict procedure for adopting a sub-supplier. They have long-term relations with the sub-suppliers and they enter annual production contracts. Production Production is for the local as well as the regional market and assembly for the Chinese market. GPC also sell components to sister companies outside the region. The production is in three shifts and over seven days a week to be able to fulfil demands. The production area has, as mentioned, been expanded almost every second year and will be expanded again in 2008. The expansion is both due to increase in the demand for existing pumps and due to the continuous adoption of new types of pumps. There is also a need to adapt and develop certain types of pumps for the Chinese market. For example, there was a need to adapt a pump to the Chinese pipe water system for dwellings. GPC, through its R&T-department, has the capability to undertake such adaptation and the development of new types of pump (See Grundfos Note 3). GPC may also collaborate with sister companies on the development and production of a pump. This was the case with the Hungarian affiliate with some parts produced in Suzhou and some in Hungary. GPC is ISO-certified and in 2006, GPC obtained “the work condition 18.000-certificate. Organization and HR-Management Grundfos “sales” and “production” are registered as two separated companies in China. Sales are located in Shanghai and production in Suzhou. The number of employees in GPC is 650 in 2007, up from 200 in 2000 and may reach 1.000 in 2010. Recruitment is not a big problem quantitatively, but finding the right people is not so easy. GPC earlier faced some turn-over problems, especially related to white collar workers (administration, management, technical work) while the rate has been lower for blue collar workers. However, GPC is on the top-3 list of companies in the industrial park in terms of image (the basis for the measurements are not known).

21

The GM of GPC is Francis Chu, who is Taiwanese. He has worked for Grundfos for almost 20 years in Singapore, Indonesia, Malaysia and now in China. GPC has four departments for production of components, assembly, Waste water, and Distribution Centre, which is in the process of being established. In addition, GPC has several support departments, including Operations Department, Technical Department, Purchasing Department and departments for Finance and HR/Administration. The GPC also has certain Group functions, including R&T (see Grundfos Note 3); Technical Consultancy, which aims among others to procure machinery, e.g. mould, from china, Quality Control and Procurement. The Group functions are an integrated part of GPC, but refer to also to the head of the Group function in Denmark. Bonus systems are common in China and by January-February, you get a good feel for the turn-over rate of employees as they will not leave in November-December and thus not get the annual bonus. The work force is very young – on average around 28 and many are fresh from university or technical educations or it is there second job. Chinese employees are eager to learn. They are well founded in formal knowledge, e.g. mathematics, and they are willing to change. They are less good in team and creative work. Salary and title means a lot, according to the Engineering Manager and to become a manager is on top of the agenda for an employee. This makes it a challenge to keep good employees as the appointing of too many managers would cause too many layers in the organization. Attempts to solve the problem are to use the categories of “specialists” and (temporary) project managers, but the results are mixed. In 2005, GPC started a two year engineer trainee program, where young graduates for two years work in two different departments to be integrated into the organization (In Denmark, they work in four departments). Concerning the use of expatriates, there is not a well defined policy. Depending on the local capabilities, they will use local staff and in cases where the local capabilities are low, they will draw on staff from the Headquarters in Denmark as well as the global Grundfos net of factories and sales subsidiaries. Sales and Distribution GPC does not sell directly to the customers but to other production plants and sales subsidiaries of Grundfos. TPC is assembly for the Chinese market and other markets which do not have assembly facilities. Some of the larger sales subsidiaries also have some assembly capabilities. Sales distributed by the region vary a little from year to year, but overall, 50-60% is sold in China and around 25% in the rest of the Asia-Pacific Region. The European region takes 2025% and the rest is delivered to the US and South America. While the Grundfos Sales affiliate in China takes care of the actual selling, GPC is responsible for sales support including logistics and technical after sales service. The upcoming new distribution centers should enable Grundfos to improve its supply management and thus underpin the branding of “One Brand”, “One World”, and “One Company”. Yet today, the challenge of cultural differences between markets remains a hot topic in Grundfos branding. As mentioned, a Distribution Centre is under establishment. So far, in China the distribution network has emerged gradually and they want to have it streamlined and integrated into the SAP-system. Furthermore, distribution should be moved from the sales company to GPC and be part of a general improvement in supply chain management.

22

Grundfos Note 3

Grundfos Pumps (Suzhou) Ltd (GPC), China
The China R&T Department Establishment and Role This Grundfos Note 3 focuses on the establishing of an R&T-function (Research and Technology) within Grundfos Pumps (Suzhou) Ltd. (GPC) in China. The history of the R&T-unit goes back to 2004, when Søren Ishøy, the former present head of the R&T-department, was establishing the Customer Service Unit (CSU-unit) in GPC (Søren Ishøy has recently been released for the second (regional) function of Grundfos; head of R & D China measures are currently Jimm Feldborg). He also had the assignment to look into the establishing of an R&T-unit. According to Peter Krarup, Engineering Manager, the localizing of R&T can bring down the development time considerably – 2-3 years compared to a situation where the development is done together with the Group R&T in Denmark due to communication and transportation problems. The investigations – a feasibility study – showed that it would be purposeful to establish an R&T-unit in the growing-at-high-speed Chinese market. At first, R&T was a unit with a few engineers. The unit has grown steadily and as from 2006, it became a genuine Department of R&T within GPC. Due to its growth and lack of space at the present premises, the Department moved in May 2007 to other premises – about 10 km away from the production site. Today, the R&T-Department has over 30 employees of which about 20 are engineers and 10 technical assistants. Furthermore, it has moved to focus not only on Technology and Research to becoming an R&D-department where emphasis is also on development tasks and therefore the department has moved closer to the production and commercialization stage than the T for technology development indicates. Motives Claus Gade, Development Engineer, emphasize that the motives for the establishing of the R&T-unit was not cost savings and outsourcing. During the meeting with Claus Gade and Peter Krarup various motives are mentioned including (the listing is not in order of importance): 1. Grundfos is a global company and need to be global in all its functions, including R&D. 2. Talent/Competence: It is becoming difficult to hire engineers in Denmark and China has a lot of (potential) talent with good formal education. 3. Product development and adaptation to the big Chinese and regional market is also one of the motives, indicated by the close collaboration between production and the R&T-Department. 4. Overcoming the problem of communication, time difference and the travel and transportation of proto-types etc is yet another motive. As mentioned, the development time is relatively long if the development is done by Denmark and the production testing is done in China. The communication problem is, however, minimized by the installing of new communication equipment (video conference and an electronic white board with drawings and the possibility to use hand writing that can be read both in Denmark and in China. To these motives can be added that the regions are meant to be units that to a large extent can stand on their own in terms of production and sales – and perhaps also in the future in terms of R&D.

23

Tasks and Organization Referring to Grundfos Note 2, the R&T Department is task wise under Group R&T and the R&T-employees have a counterpart/mentor at Group R&T. It is still a new department and its tasks portfolio may change over time. Presently, among its tasks are the following:     Assisting the Group R&T in the transfer of documents from one documentation system to another as the Group R&T does not have the capacity to do it. Solving problems on a consultancy basis for sister companies and the Group R&T Establishing contacts to top universities, e.g. Zhengiang University (rank 3 or 4), to be able to use their equipment for testing, collaborate on certain tasks and recruit students for jobs in Grundfos. Independent development task together with the production department, e.g. the ESE-2 project – the improvement of a larger pump.

Furthermore, the R&T Department has already gained a reputation for its competence in numerical calculations for motors and hydraulics. The portfolio is thus presently closer to the D (Development) than the R (research) and T (technological development). In a broader perspective, Claus Gade, mentioned that in a number of cases, the pumps are near their perfection, i.e. given the technological platform, it is difficult to improve their efficiency. What can be done, however, is to make the pumps more and more intelligent by so-called embedded or integrated soft-ware.

24

Grundfos Note 4

Grundfos Pumps SDN BHD (GPM), Malaysia
Grundfos note 4 is based on a visit to Grundfos Malaysia in 2004. The exact figures may have changed somewhat since then, but the basic structure and processes are still valid. Establishment and role: Grundfos pumps have been sold in Malaysia since mid-60s through an agent in Kuala Lumpur, the capital of Malaysia. In 1990, a local Grundfos Company was incorporated. Grundfos sells directly to customers, but mainly through the distributors. In fact, Grundfos is a sub-supplier to the construction industry apart from selling individual pumps. Grundfos gets its supplies from the regional HQ in Singapore, which has production facilities and stock components and pumps from other Grundfos factory. Main role of Grundfos Malaysia is to sell pumps and pumping systems, including before sales consulting and after-sales servicing and repairs. Since 1990, GPM was located in two different locations before it was moved to the present location in 1998. Legal Management: Grundfos is 100% owned by Grundfos (DK). DT is the GM and the only expatriates in Malaysia. Grundfos has 52 employees, half of which are engineers from Malaysia, mostly Chinese but Grundfos has 30% Malays according to GM. The organization has five departments as shown below.

Service Department (Workshop-assembly, commissioning, etc.)

Customer Service

Sales Waste Residential Industry

Marketing

Finance and Administration

Grundfos also has a demonstration/training section for pumps, pumping systems and boostering. The Service Department (workshop) is located in another building away from Grundfos. Around half of the employees are engineers. There are also employees who have diploma and certificate holders, for example, for repair and assembly. Even so, they train lower ranks themselves by hands-on- experience. Products, Markets and Competition: Grundfos sells pumps, including both before sales services to consulting engineers, sales and after sales services, including repairs. GPM is a sub-supplier to another value chain, the construction value chain (plants industry, housing, etc.) apart from selling pumps to individual buyers (houses, for example) and for replacement. The market in Malaysia is estimated to RM 80-100 million a year for the industries/markets that Grundfos are targeting. Grundfos is the leader with a market share of 35-40 percent. Grundfos sells directly to the big customers and to all customers related to waste water projects. They prefer to sell directly to big projects to avoid another layer of mark-ups.

25

Grundfos has many international competitors in Malaysia, but Grundfos was the first to enter the Malaysian market. Grundfos main competitors are: Ebare (Japan) and Tsurumi (Japan), both with own office in Malaysia. Wilo (Germany); ITT (USA) and Flygt (Sweden) have local distributors. There are also local competitors, e.g. producing pumps – Chinese versions of pumps. To penetrate the market, it is essential to have access to the 100-200 consulting engineers, who work independently of construction companies and who stipulate the standards and specifications for each project. In a discussion on where to locate a regional office, Singapore had the advantage of an efficient infrastructure and no bureaucracy and Bumeputera policy with local ownership requirements (70% of big factory) and employment (30%). In Singapore you can get the order in the morning and ship out in the afternoon. In Thailand, there is a language problem. Links International Links: GPM reports to the regional HQ in Singapore, which covers the Asia-Pacific area (Indonesia, Thailand, India, China, Korea, Japan, Taiwan and Australia). Sales targets, budget allocation, etc are agreed with and set by Singapore. Links to consulting engineers: Probably the most important link from sales point of view is to the consulting engineers who prepare all specifications. Grundfos has sales engineers to service the consulting engineers. Consulting engineers are invited for training in the excellent training facilities in the new building (1998). Links to contractors/sub-contractors: Grundfos tries to monitor who gets the construction contracts and then follow-up on the contractors and/or sub-contractors. Links to sub-suppliers: Grundfos has long-term links to producers of control panels, which must be produced according to local standards (in all countries); Grundfos has also contact to producers of big water containers/tanks and they easily can be produced here, while the technology for small containers is not good enough. Furthermore, Grundfos buys simply engines produced locally. Around 20% of all inputs (measured by value RM) are sourced locally. When looking for a sub-supplier, Grundfos visits the potential sub-supplier to see if the supplier fits into the Grundfos-organization. GPM provides no assistance to sub-suppliers. Links to distributors: Distributors are trained by Grundfos in their media-rich training room.

26

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...Join now! Login Support Other Term Papers and Free Essays Browse Papers Business / Timbuk2 Case Study Timbuk2 Case Study Term Papers Timbuk2 Case Study and over other 20 000+ free term papers, essays and research papers examples are available on the website! Autor: santhanam.vikram 09 December 2013 Tags: Words: 723 | Pages: 3 Views: 86 Read Full Essay Join Now! CASE STUDY: TIMBUK2 1.) Consider the two categories of products that Timbuk2 makes and sells. For the custom messenger bag, what are the key competitive dimensions that are driving sales? Are their competitive priorities different for the new laptop bags sourced in China? Some of the competitive advantage which are the key factors of Timbuk2 bags are:-  Quality  Durable  Reliable  Not prone to defects  Custom made bags for each of the customers  The quick delivery of bags  The rave review which the company gets for its bags i.e. it basically carries a good name in the market  For its laptop bags, even though they are manufactured in china, the designing is done in San Francisco. so the exclusivity remains  Cost effective manufacture of laptop bags in china  Being able to adopt to changes in demand and fashion By manufacturing the bags in china the company saved the manufacturing cost but lost their niche of manufacturing and selling in America itself. The general perception of it being a Chinese product led to customers felling......

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...add-on. Initial paper work took some time, so the new patients were asked to come earlier so that the work could be completed on time. Also informing the new patients to adhere to appointment timings was a usual practice to avoid delays. What procedures were followed to keep the appointment system flexible enough to accommodate the emergency cases, and yet be able to keep up with the other patients’ appointments? It is often observed that doctors misuse the time and often emergency cases are taken as excuses for not adhering to the schedule. It was important to make the system flexible to adjust the emergency cases as well as to adhere to the timelines and get back to schedule. In case of real emergencies like fractures or caesarean section etc., all other appointments could be dropped; however in case of small issues, the doctor was expected to come back on track as early as possible and give the patient a choice to wait or reschedule the appointment. Also the assistant of the doctors were ordered to keep some open slots throughout the day for the patients suffering acutely. This time was also used to look into the emergency cases....

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