Management Practices in Asia: Case Studies on Market Entry, CSR, and Coaching [1st ed. 2019] 978-3-030-19661-5, 978-3-030-19662-2

Table of contents :
Front Matter ....Pages i-vi
Front Matter ....Pages 1-1
Asia: The Continent of Superlatives and Contradictions (Christiane Prange)....Pages 3-9
Overview of the Book (Ralph Kattenbach, Christiane Prange)....Pages 11-23
Front Matter ....Pages 25-25
neolid: A French Start-Up in Japan and South Korea (Noémie Dominguez, Ulrike Mayrhofer)....Pages 27-36
Taking the Road to India? Under Armour’s Internationalization Strategies (Joris ten Have)....Pages 37-48
Garuda Indonesia: A Turbulent Journey to Global Expansion (Farrah Almira Ali)....Pages 49-61
New Game: Should the Multinational Crop Protection Company CPG Enter China’s M-Commerce Market? (Marc Poetzsch, Zheng Han)....Pages 63-81
Front Matter ....Pages 83-83
Trung Nguyen Group and the Global Coffee Dream: Advantage at Home but Also Abroad? (Quynh An Lu)....Pages 85-100
Late to the Party: Can Starbucks Become the Life of It? (Khoi Bui-Kinh)....Pages 101-113
Paris Baguette: How a South Korean Bakery Is Entering Europe Through the Capital of France (HeeJo Hannah Kim, Simon Fietze)....Pages 115-124
Front Matter ....Pages 125-125
Lipton’s Tea Plantations in India: Is There a Gap Between Saying and Doing in Sustainability? (Gwen van Driel)....Pages 127-140
A New Home for MusHome? Positioning Mushroom Growing Kit Through Social Media Marketing (Astriani Dewanto)....Pages 141-152
Pizza Hut Vietnam: Adapting a Global Code of Conduct (Marie-Therese Claes)....Pages 153-166
A Breath of Fresh Air: Creating Shared Value in the Philippines (Austin Chia, Prakash Singh)....Pages 167-185
Schneider Electric India Private Limited: The CSR Dilemma (Amandeep Dhaliwal, Arunaditya Sahay)....Pages 187-201
Materialise: Teaching Along the Silk Road (Pascal Wolff, Johannes Kern)....Pages 203-215
Front Matter ....Pages 217-217
Guidance vs. Facilitation: A Critical Juncture for Coaching Services (Ralph Kattenbach, Mila Dorosh)....Pages 219-228
Coach! The Challenge of Leadership Coaching and Mentoring in the Context of Intercultural Work Environments (Alex Couley, Julia Milner)....Pages 229-238
Female Career Coaching for a Multinational Company in China (Bettina Al-Sadik-Lowinski, Ralph Kattenbach)....Pages 239-251
Fostering a Collaborative Mindset (Annette Metz)....Pages 253-266
Front Matter ....Pages 267-267
The Rise and Fall of Boundaries (Ralph Kattenbach)....Pages 269-276

Citation preview

Christiane Prange · Ralph Kattenbach Editors

Management Practices in Asia Case Studies on Market Entry, CSR, and Coaching

Management Practices in Asia

Christiane Prange • Ralph Kattenbach Editors

Management Practices in Asia Case Studies on Market Entry, CSR, and Coaching

Editors Christiane Prange School of Economics and Management Tongji University Shanghai, China

Ralph Kattenbach School of Economics and Management Tongji University Shanghai, China

ISBN 978-3-030-19661-5 ISBN 978-3-030-19662-2 https://doi.org/10.1007/978-3-030-19662-2

(eBook)

# Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

Part I

Introduction

Asia: The Continent of Superlatives and Contradictions . . . . . . . . . . . . . Christiane Prange

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Overview of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ralph Kattenbach and Christiane Prange

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Part II

Aspiring Global Giants

neolid: A French Start-Up in Japan and South Korea . . . . . . . . . . . . . . Noémie Dominguez and Ulrike Mayrhofer Taking the Road to India? Under Armour’s Internationalization Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joris ten Have Garuda Indonesia: A Turbulent Journey to Global Expansion . . . . . . . . Farrah Almira Ali New Game: Should the Multinational Crop Protection Company CPG Enter China’s M-Commerce Market? . . . . . . . . . . . . . . . . . . . . . . Marc Poetzsch and Zheng Han Part III

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Ethnocentrism Revisited

Trung Nguyen Group and the Global Coffee Dream: Advantage at Home but Also Abroad? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quynh An Lu

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Late to the Party: Can Starbucks Become the Life of It? . . . . . . . . . . . . 101 Khoi Bui-Kinh Paris Baguette: How a South Korean Bakery Is Entering Europe Through the Capital of France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 HeeJo Hannah Kim and Simon Fietze

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Part IV

Contents

Corporate Social Responsibility on the Move

Lipton’s Tea Plantations in India: Is There a Gap Between Saying and Doing in Sustainability? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Gwen van Driel A New Home for MusHome? Positioning Mushroom Growing Kit Through Social Media Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Astriani Dewanto Pizza Hut Vietnam: Adapting a Global Code of Conduct . . . . . . . . . . . . 153 Marie-Therese Claes A Breath of Fresh Air: Creating Shared Value in the Philippines . . . . . . 167 Austin Chia and Prakash Singh Schneider Electric India Private Limited: The CSR Dilemma . . . . . . . . 187 Amandeep Dhaliwal and Arunaditya Sahay Materialise: Teaching Along the Silk Road . . . . . . . . . . . . . . . . . . . . . . . 203 Pascal Wolff and Johannes Kern Part V

Coaching in Asia

Guidance vs. Facilitation: A Critical Juncture for Coaching Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Ralph Kattenbach and Mila Dorosh Coach! The Challenge of Leadership Coaching and Mentoring in the Context of Intercultural Work Environments . . . . . . . . . . . . . . . . 229 Alex Couley and Julia Milner Female Career Coaching for a Multinational Company in China . . . . . . 239 Bettina Al-Sadik-Lowinski and Ralph Kattenbach Fostering a Collaborative Mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Annette Metz Part VI

Conclusion

The Rise and Fall of Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Ralph Kattenbach

Part I Introduction

Asia: The Continent of Superlatives and Contradictions Christiane Prange

It takes 10 hours to fly from Amsterdam to Beijing, 9.5 hours from New York to Mumbai, and 8.4 hours from Melbourne to Ho Chi Min City. Does that mean the world is becoming more integrated and interdependent with international trade made easier and smoother? Well, yes and no. Yes, because with increasing globalization, countries have become more similar—at least on the surface. Apple, Starbucks, Ikea, and McDonalds coin the face of metropolitan cities and reconfirm the image of millennium elites, exponentially more aware of international lifestyles and modern brands. Walking through the streets of Shanghai feels like lingering around the Avenue des Champs-Élysées or windowshopping on Oxford Street. But we all know that Shanghai is not representative for the whole of China or for other developing countries. This is confirmed by hard facts, such as an average GDP/capita of US$ 6.894 in mainland China versus GDP/capita of US$ 17.548 in Shanghai and US$ 4.162 in Gansu, the poorest province in the country (for comparison: US$ 52.195 in the United States, US$ 45.552 in Germany, and US$ 75.726 in Switzerland) (Trading Economics 2017). Such disparities notwithstanding, again yes, countries have become similar because the ease of doing business, as reported in recent studies, solidifies that barriers are shrinking with Asia showing higher ease of doing business than before (scale from 0 to 190, from easy to difficult), e.g., Singapore (2), South Korea (4), Hong Kong (5), Thailand (26), Vietnam (68), Indonesia (72), China (78), India (100), and the Philippines (113) (World Bank Group 2018). In most cases, globalization has enabled us to overcome geographical and economic boundaries to create a borderless world. A growing number of transnational corporations and the dissemination of ideas around the world have had an impact on different cultures. As bestselling author Thomas Friedman (2005) argues in his book The World is Flat: A History of the Twenty-First Century, the global competitive playing field is being C. Prange (*) School of Economics and Management, Tongji University, Shanghai, China # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_1

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leveled. Today, it is possible for more people than ever to collaborate and compete in real time, to authorize instantaneous online transactions, and to connect with each other. However, there is also a No to the question of international trade becoming easier. Part of the answer results from the unbalanced outcomes of globalization. It is unquestionable that wealth has increased for the rich nations, while poverty reduction for the poorer countries has also succeeded, but critics say that debt relief has increased dependence on international organizations. A provocative formulation of these issues was offered by Peter Singer, renowned professor of bioethics at Princeton University and co-author of the path-breaking book One World—The Ethics of Globalization. He asked the following question: If someone tells you that the gap between the poorest third and the richest third has narrowed and the poorest third are better than they used to be, but the gap between the poorest tenth and the richest tenth has widened and the poorest tenth are no better off than they used to be, is this something that you welcome or deplore? (Wenar 2003)

Obviously, in a world with extreme income inequalities, business cannot follow a one-size-fits-all approach, but needs to start from individual country market research to adjust products and service to purchasing levels and consumer needs. An international strategy scholar, Pankaj Ghemawat (2007), for instance, said that the world is by no means flat. Introducing his Ten-Percent-Presumption, he presents data for a variety of activities, such as telephone calls, direct investment, tourist travels, education, and others ranging on a level between 0 and 10% when it comes to the degree of internationalization. Consumer preferences are not unified across the world: differences exist, anchored in ideological history, values, conceptions of society, and the individual, among others. In sum, we live in a pretentiously globalized world with reality bringing us back to the strong undertow of national differences. We will look at some of those differences in Asia, as one of the most exciting continents today with innovative developments at gargantuan speed. Asia is not homogeneous, however, and we need to distinguish between the highly developed Pacific Rim Geographies along the Pacific Ocean continually gaining strength in the world economy (Hong Kong, Singapore, Taiwan, and South Korea) and the emerging markets that are just about to take off (e.g., Vietnam or Indonesia), with mainland China and India among the most advanced. An emerging market economy has rapid economic development and government policies favoring economic liberalization and the adoption of a free market system (Hoskisson et al. 2000). The term “emerging market” was coined by the International Finance Corporation (IFC) in 1981 and was initially used to describe stock markets in developing countries that are considered either low or middle income as defined by the World Bank or that have low investable market capitalization relative to GDP (The World Bank and International Finance Corporation 2013). Today, emerging markets have come to represent entire countries rather than stock markets and, in particular, those countries that hold the promise of high rates of economic growth.

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In Asia, we will find poverty and wealth, power and fragility, and local adaptation and global aspiration. These contradictions make the continent both exciting but also unpredictable and conflict-laden. Irrespective of the status in the world’s economic pecking order, we also see a rising level of national pride in indigenous products and services that has stimulated ethnocentric consumer behavior, formerly the exclusive domain of developed countries. Ethnocentrism depicts a preference to buy products from one’s home country rather than purchasing items from foreign locations (Perlmutter 1969; Siamagka and Balabanis 2015). The concept not only stands for significant changes in consumer behavior but also more fundamentally represents a change in the perception and awakening impact of Asian products on a global scale. While several Asian companies still need to catch up with regard to quality and branding, attributing a deliberately Asian touch to the business is a sign of increasingly self-conscious national identities and mindsets. While rapid growth endows millions of consumers with new spending power, companies experiment with new business models and ways to ignite customer interest. The battleground is complex and tough, and technology is unleashing close customer engagement, while purchasing is influenced by rules often unknown to the Western manager. This is the breeding ground for many innovations and start-up companies that reveal flexibility and creativity in their DNA. There are also major players from Asia, like Xiaomi, that have emerged as global giants challenging their competitors. All of these companies are crossing manifold boundaries—between cultures, mindsets, and perspectives. Some Western companies also experience the vibrant speed of operating in Asia and face challenges that are very different from those on their home turf. In this book, we will explore some of those challenges and share the fascination for doing business in Asia.

A Short Overview on Selected Asian Countries Asia is the largest continent on Earth. Covering about 30% of the world’s land area, it has more people (4.9 billion in 2016) than any other continent with about 60% of the world’s total population. Stretching from the icy Arctic in the North to the hot and steamy equatorial lands in the South, Asia contains huge, empty deserts, as well as some of the world’s highest mountains, longest rivers, and tallest buildings. It also has the most varied landscape, for instance, with both the highest point, situated in the Tibetan region of the Himalayas (Mount Everest at 8848 m), and the lowest points (the Dead Sea—397 m) on Earth. North Asia contains Siberia, the largest land area in Asia that is mostly cold and has the fewest people. Central Asia is the land of the former Soviet Republic. Southwest Asia is called the Middle East, the crossroads of the world where the three continents Asia, Europe, and Africa meet. South Asia is the home of the Himalaya Mountains and India as the largest country. Southeast Asia consists of 11 countries that reach from Eastern India to China and is generally divided into “mainland” and “island” zones. The mainland (Burma, Thailand, Laos, Cambodia, and Vietnam) is actually an extension of the Asian continent. Island or maritime

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Southeast Asia includes Malaysia, Singapore, Indonesia, the Philippines, Brunei, and the new nation of East Timor (formerly part of Indonesia). East Asia is the Eastern subregion of the Asian continent with the most people. Geographically and geopolitically, it includes China, Japan, Mongolia, North Korea, and South Korea. With today’s world power and wealth being redistributed, several countries in Asia account for a large share of world economic output and/or have very high growth rates. Globally well-known companies from South Korea (Samsung, Hyundai, SK Group, LG Electronics), India (Infosys, Tata Motors, Dr. Reddy’s Laboratories), or China (Haier, Huawei, Alibaba) compete against global players both at home and on the international landscape. A look at the Fortune Global 500 list reveals that Asian companies make up around 40% in 2017. The continent now has 197 companies on the list, making Asia the home to more global giants than any other continent. While most of the companies are large infrastructure conglomerates or financial service providers, their emergence into world-class recognition is remarkable. This is in stark contrast to companies from other Asian countries that are hardly known in the Western world though very famous at home, such as Vietnamese Hue Beer company or Hanoimilk and Indonesian pharmaceutical Kalbe Farma or Gudang Garam, the country’s leading manufacturer of cigarettes. Apart from global emerging giants, there is also a bubbling start-up scene in most Asian countries with talented people showing tremendous ambition and insatiable curiosity. In poorer countries, entrepreneurship can provide the solution by creating wealth, jobs, and social empowerment. For instance, the 1987 Philippine Constitution recognized entrepreneurship as an engine of economic growth and has reinforced the thrust in entrepreneurship through trade and investment to achieve the government’s goal of economic development and job creation (Evangelista 2013). In China, Prime Minister Li Keqiang called for mass entrepreneurship and innovation and incorporated it in the country’s plans for its national economic strategy. This is only one means to overcome China’s image as the “factory of the world” and promote its made-in-China strategy for the years to come. On the road, some insights may be taken from other countries like South Korea or Singapore, while poorer countries may adopt China’s low-cost manufacturing and export role as an important step toward prosperity. Another plan that has recently spurred interest in Asian countries is the announcement by Xi Jinping, General Secretary of the Communist Party of China and President of the People’s Republic of China in 2013, to launch the so-called One Belt One Road or Belt and Road Initiative. The scope of the Belt and Road Initiative includes enhanced policy coordination across the Asian continent, financial integration, trade liberalization, and people-to-people connectivity. China’s efforts to implement this initiative will likely have an important effect on the region’s economic architecture—patterns of regional trade, investment, and infrastructure development. The “One Belt” refers to a “Silk Road Economic Belt” from China through Central Asia to Europe. The “One Road” refers to Beijing’s concept of a “21st century Maritime Silk Road” to connect China to Europe via the South China Sea and Indian Ocean. The initiative involves developing six economic “corridors”: a China–Mongolia–Russia corridor; a new Eurasian “Land Bridge”; a corridor from

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China to Central Asia and Western Asia; a China-Indochina Peninsula corridor; a China–Pakistan economic corridor; and a Bangladesh–China–India–Myanmar economic corridor. As consulting company McKinsey argues, the project has the potential to become the largest platform for regional collaboration. It is very ambitious, covering about a quarter of all the goods and services the world moves. Yet one of the challenges will be implementation, going into countries where the language diversity is challenging for everyone and where a lot of local traditions and legal systems exist and all of them are very different (Jinchen 2016). With national and regional integration advancing, both Asian companies going abroad and foreign companies entering Asia will face new challenges. Knowledge and skills about different cultures and internationalization capabilities require updating, while aspects of corporate social responsibility (CSR) and ethics come into play as guidelines for behavior and relationships. On a corporate level, CSR presents the linchpin to sustainable business whether it revolves around environmental responsibility, fair and agreeable working conditions, or education and health care. Different from explicit programmatic contents of CSR in Western countries, CSR in Asia often builds on consensually developed frameworks that require deep involvement to understand (Munro 2013). Though prescriptive in nature, CSR adoption hinges on individuals’ understanding and ethics in avoiding corruption and bribery and developing a better society; it needs to translate into individual-level behavior to be effective, and this, in turn, is driven by increasing awareness. In many cases, tailor-made coaching assignments are helpful, either on the individual or on the team-level support awareness and the propensity for social action. Moreover, the coaching concept provides a promising key to personnel development and improved decision-making. Particularly against the backdrop of intercultural activities, a coach may help to ease communication and to resolve misunderstandings. The range of possible assignments is manifold. Instead of preparing future expats for their jobs abroad with more or less effective cultural trainings, cultural coaching helps to overcome cultural challenges instantly where and when they occur. Team and peer coaching enhance self-reflection and a positive learning environment. Leaders of diverse teams make use of external coaches to develop a more adequate intercultural leadership style. Apart from individual coaching interventions, the concept has a meaningful impact on a strategic level. Coaching techniques and principles, for instance, can be integrated in leadership styles. Concepts such as lateral or supportive leadership or agile work processes like Scrum or Kanban refer to a coaching mindset in leadership and organizational culture. In this book, we will focus on several selected Asian companies moving abroad and foreign companies entering Asia. With the help of case studies, we introduce some of the rules of the markets. Rather than taking a functional approach, such as marketing or human resource management, we will be highlighting how different cultures encourage or impede the set-up of businesses or the success of multinational players and start-up companies. We will highlight how local entrepreneurs follow their ideas and scale up their operations to challenge global companies. These

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aspiring giants thrive on challenging ideas, have an impressive time to market, and reconfigure themselves on a permanent basis. In addition, an increasing awareness of and pride in national cultures leads to a revised understanding of ethnocentrism that attributes a new connotation to “Made in Asia.” We will further show on a corporate level how social responsibility influences the sustainability of aspiring global players and how this needs to be translated into individual behavior, supported by in-depth coaching and training. This approach is immensely important as it combines programmatic strategizing to catch up on a global scale with individual insight and awareness to contribute to a world of more social equality and prosperity.

References Evangelista, R. P. G. (2013). Entrepreneurship in the Philippines: Opportunities and challenges for inclusive growth. Retrieved October 23, 2018 from https://www.cipe.org/resources/entre preneurship-philippines-opportunities-challenges-inclusive-growth/. Friedman, T. L. (2005). The world is flat: A brief history of the twenty-first century. New York: Farrar, Straus and Giroux. Ghemawat, P. (2007). Redefining global strategy: Crossing borders in a world where differences still matter. Boston: Harvard Business School Press. Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43, 249–267. https://doi.org/10.2307/1556394. Jinchen, T. (2016). One belt and one road: Connecting China and the world. McKinsey. Retrieved March 10, 2017 from https://www.mckinsey.com/industries/capital-projects-and-infrastructure/ our-insights/one-belt-and-one-road-connecting-china-and-the-world. Munro, V. (2013). Stakeholder understanding of corporate social responsibility (CSR) in emerging markets with a focus on Middle East, Africa (MEA) and Asia. Journal of Global Policy and Governance, 2, 59–77. https://doi.org/10.1007/s40320-013-0026-3. Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. The Columbia Journal of World Business, 4, 9–18. Siamagka, N.-T., & Balabanis, G. (2015). Revisiting consumer ethnocentrism: Review, reconceptualization, and empirical testing. Journal of International Marketing, 23, 66–86. https://doi. org/10.1509/jim.14.0085. The World Bank, & International Finance Corporation (IFC). (2013). Doing business 2013: Smarter regulations for small and medium-sized enterprises. Retrieved October 23, 2018 from http://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/ English/DB13-full-report.pdf. Trading Economics. (2017). Country data. Retrieved December 07, 2017 from https:// tradingeconomics.com/. Wenar, L. (2003). One world: The ethics of globalization, Peter Singer (New Haven: Yale University Press, 2002) and World poverty and human rights, Thomas Pogge (Cambridge: Polity, 2002). Retrieved October 23, 2018 from https://www.carnegiecouncil.org/publications/ journal/17_2/reviews/1028. World Bank Group. (2018). Doing business 2018: Reforming to create jobs. Retrieved October 23, 2018 from http://www.doingbusiness.org/content/dam/doingBusiness/media/AnnualReports/English/DB2018-Full-Report.pdf.

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Christiane Prange is a professor of Global Strategy at Tongji University, China and director of the AgileVentureLab, a global think tank focused on researching and applying agile principles to management and leadership, and helping companies and individuals to better cope with ambiguity and unpredictability. Christiane was educated in Germany (MBA), Geneva University, Switzerland, where she obtained her Ph.D., in France, University Lyon 3 where she received her habilitation (qualification to supervise research), and Harvard Business School benefiting from insights into team interaction and participant-centred learning. After several years in industry and consulting, she returned to academia and has lectured as a visiting professor with top business schools in more than ten countries, including Austria, France, Malaysia, Russia, Romania, and UK. In the last 20 years, she has also consulted numerous multinational companies on internationalization strategies, global innovation management, and agility. Her ideas are published in eight books and several articles in journals, such as, Organization Studies, Journal of World Business, International Business Review, and others. She regularly presents her work at international conferences and workshops.

Overview of the Book Ralph Kattenbach and Christiane Prange

The case studies in this book are organized around four major themes that are of high importance to international business managers and scholars. In Part II, we look at several companies that were founded in the recent past and that have made an impressive move toward becoming established players or have already positioned themselves as major competitors. Part III reconsiders the notion of ethnocentrism, providing company cases that illustrate the revival of local brands with increasing consciousness and pride in local products. Based on original ideas or business models, these companies realize that their home country is on the developmental path with exciting insights to share. However, many emerging market companies are still facing institutional voids, that is, they have to cope with market volatility and ambiguity without the help of specialized intermediaries that can provide guidelines and regulations (Khanna and Palepu 2010). Strategies that account for this institutional environment may be especially important if they deal with an overall responsibility toward multiple stakeholders. We elaborate on one such strategy. In Part IV, we highlight corporate social responsibility in Asian markets. CSR is important to build reputation, which in turn reiterates prominence, perceived quality, and resilience (Gao et al. 2017). These factors have become an indispensable ingredient for international success, especially as many emerging market companies suffer from liabilities of low-cost, low-quality reputation. To overcome these liabilities, specific knowledge and training are necessary. Thus, in Part V, we complement our choice of major topics by focusing on individual and team coaching to support a company’s development by creating insight and awareness among the members of management and their employees. The focus on coaching is an aspect that has previously been neglected in R. Kattenbach (*) · C. Prange School of Economics and Management, Tongji University, Shanghai, China e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_2

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international business, but is required to raise awareness of the most pertinent issues in internationalization. Our selection of companies draws from a variety of different countries, industries, and company sizes. We aim at illustration of selected issues and problems, rather than prescribing solutions. Each case starts with a synopsis to introduce the reader to the problem. Several questions, tools, and overall themes help to prepare for analysis and better understanding. Cases can be used to acquire in-depth knowledge and do further research on selected topics; they can be used in the classroom or as incentives for practical discussions to share insights and challenging questions.

Aspiring Global Giants When the number of emerging market firms (EMFs) began to rapidly increase in the early 2000s, interest in their internationalization trajectories became a topical phenomenon (Khanna and Palepu 2010; Meyer and Peng 2016). EMFs exhibit a variety of features that impact their internationalization strategies: they generally lack ownership advantages and tend to build their business models around low-cost strategies, based on cheap labor and agriculture (Ramamurti 2012); they suffer from location disadvantages because their home countries do not convey images of quality and reliability; they engage in business at accelerated speed to jump on opportunities, but sometimes lack the resilience that is necessary to scale up operations and sustainability; and in many cases they also lack educated management talent and rely on learning by doing. However, in the recent past, EMFs have increasingly gained ground on the global scale by expanding to advanced countries to search for technological innovations and management know-how (Liu and Giroud 2016; Luo and Tung 2007). While this expansion strategy from emerging to developed countries is built on the assumption that EMFs need to engage in a learning trajectory, several examples show that we are reaching the end of cheap labor in some emerging market countries. For instance, with overall economic development and rise of middle-class income, China’s government is increasingly stimulating the shift toward a consumption-based economy. According to the International Labour Organization, Chinese wages are currently three times as high as in countries like Indonesia or Vietnam (International Labour Organization 2016). When it comes to innovation or digitization, we even face a reverse learning cycle in which developed market companies are well advised to observe developments in emerging market countries. Other countries in Asia still have to cope with reputation effects that spill over to their companies and products. Companies from these countries deal with negative country-of-origin perceptions (Hastak and Hong 1991; Diamantopoulos et al. 2011) and have not yet built up a strong track record in a product category. In addition, many companies deal with liabilities of newness and smallness (Stinchcombe 1965; Hannan and Freeman 1984) that negatively affect internationalization. Companies from these countries have to manage and exploit their reputation through systematic brand-building efforts. To assess reputation, buyers “tend to use brand names as

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signals of quality and value and often gravitate to products with brand names they have come to associate with quality and value” (Herbig and Milewicz 1993, p. 8). Trying to build a consistent brand, companies can engage in multichannel sales while using the same messages and by focusing on creative technologies to attract further customers. Entering the increasing e-commerce scene in emerging markets, Western companies also need to learn to use new tools and engage in consumer communities. These often exhibit very different behavioral norms that require in-depth learning about cultures and consumers. Despite several disadvantages, companies from emerging markets also have important assets that are mostly related to creativity, curiosity, and accelerated speed. This is what they share with many start-up companies around the world. For small companies going international (from and to Asia) is an important part of their growth strategy. These so-called international new ventures (INVs) are “business organizations that, from inception, seek to derive significant competitive advantage from the use of resources and the sales of output in multiple countries” (Oviatt and McDougall 1994, p. 49). Typically, INVs can more easily adapt to local market requirements than large multinationals and have an impressive time to market. In addition, they are often founded by so-called digital natives that have a good command of online technologies. This makes them an interesting partner for large companies seeking market entry or business model development. The cases in Part II illustrate the topics mentioned above. They capture companies of different sizes, different target countries, and different business models. What they have in common is their crossing boundaries, not only geographically but also with regard to adopting new technologies, business models, or new customer segments. Neolid is a French start-up that sells award-winning lidless isotherm boxes and mugs. After their initial success in European countries and later in the US market, the young company aims to distribute their products in Asia as well. In 2016, the company decided to expand to Japan and South Korea. These are dynamic markets whose inhabitants love novelty and prefer homemade meals. The case focuses on the huge cultural differences between France and Korea/Japan and gives background information for discussing market selection strategies, market entry modes—direct export from France or export from China via Korean and Japanese sales agents—and partner selection choices. Noémie Dominguez and Ulrike Mayrhofer also add important insights for building up intercultural competence to interact successfully with partners in Asia. The emerging market country India is an attractive target for foreign firms. US-based sports manufacturer Under Armour, a relatively young sportswear company, already performed well in its home market before starting its internationalization trajectory. With previous experiences in Europe, Latin America, and Asia Pacific, the company is exploring India’s market potential. One of the major questions to solve is how much the local American marketing concept needs to be adapted and whether the Indian subcontinent follows different rules, especially when it comes to fitness products. Until now, Under Armour’s focus has been sports that are popular in the USA and Western Europe like American football, basketball, golf,

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and soccer. Entering India, these sports are not as favored and the role of athletes is different, which requires an in-depth marketing screening before entering the country. Adding to this, the economic situation of the customers is hard to estimate. Under Armour might have to face the challenge of moving away from their ethnocentric orientation by adjusting its marketing mix and especially by adapting pricing and distribution. Joris ten Have provides the background information for this case and asks challenging questions as to how Under Armour can manage its market entry in India. The next case focuses on a high-reliability organization in the airline industry. As the flag carrier of Indonesia, Garuda Indonesia is perceived as the nation’s pride and the country’s most trustworthy airline. However, as an emerging market multinational, Garuda faces unfavorable perceptions of Indonesia abroad. Although Indonesian people perceive Garuda as a trustworthy airline, past and recent incidents have lingered in the minds of travelers, especially Europeans. Foreign travelers tend to be skeptical and more reluctant to choose Garuda over national or regional airlines. Besides the poor safety history of the Indonesian aviation industry, there are other perceptions that have been of concern to the international community related to the country’s political instability following cases of terrorism and corruption. Thus, the company’s management has to think about how to establish Garuda Indonesia’s brand in global customers’ minds and how to transfer the strong local position in Indonesia to the international market. The highly standardized environment of international aviation may be seen as a valuable support, providing clear and substantive guidance for international standards and expectations to meet. Farrah Almira Ali shows how Garuda has managed these issues and gives an outlook on what issues will decide future international success. The multinational company (MNC) CPG has been active in the Chinese crop protection (CP) market for three decades. Recently its business has developed very well, and the company became the top three MNC in China’s CP industry in 2015. CPG is considering entering China’s m-commerce market and needs to decide whether to sell its products directly to Chinese farmers crossing boundaries between offline sales, e-commerce, and mobile commerce. As China has become one of the biggest e-commerce markets of the world, most purchases today are launched from smartphones or tablets. However, entering the online world requires a good knowledge of the market and its consumer needs. It also means dealing with new competitors like Alibaba and strategically aligning the online and offline segments. No MNC in crop protection has entered the Chinese online market yet, but further delay may mean losing a significant portion of business in the future. The authors Zheng Han and Marc Poetzsch develop a case scenario, which depicts different directions the company can take in order to present a first integrated approach for a China go-to-market online strategy.

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Ethnocentrism Revisited The concept of ethnocentrism can be traced back to a seminal article published in 1969 by Howard Perlmutter on “The tortuous evolution of the multinational corporation.” He believed that the suspicion of foreign people, ideas, and resources could be measured in the ethnocentric attitude of top managers and pointed out that ethnocentric executives regard themselves as “superior to, more trust-worthy, and more reliable than any foreigners in HQ or subsidiaries” (Perlmutter 1969, p. 11). Consumer ethnocentrism refers to (often negative) perceptions held by consumers in one country toward products from a different country (Shimp and Sharma 1987; Shankarmahesh 2006) and a preference for domestic products. In reality, ethnocentrism may not automatically imply a negative connotation, but can be used proactively for a company’s positioning strategy (Michailova et al. 2017). This is what we currently see in many emerging markets where consumers buy local products and, at the same time, do not object to buying products from abroad. Historically, in developing countries, the influence of consumer ethnocentrism on the willingness to purchase domestic products has been weakened due to inferior product quality and lack of global branding (Wang and Chen 2004). Consequently, consumer desire in these countries has been directed toward Western brands and products of high quality at high prices while ignoring local producers. However, the tide is turning, with countries moving up in economic development and cultural identity enhancing preference for and purchase of domestic products. For instance, as reported by He and Wang (2015), Meters/bonwe, one of China’s most popular domestic casual wear apparel brands, recently launched “I am a new China made” brand campaign. The campaign theme is based on a newfound sense of pride in their national culture with an emphasis on “Chinese elements.” Cultural identity reflects a positive feeling toward one’s own culture and is supposed to be especially important in collectivist countries in Asia (Markus and Kitayama 1991). In turn, ethnocentrism is more of a moral obligation to buy domestic products that can be nurtured and put to use. More recently, researchers have also emphasized that ethnocentrism should be seen in a more nuanced way by delineating a strong sense of positive self-regard (Michailova et al. 2017). The cases in Part III elaborate on these issues by emphasizing Asian companies’ origin and increasing self-consciousness. They range from focusing on very strong cultural identities that actually gave rise to company formation, such as Trung Nguyên Coffee Group, where the founder has a strong sense for the culture of his own country to Paris Baguette, a company that adopts a chameleon-type identity to simulate a French origin coupled with an ethnocentric view that baguettes from the country are simply better than those from other parts of the world. In addressing two coffee companies from different parts of the world (Trung Nguyên and Starbucks), we also reflect on the perceived superiority of Western cultures and brands and how this may be a liability rather than an asset. Lastly, we show how a small start-up advances to create a product that not only meets the demand of consumers but also helps to raise awareness of a societal concern for better nutrition.

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Trung Nguyên Coffee Group is a Vietnamese company that emerged from the dream of a local entrepreneur to improve the life of planters in the country. Vietnam has a proud and long-established coffee-drinking culture, so it was not too difficult in the beginning to attract consumers and to build a brand. After 17 years’ successful operation with the franchise chain in Vietnam and Asia, Trung Nguyên became a national coffee leader. The founder then wanted to conquer the US coffee market by challenging Starbucks, with the ambition to change the coffee-drinking culture of Americans of every social class. Despite lack of resources and the existence of international trade barriers, Trung Nguyên set up the business in a market that may not be compatible with Vietnamese products and that is apparently saturated due to the omnipresence of Starbucks. The author Quynh An Lu illustrates the importance of understanding national brands in their overall social and historical context and carefully thinking about a potential transfer to foreign countries. These considerations need to involve (re-)positioning strategies and the use of franchise strategies above all. Mirroring the previous case, author Khoi Bui-Kinh introduces the reader to Starbucks’ experiences when entering Vietnam. In countries with comparably low wage levels, Starbucks symbolizes high-quality standards, the American way of life, and a kind of luxury to which many local people aspire. However, Vietnam has its own coffee culture so that, when standardized quality and local preference collide, there comes the challenge of finding a window for growth opportunities as consumers become increasingly aware and proud of their own coffee. Thus, Starbucks is challenged to convince Vietnamese consumers by adjusting its marketing strategies in anticipation of entry to Vietnam in 2013. The author presents a brief analogy between the Vietnamese coffee market and those of France and Italy to gain further understanding of Starbucks’ challenges and similar strategic adaptations available to the company. Afterward, Starbucks’ current strategies in Vietnam and their possible direction and future outcomes are discussed. The last case in this section is an impressive example of how a company builds on national stereotypes and associated consumer preferences. Paris Baguette, a South Korean franchise company, builds its whole business model on the favorable reputation of France, selling French bread culture to the Far East. Meanwhile the product range not only includes croissants and baguettes but also a number of Korean-style delicacies and fusion food. While starting their business in Asia and targeting mostly Asian customers with a weakness for French lifestyle, the company decides to open a first store in the French capital itself in 2014. Competing in the country of origin of their major products seems a somewhat hazardous strategy. HeeJo Hannah Kim’s and Simon Fietze’s case elaborates on this challenge by illustrating how a Korean company with a “foreign” product can challenge the revered history of French baguettes with their very special taste and flavor.

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Corporate Social Responsibility on the Move There is a global trend among enterprises to take environmental protection, labor rights, and business philanthropy more seriously, as well as to ensure equitable and sustainable benefits for the various stakeholders. CSR implies the firm’s obligation to protect and improve social welfare (Staples 2004) through various business and social actions (Sen and Bhattacharya 2001). Global supply chains and markets have enhanced the adoption of CSR activities, and MNCs have been more likely to adopt CSR strategies than companies that solely operate in their home country (Chapple et al. 2014). In Asia, globalization has largely been a result of increased activity of Western businesses. Consequently, CSR was a topic for Western MNC, not for local companies (Debroux 2006). However, suppliers in emerging markets have become increasingly aware that compliance with CSR standards becomes a precondition for doing business with MNC. Otherwise, they could face market sanctions, such as consumer boycott in their end market, or multinational companies could simply cancel their contract (Gugler and Shi 2009). Moreover, consumer expectations of socially responsible business have steadily risen in Asia (Davies 2000), and CSR issues are most likely to gain greater impact on purchasing behavior in the next years (Debroux 2006). With the increasing economic power of Asian countries, the internationalization of Asian companies, the shift from mass production toward high-tech products, as well as an ever-rising middle class, we expect a boom in CSR activities in Asia. It is generally recognized that economic development ultimately increases CSR practices in a society (e.g., Baughn et al. 2007). Nevertheless, the establishment of CSR is not solely determined by the level of economic development. For years, companies in China, for instance, acted less socially responsible than firms in India, although China’s economic development was more advanced (Lattemann et al. 2009). Only recently, China has started to make CSR work in favor of their competitive position in global trade (Gugler and Shi 2009). There are also cultural forces at work. Appreciation of CSR differs according to a society’s themes and core values. While CSR in India has a strong focus on community development, in South Korea environmental issues are among the most important fields of action (Chapple and Moon 2005). In China, government involvement in CSR activities is expected along with independent reporting and personal relevance (Kim and Ji 2017). With the unique setting of different cultural backgrounds and rapidly developing economies, Western companies doing business in Asia will increasingly require an “Asian-driven” country-specific CSR strategy to meet consumer expectations. Vice versa, Asian companies in Western countries have to adopt the international CSR standards set in Europe and the USA. Interesting questions concerning CSR in and out of Asia include how CSR policies change with a company’s growth and its internationalization process and how local culture affects the content and design of CSR activities. Expectations toward a foreign company determine what impact CSR activities have on the company’s image (and ultimately performance) as well as internally, on aspects such as work climate and employee motivation. The cases in Part IV select various

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CSR activities, shedding light on cultural, economic, and CSR-specific peculiarities for international companies in Asian countries. Gwen van Driel observes Lipton’s Tea Plantations in India. Unilever, the company behind the Lipton Tea brand, is one of the biggest tea producers in the world. Confronted with poor work conditions, child work, and human rights violations on Indian tea plantations, the company takes the necessary actions and establishes company-wide sustainability standards. As a big player, they have the chance to increase consumers’ awareness and sustainable purchasing behavior. They have crossed the boundary from low-cost production to a socially responsible and sustainable agenda. Still, the question remains as to how far Lipton’s ethical engagement can influence the whole market. Many local start-up companies from Asia are built on clever and often simple ideas. For instance, Indonesian company MusHome cultivates mushrooms for local markets as well as little self-grow kits for edible mushrooms. While e-commerce is a significant new step for well-established MNCs, it is one of the founding pillars for MusHome. The company must gain the attention of potential customers and maintain the company’s sales; it needs to investigate the behavior of Indonesian customers and send a consistent message to its target market. While relying solely on social media in the beginning, MusHome’s marketing manager is investigating the use of different tools to support the company’s vision. One of the major ambitions is to base the company’s future marketing message on an educational campaign that promotes nutritional information. Thereby, the company may find a “new home” by positioning itself not only as a producer of mushrooms but also as a provider of information about better health. The author, Astriani Dewanto, portrays the first steps of the start-up to increase sales in order to establish itself outside the very local market and to enter the profit zone. A completely different CSR issue emerges for MNC: maintaining a global code of conduct. Compliance with the code of conduct is the very basis for a congruent and stable corporate conduct according to legal and ethical guidelines. Many elements of a code of conduct are formulated by the headquarters where the culture and behaviors differ from those in emerging markets. The case Pizza Hut Vietnam— Adapting a Global Code of Conduct shows the challenges that may occur. The workforce understands the role that the corporate code of conduct plays in shaping the company culture. However, due to the Vietnamese culture and mentality, Pizza Hut management needs to spend time and effort to successfully implement the code of conduct and to uphold the company’s values. The author, Marie-Therèse Claes, illustrates the importance of culture (e.g., the role of gift giving) in the application of global codes of conduct. Doing good and talk about it is the directive for many companies. They use CSR activities for marketing. More challenging as well as more promising is the approach to link social responsibility directly with economic yet honorable interests. A Breath of Fresh Air: Creating Shared Value in the Philippines depicts the efforts of GlaxoSmithKline (GSK) to create a win-win situation. With the goal of concurrently generating economic returns and delivering positive social outcomes, GSK recently re-launched an affordable single-unit dose presentation of a medicine for asthma and

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COPD sufferers in lowly socioeconomic communities. The authors, Austin Chia and Prakash Singh, provide a detailed account of the executive motivations and tactical challenges of pursuing a shared value strategy in the Philippines. The case of Schneider Electric India Private Limited (SEIPL), a subsidiary of Schneider Electric in Europe, discusses various CSR initiatives and activities since 2008. Initially, these activities were running well, but from 2010 onward, the impact of CSR activities was continuously declining. The existing CSR model of the company was not delivering the desired results and was neither able to absorb the trained manpower nor place people elsewhere. The director of CSR had to evaluate the situation and present a new CSR strategy that was better able to meet the company’s challenges. The authors, Amandeep Dhaliwal and Arunaditya Sahay, present a detailed case of how the intricacies of the CSR management process and how it needs to be molded as per the local country-specific needs. The last case dedicated to corporate social responsibility illustrates how CSR activities can work even in small- and medium-sized enterprises, not changing the market, yet contributing to a better world. Materialise—Teaching along the Silk Road by Pascal Wolff and Johannes Kern sheds light on the growing industry of additive manufacturing and on the economically decoupled rural area of Western China. The fast-growing company Materialise, specialized in 3D printing software solutions, engages in CSR activities around the globe. Experiences from a joint activity with other organizations to support children along the ancient Silk Road reflect various facets of CSR in China. The case not only shows the motivating effect for employees participating in a CSR project but also the difficulty for small- and medium-sized companies to set up meaningful activities with limited resources. The presented solution may be typical for Western organizations in China. Mainly based in Tier-1 cities along the coastal region of China and confronted with daunting cultural and language barriers to the Chinese, expatriates move closer together. This constellation, in an unfavorable way referred to as an “expat bubble,” may also lead positively to innovation and synergies across organizational boundaries as shown in the given case.

Coaching in Asia The concept of coaching perfectly complements the aforementioned topics of aspiring global giants and cultural and CSR issues. As a genuine Western concept, coaching was brought to Asia and mainly offered by Western coaches to Western MNC. However, local coaches are taking over, and more and more local organizations make use of coaching services (Arora et al. 2017). With coaching, we have the most interesting combination of boundaries to consider. On the one hand, coaching is an ideal instrument to help people overcome their boundaries. On individual level, boundaries include social norms, habits, anxieties, beliefs, and attitudes that regulate or bind individual decisions and actions. Coaching facilitates expression and reflection on these boundaries. It also improves self-efficacy and behavioral control and prompts people to actively cross their

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boundaries (Pousa and Mathieu 2015). Over and above that, coaching techniques ideally support companies and individuals to deal with cultural issues or to create the required sensitivity for CSR topics in different markets and societies. We thus present various forms of how coaching may affect individual decisions, the quality of cooperation, intercultural communication, and even the course of a company. The cases illustrate the manifold ways to implement coaching techniques, be it classically with an external coach, integrated as a coaching leadership style, or even as peer coaching. On the other hand, coaching itself has faced several boundaries when establishing in different markets and cultures around the world. The core issue is no less than the question whether the original coaching concept works all around the world or whether a distinctively Asian way of coaching is required. In other words, does the culture and communication style of coach and coachee have an impact on practice and on coaching outcomes? With the fourth group of cases on coaching in Part V, we thus make a shift toward a tool that, though subject to intercultural boundaries itself, may yet facilitate companies to cross borders. The introductory case on coaching shows in an exemplary way the conflict of two contradictory philosophies in coaching. Guidance vs. Facilitation—A Critical Juncture for Coaching Services portrays Kelly, a business coach from Hong Kong. Kelly normally helps her coachees finding their own solutions through facilitation. This approach is in line with international coaching standards. However, these standards have their roots in the USA and not in Asia. Many Asian clients expect expertise, advice, and guidance instead. Kelly’s new client firmly asks for her advice and opinion, which is more appropriate for consulting or mentoring and involves a very different input from the coach than she would normally intend to provide. At the risk of losing the whole assignment, should she stick to her principles of a pure coaching approach or should she give in to this request and abandon her coaching beliefs? Caught in this dilemma, Kelly discusses with friends and colleagues. Ralph Kattenbach and Mila Dorosh illustrate the abiding discussion about where coaching is heading to in Asia. Coaching is a promising approach to overcome intercultural boundaries. However, the coaching concept itself can also be subject of miscommunications due to different cultural backgrounds. Caroline holds a senior management position in HRM of an Australian company. One of her team members, Robert, a person of great potential, came over from China some years ago. Although he adapted well to the Australian way of leadership, he struggles with the newly implemented approach of managerial coaching. Caroline, enthusiast about the new leadership culture in her company, is baffled how to explain and, more importantly, how to solve the situation. Coach! The Challenge of Leadership Coaching and Mentoring in the Context of Intercultural Work Environments illustrates the thin line with big impact between coaching and mentoring for team leads. Alex Couley and Julia Milner write a perfect addition to the introductory differentiation of facilitation and guidance, transferring the topic to coaching leadership and intercultural impact on work procedures and expectations.

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Career coaching is another facet of coaching services which aims to identify subjective career objectives. In the following, the coach supports the elaboration of career options and development of individual action points toward these goals. In Western countries, careers strongly differ based on gender. The so-called glass ceiling, for instance, prevents female managers from senior management levels. In China, gender discrimination is much less distinct. The country has one of the highest proportions of women in senior management roles worldwide. Female Career Coaching for a Multinational Company in China illustrates the situation of female managers in Western companies. The case contributes to a greater understanding of success factors and challenges that affect women’s career paths in China and worldwide. It further provides ideas for a discussion on (female) career development concepts in multinational companies. In an exemplary treatment, Bettina Al-Sadik-Lowinski and Ralph Kattenbach provide key insights into how to put the coaching concept into practice. Coaching is not limited to the classical setting of a professional coach supporting one coachee at a time. Coaching principles have been adapted for a continuous use on the work floor. Team coaching and coaching leadership have been widely implemented. A different approach is peer coaching, which is exemplified in the following case. Fostering a Collaborative Mindset shows pros and cons of various ways to create cohesiveness and improve communication among the different teams of a multinational supplier in the Chinese automotive industry. Annette Metz, the author of this case, lets Daniel, the customer team director, and Lisa, his HR business partner, vividly discuss their options. They are combining different elements in a peer coaching process to help customer teams and plants cooperate better in the future. Here, coaching tools and techniques are adopted to treat culture and communication within an organization. The case shows the broader impact of coaching principles for the style of collaboration beyond the inner boundaries of an MNC.

References Arora, U., Assegid, Y., Chan, C., Dolly, A., Dorosh, M., Kattenbach, R., et al. (2017). 4th coaching survey: An Asia coaching benchmark. Accessed October 2, 2018, http://www.coachingsurveys. com/pdf-files/4th-coaching-survey-china-hong-kong-india-30-june-2017-en.pdf Baughn, C. C., Bodie, N. L., & McIntosh, J. C. (2007). Corporate social and environmental responsibility in Asian countries and other geographical regions. Corporate Social Responsibility and Environmental Management, 14, 189–205. https://doi.org/10.1002/csr.160. Chapple, W., Herzig, C., & Slager, R. C. (2014). The dynamics of corporate social responsibility in Asia: A 6 country study. Academy of Management Proceedings, 2014, 16813. https://doi.org/ 10.5465/ambpp.2014.16813abstract. Chapple, W., & Moon, J. (2005). Corporate social responsibility (CSR) in Asia: A seven-country study of CSR web site reporting. Business & Society, 44, 415–441. https://doi.org/10.1177/ 0007650305281658. Davies, R. (2000, September 20). Why Asian business has to care about poverty. The Business Times, p. 14. Debroux, P. (2006). Corporate social responsibility in Asia: The beginning of the road. Sōka Keiei Ronshu, 30(2–3), 17–29.

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Diamantopoulos, A., Schlegelmilch, B., & Palihawadana, D. (2011). The relationship between country-of-origin image and brand image as drivers of purchase intentions: A test of alternative perspectives. International Marketing Review, 28, 508–524. https://doi.org/10.1108/ 02651331111167624. Gao, C., Zuzul, T., Jones, G., & Khanna, T. (2017). Overcoming institutional voids: A reputationbased view of long run survival. Working Paper 17-060. Retrieved October 02, 2018 from https://www.hbs.edu/faculty/Publication%20Files/17-060_9db63930-4475-4eb5-ac48a660e2d80690.pdf. Gugler, P., & Shi, J. Y. J. (2009). Corporate social responsibility for developing country multinational corporations: Lost war in pertaining global competitiveness? Journal of Business Ethics, 87, 3–24. https://doi.org/10.1007/s10551-008-9801-5. Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 49, 149–164. https://doi.org/10.2307/2095567. Hastak, M., & Hong, S.-T. (1991). Country-of-origin effects on product quality judgments: An information integration perspective. Psychology and Marketing, 8, 129–143. https://doi.org/10. 1002/mar.4220080205. He, J., & Wang, C. L. (2015). Cultural identity and consumer ethnocentrism impacts on preference and purchase of domestic versus import brands: An empirical study in China. Journal of Business Research, 68, 1225–1233. https://doi.org/10.1016/j.jbusres.2014.11.017. Herbig, P., & Milewicz, J. (1993). The relationship of reputation and credibility to brand success. Journal of Consumer Marketing, 10, 18–24. https://doi.org/10.1108/EUM0000000002601. International Labour Organization (ILO). (2016). Global wage report 2016/17: Wage inequality in the workplace. Retrieved October 02, 2018 from http://www.ilo.org/wcmsp5/groups/public/% 2D%2D-dgreports/%2D%2D-dcomm/%2D%2D-publ/documents/publication/wcms_537846. pdf. Khanna, T., & Palepu, K. G. (2010). Winning in emerging markets: A road map for strategy and execution. Boston: Harvard Business Press. Kim, S., & Ji, Y. (2017). Chinese consumers’ expectations of corporate communication on CSR and sustainability. Corporate Social Responsibility and Environmental Management, 24, 570–588. https://doi.org/10.1002/csr.1429. Lattemann, C., Fetscherin, M., Alon, I., Li, S., & Schneider, A.-M. (2009). CSR communication intensity in Chinese and Indian multinational companies. Corporate Governance: An International Review, 17, 426–442. https://doi.org/10.1111/j.1467-8683.2009.00758.x. Liu, X., & Giroud, A. (2016). International knowledge flows in the context of emerging-economy MNEs and increasing global mobility. International Business Review, 25, 125–129. https://doi. org/10.1016/j.ibusrev.2015.07.008. Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38, 481–498. https://doi. org/10.1057/palgrave.jibs.8400275. Markus, H. R., & Kitayama, S. (1991). Culture and the self: Implications for cognition, emotion, and motivation. Psychological Review, 98, 224–253. https://doi.org/10.1037/0033-295X.98.2. 224. Meyer, K. E., & Peng, M. W. (2016). Theoretical foundations of emerging economy business research. Journal of International Business Studies, 47, 3–22. https://doi.org/10.1057/jibs.2015.34. Michailova, S., Piekkari, R., Storgaard, M., & Tienari, J. (2017). Rethinking ethnocentrism in international business research. Global Strategy Journal, 7, 335–353. https://doi.org/10.1002/ gsj.1159. Oviatt, B. M., & McDougall, P. P. (1994). Toward a theory of international new ventures. Journal of International Business Studies, 25, 45–64. https://doi.org/10.1057/palgrave.jibs.8490193. Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. The Columbia Journal of World Business, 4, 9–18.

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Pousa, C., & Mathieu, A. (2015). Is managerial coaching a source of competitive advantage?: Promoting employee self-regulation through coaching. Coaching: An International Journal of Theory, Research and Practice, 8, 20–35. https://doi.org/10.1080/17521882.2015.1009134. Ramamurti, R. (2012). What is really different about emerging market multinationals? Global Strategy Journal, 2, 41–47. https://doi.org/10.1002/gsj.1025. Sen, S., & Bhattacharya, C. B. (2001). Does doing good always lead to doing better?: Consumer reactions to corporate social responsibility. Journal of Marketing Research, 38, 225–243. https://doi.org/10.1509/jmkr.38.2.225.18838. Shankarmahesh, M. N. (2006). Consumer ethnocentrism: An integrative review of its antecedents and consequences. International Marketing Review, 23, 146–172. https://doi.org/10.1108/ 02651330610660065. Shimp, T. A., & Sharma, S. (1987). Consumer ethnocentrism: Construction and validation of the CETSCALE. Journal of Marketing Research, 24, 280. https://doi.org/10.2307/3151638. Staples, C. (2004). What does corporate social responsibility mean for charitable fundraising in the UK? International Journal of Nonprofit and Voluntary Sector Marketing, 9, 154–158. https:// doi.org/10.1002/nvsm.242. Stinchcombe, A. L. (1965). Social structure and organizations. In J. G. March (Ed.), Handbook of organizations (Rand McNally sociology series) (pp. 142–193). Chicago: Rand McNally. Wang, C. L., & Chen, Z. X. (2004). Consumer ethnocentrism and willingness to buy domestic products in a developing country setting: Testing moderating effects. Journal of Consumer Marketing, 21, 391–400. https://doi.org/10.1108/07363760410558663. Ralph Kattenbach holds the VW/SAIC VW Chair in Human Resource Management at Tongji University in Shanghai, China and is affiliated to the International School of Management in Hamburg, Germany. He is a member of the AgileVentureLab, a global think tank focused on researching and applying agile principles to management and leadership and helping companies and individuals to cope better with ambiguity and unpredictability. Ralph holds a Master in Organizational Psychology from Utrecht University, The Netherlands. He earned his PhD degree at the Centre for Personnel Research at Hamburg University, Germany. With 15 years of expertise in organizational research, survey conception, and analyses, he is consulting and accompanying companies on HR and OB issues. His behavior-oriented research aims to unravel the interplay of structural determinants, psychological antecedents and specific job conditions in predicting job engagement, performance, and organizational outcomes. As such, the impact of professional coaching in the organizational context is a recurring topic. Christiane Prange is a professor of Global Strategy at Tongji University, China and director of the AgileVentureLab, a global think tank focused on researching and applying agile principles to management and leadership, and helping companies and individuals to better cope with ambiguity and unpredictability. Christiane was educated in Germany (M.B.A.), Geneva University, Switzerland, where she obtained her Ph.D., in France, University Lyon 3 where she received her habilitation (qualification to supervise research), and Harvard Business School benefiting from insights into team interaction and participant-centred learning. After several years in industry and consulting, she returned to academia and has lectured as a visiting professor with top business schools in more than ten countries, including Austria, France, Malaysia, Russia, Romania, and UK. In the last 20 years, she has also consulted numerous multinational companies on internationalization strategies, global innovation management, and agility. Her ideas are published in eight books and several articles in journals, such as, Organization Studies, Journal of World Business, International Business Review, and others. She regularly presents her work at international conferences and workshops.

Part II Aspiring Global Giants

neolid: A French Start-Up in Japan and South Korea Noémie Dominguez and Ulrike Mayrhofer

Case Synopsis Research Problem neolid is a start-up, founded in 2012, that designs, produces, and markets lidless isothermal mugs and lunch boxes. The start-up’s products are distributed directly and through a network of independent sales agents. They are marketed in around 20 countries, and 33% of the company’s turnover come from exports. In 2016, the company decided to expand into two Asian markets: Japan and South Korea. Those two countries offer interesting development opportunities due to their size and economic wealth but also to the increasing popularity of “on-the-go” eco-friendly occidental items. At the end of 2015, the start-up met Japanese importers during a trade fair, who were interested in selling neolid’s lidless mugs in Asia. Despite a promising first contact, neolid only received one order from its Japanese partners and did not manage to develop the established business relationships to enter Asian countries. The start-up therefore decided to change its strategy to expand into Japan and South Korea.

N. Dominguez (*) iaelyon School of Management, Jean Moulin University, Lyon, France e-mail: [email protected] U. Mayrhofer Université Côte d’Azur, IAE Nice, GRM, Nice, France e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_3

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Case Summary neolid is a start-up whose headquarters are located in Lyon, France. In 2018, the company’s turnover was 800,000 euros, and its lidless isotherm boxes and mugs won several awards. The start-up’s products are distributed online and at trade fairs as well as through a network of independent sales agents. They are also sold to companies and local authorities as personalized promotional products or “goodies.” This case study focuses on the expansion of the company into Japan and South Korea. It deals with the creation and growth of the start-up, the characteristics of the Japanese and South Korean markets, the selection of entry modes, and the management of cultural differences.

Learning Objectives • • • •

Learn about the international development of a start-up. Analyze the characteristics of the Japanese and South Korean markets. Be familiar with foreign market entry modes. Formulate recommendations concerning the expansion of neolid to Japan and South Korea. • Understand the cultural differences existing between France and Asian countries to anticipate difficulties with potential business partners and to adapt to local customer expectations.

Themes and Tools Used • Using macroeconomic data for analyzing foreign markets • Developing an action plan for international expansion • Choosing market entry modes and understanding the importance of the “made in” effect • Using Hofstede scores to understand cultural differences

Target Audience The case is dedicated to business school and university students (initial and executive education). It requires being familiar with basic concepts in international business, such as market selection, entry mode choice, and intercultural management.

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neolid: A Start-Up “Made in France” neolid is a French start-up that designs, produces, and markets lidless isothermal mugs and lunch boxes. After the successful launch of its products in France in 2013, the company decided to develop in international markets 1 year after its creation. In 2018, the company marketed its products in around 20 countries, and its total sales amounted to 800,000 euros, with 33% coming from exports. In the same year, the company decided to expand into Asian markets and targeted two countries: Japan and South Korea. The company employs three people: Nicolas Frolin, Founder and CEO; Alexandre Babatsikos, Head of Sales and Marketing; and Tiffany Eicholz, Head of neolid USA. Alexandre Babatsikos has been employed by the company since its launch. Tiffany Eicholz who originally comes from Lyon works in the wine sector in San Francisco and takes care of neolid’s sales in the United States. She joined the company in 2015. The company was created in 2012 by Nicolas Frolin, an engineer in plastics processing who holds a master’s degree in Business Administration from IAE Aix-en-Provence, a public business school in France. After having acquired around 20 years’ experience in the plastics processing industry, he created a system for opening and shutting a mug without using a lid. The idea came in 2006 from Nicolas’ annoyance of never finding the right lid for the right box in his closets. “I don’t know why nobody ever thought about that. It is the kind of problem that annoys everybody but no one thought about a way to solve it.” He developed the concept and submitted several patents to protect the invention. In 2011, during a regatta on Lake Geneva with some friends, Nicolas shared a video online presenting the latest version of his lidless mug prototype. The positive feedback received during the following weeks encouraged him to embark on the adventure and to launch neolid. It took 18 months—between 2011 and mid-2012—to develop and to produce the lidless mugs. In 2013, neolid introduced its first watertight lidless travel mug called “TWIZZ” to the market. The innovativeness of the mugs quickly seduced French but also other European and American early adopters. In 2015, Nicolas seized the opportunity offered by an American intern interested in developing the concept in the United States while going back to her country. The former intern became, in 2015, the first foreign agent of the company. In 2015, mug sales reached 100,000 units, encouraging the start-up to enlarge the product range to the lidless box. In 2016, the product range covered three products lines: (1) mugs with the name “TWIZZ” (sold at about €20 in Europe and the United States), (2) containers with the name “BOX” (sold at about €30 in Europe and the United States), and (3) transparent containers called “BOX LUCIE” (sold at about €30 in Europe and the United States). The product range is regularly updated, and the products can be customized. The company works with several suppliers who manufacture the products. The mugs for the European markets are made in Savoie in France. Mugs for the American and Asian markets are manufactured by a French company based in Shanghai in China. The start-up’s products are marketed under the brand name

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“neolid.” They are patented in Europe, the United States, China, Japan, South Korea, and Australia. The neolid brand is registered in Europe, China, and the United States. The start-up’s products won several awards at the Lépine competition for inventions organized by the Association des Inventeurs et Fabricants Français—AIFF (Association for French Inventors and Manufacturers). The association brings together people who qualify as inventors by having submitted a patent or registered industrial and/or intellectual property. neolid notably won several gold medals for its TWIZZ at the European Lepine Competition organised in Strasbourg in 2014 and for its BOX at the International Lepine Competition organised in Paris in 2015. Those medals reward the company for the innovativeness, design, functionality, and quality of its products. The start-up managed to raise significant levels of funding from public and private institutions that provide financial aid to companies that create jobs and innovative products. neolid also took out loans from private banks to supplement the aid. Nicolas Frolin, Founder and CEO of neolid, explains, “the funds raised enable us to take action in three areas: (1) to reduce the cost price on the current range; (2) to prepare the launch of new products; and, (3) to boost our sales in France and abroad to reach our turnover objective of €5 million by 2021.” In 2016, neolid realized a crowdfunding campaign in order to support its R&D projects and managed to raise approximately 160,000 euros. In 2018, neolid’s products were distributed via three channels, each representing roughly one third of sales: (1) direct sales (company Internet site and trade fairs), (2) a network of independent sales agents, and (3) sales to companies and local authorities as personalized promotional products or “goodies.” In France, the company works with nine independent sales agents who have signed exclusivity agreements for their sales area. The company also works with agents in Belgium, Switzerland, and the United States. The network of agents ensures that the company’s products are featured in nearly 200 specialized retail stores in Europe and the United States. The agents receive commission on sales made (Ghauri and Cateora 2014). Nicolas Frolin explains that, “our products are mainly for young city-dwelling customers. We are very active on social networks, such as Facebook, Instagram and Twitter. Our products follow current trends for consuming food and drinks on-the-go. It is a high-growth market in Europe, the United States and Asia. For example, in France 27% of meals are ‘homemade’ but eaten outside the home.”

neolid’s International Expansion and Counterfeit Products neolid internationalized within the first years after its creation (Oviatt and McDougall 1994; Zucchella and Scabini 2007). The start-up was able to develop its sales internationally once the management team had attended several professional trade fairs. The team’s encounters with intermediaries brought in the first orders from abroad, primarily from Belgium and Switzerland. The company then broadened the sale of its products to other geographical markets. By 2018, neolid was marketing its products in around 20 countries, notably in Europe. The products were being sold in

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64 specialized stores. As the Founder and CEO Nicolas Frolin explains, “we chose to prioritize the distribution of our products via specialized stores because clients need demonstrations of the products and to have an explanation of how they work. That is why we chose not to sell them in supermarkets.” The success of neolid’s products resulted in counterfeit products being manufactured in China. Indeed, the ingenuity and potential profitability of those lidless items—witnessed by the Lepine awards—caught the attention of some Chinese manufacturers. Fake lower-quality TWIZZs were being produced in Chinese factories and sold online—in China and Europe—at rock bottom prices of 10–15 euros. “At the beginning, we only had doubts but a couple of weeks later, we had proof that our mugs were being counterfeited and sold two times cheaper than the original product. We decided to fight back and asked our lawyer to sue the counterfeiter. It is sickening, sad and disturbing at the same time because China is our second foreign market after the United States. We were even considering the possibility to open an office in Shanghai but we decided to revise our plans and slow down our expansion in China.” The start-up started legal action to assert its rights because the products were protected by several international patents. Nicolas Frolin counts on his customers in China to “help neolid communicate on the real TWIZZ, but we are really worried. We know that, for a start-up like us, that does not have a lot of resources, undertaking the necessary steps to assert our copyrights will be a long and complicated process in China—much more complex than in France—but we do not have any choice. We have to defend our intellectual property because the stakes are too high for us. If we let them get away with it, we will lose our markets and that would be the end of our company.” neolid initially targeted the Chinese market, which represented important growth opportunities for the start-up. Because of the intellectual property and counterfeiting issues, the company decided to diversify its markets in Asia in order to spread risks. Thus, the company was looking for other promising markets in the region.

Characteristics of the Japanese and South Korean Markets In 2016, the company decided to boost its international presence and to develop its business activities in two Asian markets: Japan and South Korea. These are dynamic markets whose inhabitants love novelty and prefer homemade meals. These two markets are also chosen because of the contacts established by Nicolas Frolin at a trade fair he attended in 2015. At the trade fair, Nicolas Frolin talked to Japanese importers who were charmed by the innovative nature of the products. They showed a strong interest in selling neolid’s lidless mugs in Asia. Despite promising discussions at the trade fair, neolid only received one order from its Japanese partners. In 2016, neolid carried out an in-depth study of two Asian markets: Japan and South Korea. The company consulted figures published by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development

32 Table 1 Main characteristics of the Japanese and South Korean markets

N. Dominguez and U. Mayrhofer

Country Population Language Surface area Capital Currency GDP GDP per inhabitant Growth rate Inflation Unemployment rate

Japan 127 million Japanese 370,000 sq. km Tokyo Yen $ 5106 billion $ 40,408 1.0% 0.1% 3.1%

South Korea 50.6 million Korean 99,678 sq. km Seoul Won $ 1826 billion $ 35,921 2.8% 1% 3.7%

Sources: IMF (2017a, b), OECD (2017, 2018)

(OECD), so as to get to know the target markets better. The main characteristics of the two markets are set out in Table 1. The market study revealed that Japan and South Korea were among the most important markets in Asia in terms of size and revenues. Those two markets are mainly driven by young and female consumers attracted by Western brands offering eco-friendly, sustainable, and high-end products. Indeed, consumers are paying more attention to their life comfort and looking for products in accordance with their personal values. The study also indicated that there was a high level of on-the-go consumption of drinks and food in the two countries and that products “Made in France” had a positive image. It also demonstrated that mugs and lunchboxes were mainly sold in specialized shops, cafe chains (e.g., Starbucks), and online (e.g., Amazon). The possibilities for development were favorable, and neolid decided to create an action plan to penetrate the two Asian markets. Which market to prioritize? How and with whom should neolid enter the market? Those questions were among the most important ones for Nicolas Frolin at this stage. The objective of this action plan was to structure the company’s expansion into Asia. It aimed to help the start-up by selecting the most efficient entry modes, partnering with key local players to enter those two markets and to adapt its marketing mix, and, finally, identifying the most relevant distribution channels and store locations. Nicolas Frolin said, “we plan to participate in trade fairs in Asia to meet potential partners to increase our sales, primarily in Japan and South Korea.”

Selecting Market Entry Modes The CEO considered two market entry modes because of the limited resources available: (1) direct exports from France and (2) exports from China via Japanese and Korean sales agents. The company had to find the right balance between producing in France and benefit from the “Made in France” image or producing in China to be competitive and get closer to the target markets.

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After an unsuccessful first attempt to expand into Asia, the CEO was reconsidering its strategy in order to gain control on neolid’s foreign operations. Indeed, despite the first order made by the Japanese importers met at the French trade fair in 2015—which enabled neolid to export to Asia for the first time—there was limited feedback, and neolid found it difficult to sustain business in this region. The high sales prices (€30 for a TWIZZ and €40 for a BOX), the sales imperatives linked to the products (clients need to see a demonstration to understand how to use them), the materials used, and the distribution channels chosen by neolid’s Japanese partners largely explain this result. Despite this initial difficulty, neolid chose to continue developing in the Japanese and South Korean markets, because of the dynamism of those two countries, the consumption habits (teas, etc.), and the consumers’ appetite for novelty and eco-friendly products. Nicolas Frolin changed the company’s strategy in order to gain control on neolid’s operations abroad. Instead of selling to local importers, the start-up decided to develop two markets on its own—through direct exports—on two key markets. A first phase of benchmarking was required to identify the key professional events happening in the two countries and to know local distribution channels and the existing custom regulations and procedures. Nicolas Frolin used different networks in order to collect the information required: (1) trade promotion agencies in France, Japan, and South Korea, (2) inventors’ and existing customers’ networks and clusters, and (3) business consultants. Thanks to his proactivity, the CEO managed to collect a large amount of data relative to the local markets’ specificities such as consumers’ habits and preferences, adaptations to be made, and key contacts, among others.

Managing Cultural Differences Since the company had no experience in Asia, it needed to pay specific attention to cultural differences. In fact, the Japanese and South Korean cultures differ significantly from the French culture (Mayrhofer 2017). The empirical investigations conducted by Hofstede et al. (2010) allow identifying the characteristics of more than a 100 cultures. The findings provide precise scores to national cultures for six identified cultural dimensions. Table 2 indicates the scores obtained for France, Japan, and South Korea. Power distance refers to the extent to which less powerful members of organizations accept and expect power to be distributed unequally. It reflects the way in which inequality between individuals is handled. A high degree of power distance indicates that hierarchy is clearly established and accepted in society, whereas a low level of power distance means that people tend to question authority and attempt to redistribute power. France appears to have a higher score for power distance than Japan and South Korea. This means that the management style is often more autocratic and that power tends to be more centralized in France than in Japan and South Korea where the number of hierarchical levels in organizations tends to be less important. These differences may have an impact on the negotiations and

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Table 2 Cultural differences between France, Japan, and South Korea Cultural dimensions Power distance Individualism vs. collectivism Masculinity vs. femininity Uncertainty avoidance Long-term vs. short-term orientation Indulgence vs. restraint

France 68 71 43 86 63 48

Japan 54 46 95 92 88 42

South Korea 60 18 39 85 100 29

Source: Adapted from Hofstede et al. (2010)

relationships developed by neolid with potential business partners in Asia. In other words, it is important (from neolid’s point of view) that discussions occur between managers of equal status or hierarchical position to move on into the negotiations as, from the French point of view, the most important points have to be discussed by the CEO (or top-level managers). Individualism vs. collectivism concerns the degree to which people in a society are integrated into groups. Individualistic societies have loose ties between individuals and emphasize the “I” versus the “we.” In contrast, collectivist cultures pay more attention to the group, and relationships between members of the same group appear to be strong. France can be considered as an individualist country, whereas Japan and South Korea are dominated by collectivism. French people are more likely to search for individual recognition and to value the time spent for their personal life. Conversely, the Japanese and South Korean cultures pay more attention to the time dedicated to collective issues. The importance of the group facilitates collective work and reaching a consensus. Therefore, business partners and consumers may ask for the advice of other group members before buying the products of neolid and purchasing decision processes may take more time. As the CEO is the unique person to decide in the start-up, neolid is used to rapid negotiation and decision process. Thus, neolid’s CEO will have to show patience and flexibility to avoid offending his business partners and to answer all their potential questions. Masculinity vs. femininity refers to a society’s allocation of roles between men and women. Masculine cultures are dominated by a preference for achievement, economic performance, assertiveness, and material rewards for success, whereas feminine societies show a preference for cooperation, modesty, and quality of life. France and South Korea are considered as feminine cultures, whereas Japan is characterized by masculine values. neolid probably has to deal with more masculine business partners in Japan who are likely to attach more importance to competition and material rewards than to personal relationships with the team of the company. This implies that neolid will have to use two different approaches during the negotiation rounds. The French start-up might have to focus the negotiations on the potential economic outcomes resulting from the introduction of the mugs on the Japanese market, whereas it may focus on the quality, safety, and environmental friendliness of its products with its South Korean partners.

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Uncertainty avoidance can be defined as a society’s tolerance for ambiguity, in which people accept or avoid unexpected events. Countries with a high degree of uncertainty avoidance are often characterized by strong laws, guidelines, and rules. Conversely, societies with a low degree of uncertainty avoidance impose fewer regulations, and new ideas are more easily accepted. In all three countries, uncertainty avoidance seems to be rather high. neolid will therefore experience a highly regulated institutional environment when entering the Japanese and South Korean markets. This may, for example, take the form of extra documents, official quality, and/or safety tests. Long-term vs. short-term orientation associates the connection of the past with current and future actions. Societies with a long-term perspective honor traditions and favor long-term results; cultures with a short-term perspective value adaptation and pragmatic problem-solving to achieve short-term results. The French culture is characterized by a short-term orientation, whereas the Japanese and Korean societies have a long-term orientation. This means that neolid will probably deal with business partners who aim to develop long-term relationships and give high priority to trust. Trust being potentially long to build among foreign partners, developing in Japan and South Korea may thus take more time than expected. Indulgence vs. restraint mainly measures the happiness of people. In indulgent societies, people feel free to gratify their basic and natural desires related to enjoying life. In contrast, in restraint cultures, gratifications of needs are controlled and regulated by social norms. France appears to be a more indulgent society, whereas Japan and South Korea are characterized by stronger restraint. This aspect may influence the behavior of Japanese and South Korean consumers, and they may have more restraints before adopting new products. Therefore, neolid will have to adapt its marketing strategy, as well as to commit a large amount of resources and time to convince potential local customers. The identified differences between France, Japan, and South Korea may considerably affect relationships with potential business partners and impact consumer preferences. Moreover, neolid has to deal with language diversity and prepare itself to communicate and negotiate in an Asian context. It is thus important that the startup anticipates existing difficulties to develop fruitful partnerships and to meet customer expectations. You have recently joined the team of neolid, and you are asked to prepare the development of the company in Japan and South Korea. Three questions are of particular importance: 1. neolid has decided to develop internationally through exports. What are the main advantages and disadvantages associated with this market entry mode? 2. Analyze the South Korean and Japanese markets and elaborate an action plan that will enable the company to develop in these two countries. 3. How could cultural differences between France, Japan, and South Korea influence the relationships with business partners and customer preferences?

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References Ghauri, P. N., & Cateora, P. R. (2014). International marketing (4th ed.). London: McGraw-Hill Education. Hofstede, G. H., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software of the mind; intercultural cooperation and its importance for survival (3rd ed.). New York: McGrawHill. International Monetary Fund (IMF). (2017a). Japan. International Monetary Fund (IMF). Retrieved October 09, 2018 from https://www.imf.org/en/Countries/JPN. International Monetary Fund (IMF). (2017b). Republic of Korea. International Monetary Fund (IMF). Retrieved October 09, 2018 from https://www.imf.org/en/Countries/KOR. Mayrhofer, U. (2017). Management interculturel: Comprendre et gérer la diversité culturelle. Paris: Vuibert. OECD. (2017). OECD economic surveys: Japan 2017. Paris: OECD Publishing. OECD. (2018). OECD economic surveys: Korea 2018. Paris: OECD Publishing. Oviatt, B. M., & McDougall, P. P. (1994). Toward a theory of international new ventures. Journal of International Business Studies, 25, 45–64. https://doi.org/10.1057/palgrave.jibs.8490193. Zucchella, A., & Scabini, P. (2007). International entrepreneurship: Theoretical foundations and empirical analysis. Basingstoke: Palgrave Macmillan. Noémie Dominguez is associate professor of Business Administration at IAE Lyon School of Management, University of Lyon. She is directing a Master’s degree in “International Business Realities”. Her research interests include exports, networks, strategies, and decision-making in the internationalisation process of SMEs—notably in the context of emerging countries. She has published her research in several academic journals, including the International Business Review, Journal of International Entrepreneurship, Management, Management International and Revue Internationale PME, among others. Ulrike Mayrhofer is professor of International Business at Université Côte d’Azur, IAE Nice, GRM, France, where she is the academic director of the Master of Business Administration (MBA). Her research focuses on internationalization strategies and is published in books (e.g., Management of Multinational Companies. A French Perspective, Palgrave Macmillan, 2013) and journals like European Management Journal, European Management Review, International Business Review, International Studies of Management and Organization, Journal of International Marketing, and Thunderbird International Business Review.

Taking the Road to India? Under Armour’s Internationalization Strategies Joris ten Have

Case Synopsis Research Problem The US-based company Under Armour is considering further expanding their global sportswear and apparel business in order to reach their ambitious goals. Under Armour thinks about replicating their marketing strategy in India, a country with a culture that in many ways, differs from their domestic culture.

Case Summary This case focuses on Under Armour’s market expansion and sales growth. Under Armour is a relatively young sportswear company that has already performed exceptionally well in the USA. After entering countries in Europe, Latin America, and Asia Pacific, Under Armour is currently exploring other countries where it can further expand their sales. Among these new candidates, the Indian market is of particular interest.

Learning Objectives This case shows the importance of an adaptive international strategy that is sensitive to cultural differences. More precise, learning objectives are (1) to illustrate the wide range of entry strategies and marketing approaches a company can choose from to J. ten Have (*) Accenture, Tias School for Business and Society, Tilburg, Netherlands e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_4

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successfully enter foreign countries and (2) to learn about the impact of an effective distribution strategy.

Themes and Tools Used • • • • •

Cultural differences between the USA and India Consumer behavior in India Marketing strategies with a focus on replication Distribution strategies Entry mode choice

Target Audience The case can be used for graduate students who have an interest in or are following an international marketing course. This case is equally suitable for students or companies in the sportswear and apparel sector that are interested in further expanding their global business and have a special focus on the Indian market.

Questions • Is entering India a good choice for Under Armour? • What would be the best entry strategy into India? • Which approach should Under Armour consider regarding marketing and distribution?

About Under Armour It all started in 1996. The 23-year-old former University of Maryland special team’s captain, Kevin Plank, came up with an idea that would change his life and that of many other athletes. He hated changing out of his sweat-soaked cotton shirt every time he had worked out and wanted to create a shirt that would keep him and other athletes dry and cool even in the warmest conditions. After he studied different synthetic fabric options, he developed his first undershirt and called it the Under Armour HeatGear T-shirt. As he only had a small start-up capital, he sold the HeatGear T-shirts out of the back of his car. In The same year he invented the T-shirt, he generated $17,000 in sales. In 1997, he created his second shirt that also became a great success. By 1998, the company had become so successful that they had outgrown their first office (his grandmother’s basement). The company moved to Baltimore where they built their headquarters and a warehouse. In that same year, Under Armour signed a deal with Oliver Stone for the most talked about movie of

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Table 1 Net revenues (in thousands)

North America International Connected fitness Total net revenues

2013 Net revenues 2,193,739 137,224 1068 $2,332,051

94.1% 5.9% 0,05

2014 Net revenues 2,796,374 268,771 19,225 $3,084,370

90.7% 8.7% 0.6%

2015 Net revenues 3,455,737 454,161 53,415 $3,963,313

Source: Adapted from Under Armour (2018)

that year, Any Given Sunday. In the film, the star football team wears Under Armour shirts. This provided Under Armour great visibility with a wide audience. In the following years, Under Armour established relationships and signed contracts with multiple professional sports leagues, including Major League Baseball, the National Hockey League, and the Baltimore Marathon. They also arranged contracts with key retail partners. In 2003, Under Armour started to produce their first women’s sports line. In 2004, the kids’ line was introduced, and in 2005, Under Armour launched their golf line. Less than 10 years after Plank started his business, Under Armour had yielded a revenue of $281 million and in 2010 reached the milestone of $1 billion in revenues. During the same year, Under Armour opened its European headquarters in the old Olympic Stadium of Amsterdam. In the period between 2011 and 2013, Under Armour generated great traction in the international markets of Japan, Europe, Canada, and Latin America (Under Armour 2018). Between 2013 and 2015, Under Armour’s international sales more than tripled (Table 1). Their net revenue from international sales was US $137 million in 2013 and US $454 million in 2015, amounting to 11.5% of their total revenue. By the end of 2018, Under Armour targets to have more than 800 Under Armour international stores and more than 2000 shop-in-shops outside their domestic market. Next to these international shopping locations, the department for E-commerce had set the goal to have 30 country-specific online platforms by 2018 (Katje 2015). This means adding 6 platforms to the 24 platforms they had in 2017. Although the international sales have kept growing steadily in the last couple of years, Under Armour strives to increase their sales even further and faster to reach their 2018 goals. The brief history of Under Armour has shown they are ambitious and have grown rapidly in their domestic market and abroad. To make sure they can continue expanding in following years, the marketing executives decided to schedule a meeting at the end of the 2017 fiscal year. During this meeting, they brainstormed about how to improve their strategy to further increase sales in the next couple of years. The goals that were set during this meeting were ambitious but the team strongly believed they were achievable. At the top of their list was the goal to generate US $7.5 billion in annual sales in 2018. This would be almost double, what they earned in 2015. Since the rapid growth in their domestic market had slowed, a large part of these additional sales would need to be generated by international growth (McNew 2016). One of the executives proposed to have a closer look at the Indian market as it possesses great opportunities for future expansion. India has a big

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population, strong economic growth rates, and a vast growing middle class. Nevertheless, due to economic and cultural peculiarities of the Indian market, the entry may follow different rules than Under Armour’s previous market entries. Further exploration of the option, with all of its potential pitfalls and opportunities, would be the right way forward.

Under Armour’s Marketing Strategy Domestic Marketing Strategy Under Armour’s products are sold worldwide and are worn by athletes at all levels, from amateur to professional, on playing fields around the globe, as well as by consumers with active lifestyles (Under Armour 2018). To market their products, Under Armour had always relied on the promotion strategy of providing and selling their products to high-performance athletes. The targeted athletes do not have to play at a professional level but can also perform at a high school or collegiate level. As a result of this strategy, Under Armour gained awareness where it mattered most, on the sports fields. This had a positive effect on how the product was perceived by Under Armour’s targeted audience. Under Armour believes that when the people see a product worn by peers as well as by famous high-performing athletes, they also want to own and wear that same product. Within groups of athletes, Under Armour primarily targets the athletes that started out as unknowns or underdogs. One of Under Armour’s marketing executives explains that Under Armour considers itself an “underdog brand.” Under Armour wants to work with athletes that aren’t drafted in the first round but goes instead for the athletes with a chip on their shoulder (Schlossberg 2015). Under Armour believes that these athletes have the same drive and willingness to win as the company has. A good example of such an underdog is wrestlerturned-actor Dwayne “The Rock” Johnson, who sports Under Armour gear in such movies as Fast & Furious 6 (Sarkar 2016). This marketing strategy differs from the strategy of Nike and Adidas, who target and fight for the top athletes who are already famous and playing on the highest level.

International Marketing and Distribution Strategy For the international marketing and distribution strategy, Under Armour does not show a consistent approach. On the one hand, they willingly adapt their distribution channels to the needs of the countries and regions they enter. On the other hand, Under Armour has more or less copied the successful domestic marketing and advertising strategy. As a young but growing company, Under Armour lacks long-lasting experiences in the international marketplace. However, setting foot in Europe, Latin America, and Asia Pacific in one decade promises to generate a steep experience-based

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Table 2 International distribution Wholesale distribution Website operations Independent distributors Factory houses International distribution hubs Stores operated by Under Armour Stores operated by distribution partners License agreement (Dome Corporation) Third-party logistics provider

Europe X X X

Latin America X X X X X

Asia Pacific X X

X X X X

Source: Own illustration

learning curve. The following paragraphs provide more detailed information on Under Armour’s international strategy, regarding marketing and distribution channels in Europe, Latin America, and Asia (Table 2). Europe Under Armour’s apparel, footwear, and accessories are primarily sold through wholesale distribution, website operations, and independent distributors and directly to a few stores that operate in European countries. The European adventure started with their headquarters in the well-known old Olympic Stadium of Amsterdam (Under Armour 2018). Similar to the operations in North America, Under Armour relies on the strategy of providing and selling their products to sports clubs and teams in Europe. A good example is the multi-year technical sponsorship of the football club AZ Alkmaar, the two-time champions of the Dutch Eredivisie (Under Armour 2015), and the deal with Southampton Football in England’s Premier League (Soni 2016). Unfortunately, Under Armour was not able to leverage their domestic heroes to influence the European customers. This is also what Sid Jatia, VP of direct-toconsumer and omnichannel digital, realized. He explains: “The UK, in particular, is a ‘work in progress’, but rather than just recycle the US strategy, Under Armour needs to adopt a localized approach.” He further explains that in Europe there is a different sensibility than in the US market. Therefore, Under Armour’s strategy cannot just be about marketing its US products in Europe but Under Armour has to adjust. One other thing that could hurt the sales in Europe in the long run is the fact that Under Armour doesn’t have a brand house store in Europe. Therefore, they are missing the chance to tell their own retail story and have to compete with the more well-known brands in the stores where their products are sold (Soni 2016). Latin America The way of distributing products in Chile, Mexico, and Brazil is similar to the distribution strategy Under Amour is using in Europe and Asia Pacific. The only differences are that they added the factory houses (outlet stores) there and there are no Under Armour-owned stores in Latin America. In all other countries in Latin America, the products are sourced through Under Armour’s international

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distribution hubs in Hong Kong, Jordan, and the USA and distributed by third-party distributors (Under Armour 2016). To promote the Under Armour products in Latin America, Under Armour signed contracts with individual sporting superstars like the Mexican boxer Saul “Canelo” Alvarez and Hornets G Greivis Vasquez out of Venezuela. Next to these superstars, Under Armour is also sponsoring complete teams like the Venezuelan men’s national basketball team and Mexican Primera Division club Toluca (SportsBusiness Daily 2012). This marketing and distribution strategy is quite similar to the strategy Under Armour is using in the USA, and Under Armour has proven that this formula works there as well. Under Armour has seen their sales grow steadily in the last few years. Asia Pacific In this region, Under Armour operates in China, Japan, Korea, Australia, New Zealand, Taiwan, and Hong Kong. In China, Under Amour sells their products via distribution partners and stores operated by Under Armour. In Japan and Korea, Under Armour has a license agreement with Dome Corporation. Dome Corporation is based in Tokyo, Japan, and manufactures and sells sports apparel, footwear, sports equipment, and supplements. For Under Amour, Dome creates slightly altered Under Armour products to provide a better fit with the customers’ requirements in this region. Sizes and other aspects are adjusted to reflect the Japanese and Korean preferences. Under Armour is actively involved in Dome’s operations. In all the other countries in the Asia Pacific, Under Armour goods are sold via distributors and shipped via third-party logistic providers (Under Armour 2016). Until now, China has been the most important market in the Asia Pacific region. In promoting their goods there, Under Armour has the advantage that one of their domestic market favorite sports, basketball, is also a huge sport in China. The NBA has 60+ million Chinese followers on the NBA official social media accounts. This popularity is the reason why one of the best-selling products in America, “the Curry shoe,” is also a great success in the Chinese market. The Curry shoe (named for a famous American basketball player) has been quite successful, especially after Under Armour kicked off the marketing campaign for the product. Under Armour’s marketing decided to bring Mr. Curry along on tour through China. This brought an enormous media presence for Under Armour and the Curry shoe, with more than 1 million viewers watching a livestream featuring Curry attending the opening of several Under Armour stores in China (Cao 2015). Next to all the success in the Asia Pacific market, Under Armour is noticing price issues, especially in the footwear department. The higher-than-average price that Under Armour is charging for their shoes (even higher than an average Nike shoe, which is seen as a high-end brand) is driving the customers away (Cao 2015). By evaluating the international marketing and distribution strategy, it is noticeable that Under Armour has used a similar strategy each time they enter a new market. Apart from some minor adjustments, they were largely copying the strategy that they had already applied in their home market. This focus on the home market with no systematic marketing screening is what is labeled as ethnocentric orientation

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in Perlmutter’s EPRG framework (1969). Ethnocentric orientation often occurs in the early stages of international expansions. With a popular brand like Under Armour, the ethnocentric strategy may be successful in the beginning, when there is a widespread curiosity and desire to get the well-known products coming to the local market for the first time. However, cultural and market differences eventually require adaptions to the local conditions in different markets around the world. The analysis of the applied strategy in Europe and Asia shows that using the same marketing strategy was not the right choice for Europe and copying the pricing strategy for shoes caused issues in the Asia Pacific market. Therefore, Under Armour should first conduct an in-depth market research investigating the Indian market, before they decide on the market entry strategy, as well as possibly developing their specific entry strategy rather than applying their domestic strategy.

Exploring India When asked about the company’s retail plans in India, an Under Armour spokesperson explained, “Under Armour is a global company and we are always exploring opportunities to bring our technology and innovations to new markets, in order to make all athletes better, around the world. Our international business is a key growth driver for the company and will help propel the brand to $7.5 billion by 2018” (Apparel Resources News-Desk 2016). One of the most interesting countries to enter was India and according to the Indiatimes (Sarkar 2016), Under Armour had already been talking to several big e-tailers in the country to start the exploration phase.

The Attractiveness of the Indian Market The current population of India is around 1.34 billion people; this is approximately 18% of the world population. India is the second most populous country in the world after China. The economy has seen some significant growth since India was liberated in the early 1990s. In the last 10 years, the GDP growth has consistently been above 5%. In 2015 the country’s GDP was ranked the seventh largest in the world. The biggest industry in India is retail. Retail makes up for almost 25% of the nation’s GDP (Statista 2018). According to the Indian government, the Indian economy will grow by 7.1% in FY 2016–2017 and by 6.75 and 7.5% in FY 2017–2018 (India Brand Equity Foundation 2018). The size of the market and the steadily growing economy are good motivation to further investigate Under Armour’s opportunity to expand international activities into India.

The Exploding Sportswear Market Indian people are becoming more and more health-conscious. They are turning to sports to foster a healthier lifestyle. A growing group of people of all ages are not

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seeing sports merely as an activity, but as a lifestyle. This group is willing to invest more of their time and money to lead a healthier lifestyle. They prefer the sportswear to be branded and of international quality and don’t mind paying extra for these products (Indiaretailing Bureau 2015). It is estimated that in 2015, the Indian sportswear market was worth nearly $1 billion and is growing 13% year-on-year (Gugnani 2014). The growth in the apparel market in India is primary driven by the customers’ demand, which has changed from the need-based purchases to occasionspecific purchases. This is related to the growth of the sportswear market (Sarkar 2016). In 2017, 80% of the sportswear market is controlled by the four big players in the global sportswear market (Nike, Adidas, Reebok, and Puma). The other 20% is divided among local retailers and emerging players (FashionatingWorld 2017). Adidas has got the government nod to open its own stores here; Puma is slogging it out along with Nike to make more Indians wear branded sportswear. When asked about the sportswear market in India, founder of retail consultancy Technopak answers: “India is a young country and there is money in the hands of its young populace. Slowly but surely, a culture of an active lifestyle is catching up across the country. Among cars, crossovers are doing well and almost every new housing society has its own gym these days. The sportswear market here is waiting to explode” (Sarkar 2016). Indeed, the largest part of the populace is rather young. According to Tewari, Vogue India editor-at-large, India is set to become the world’s youngest country with 64% of its population in the working age group by 2020. The fact that the new generation is more health-conscious presents a most lucrative opportunity for Under Armour. The fitness trend among the young generation in combination with the growth of wealth has led to a 22% increase in the sportswear market from 2015 to 2016 and is expected to grow by another 12% by 2020 (Morency 2017). To be successful in India, Under Armour might also need to investigate their entry strategy. Only Adidas has managed to get an agreement with the government for their own stores, the rest of Under Armour’s competition is heavily dependent on franchising partners.

India’s Sporting Culture In comparison with Under Armour’s country of origin, India has only a few (well) known athletes, and almost none of them have the superstar status the famous athletes in the USA or Europe have. Therefore, the Indian athletes will not have the same influence on the buying behavior as the athletes have in the USA. The influential people in India who drive the sportswear market are the Indian pop culture icons: the Bollywood stars. These cultural icons are vocal about the importance of a healthy lifestyle, and when these icons speak, people in India will listen. This is also one of the reasons why India has caught up with the global fitness trend of the #Fitboys and #Fitgirls on Instagram and Facebook. In previous generations, the hourglass figure (bigger hips) was still perceived as beautiful, while the younger generations use terms like lean, ab-fab, and muscle tone to describe the way they

Taking the Road to India? Under Armour’s Internationalization Strategies Table 3 Top ten sport disciplines in India and the USA

1 2 3 4 5 6 7 8 9 10

India Cricket Soccer Field hockey Badminton Tennis Chess Motor sports Wrestling Table tennis Basketball

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America American football Baseball Basketball Ice hockey Soccer Tennis Golf Wrestling Motor sports Badminton

Source: Adapted from Russell (2018)

want to look (Morency 2017). In the journey to become a better-looking and healthier person, a growing number of youngsters, boys as well as girls, are emulating their favorite Bollywood stars and well-known athletes in their fitness regimes and fit appearance. Striving for fitness, it is not surprising that the number of gyms in India is projected to increase 7% year-on-year till 2020 (Morency 2017). For Under Armour it is important to become a well-known brand in the minds of these young people who have a growing interest in sports and a healthier lifestyle. One of the challenges in reaching these youngsters is the fact that the most popular sports in India (this is determined by number of people watching that sport and the amount of revenue it generates) are different from the sports that are popular in America. Two out of the top three sports in India are not in the top 10 popular sports in America (Table 3). Cricket and field hockey have always been very popular in India, and India has some of the world’s best players. Although Under Armour already has a small line of women’s field hockey wear, it does not have any cricket clothing or men’s hockey wear. Next to the fitness trend and the popular team sports, the Indian people also have a growing interest in individual sports like running and yoga. A good example is the popular annual Mumbai Marathon. In the marathon’s 14th year in 2017, a recordbreaking 42,000 people participated in the 42.2 km run. Under those runners were famous Bollywood celebrities, sports personalities, and business tycoons. One of the most popular sports in India is yoga, and according to a survey performed by the ASSOCHAM Social Development Foundation, the number of practitioners has grown by up to 30% in 2015 in India’s big cities (Business Standard 2016). Even exceeding the national trend, yoga has grown so much internationally that the United Nations General Assembly declared June 21st the International Day of Yoga, resulting in millions of people joining to practice the country’s 5000-year-old discipline. The points above demonstrate that the Indian market is a promising yet challenging opportunity for Under Armour. Most of the popular sports in India would be new markets. Until now, Under Armour’s focus has been sports that are popular in the USA and Western Europe like American football, basketball, golf, and soccer.

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Therefore, entering India would mean they might have to change their focus and perform an in-depth marketing screening before entering India. Under Armour might have to face the challenge of moving away from their ethnocentric orientation to a new strategy that would help them in conquering this unfamiliar ground. Just like in the Asia Pacific, Under Armour’s pricing strategy might also cause issues in India. Although the young Indian people have more to spend than earlier generations, the US prices might still be too high for the current Indian market. In order to be competitive in the Indian market, Under Armour has considered adapting their pricing strategy. For instance, they could lower prices in general in countries with less purchasing power. Under Armour might also need to investigate if (Indian) athletes would be appropriate as Under Armour spokespeople to increase the popularity of their product. It might be better to use Bollywood icons as spokespeople, as they initiated the current health trend.

What Are Under Armour’s Options? Looking at Under Armour’s ambitious goals for the upcoming years and the fact that their rapid growth is slowing down in their domestic market, it is a wise decision to explore new markets. The fast-growing sportswear market of India is definitely a profitable opportunity if properly managed. Under Armour would be able to benefit from the lessons learned from prior international experiences. However, India differs in many ways from the countries where Under Armour is already operating. India’s economy is less developed than in European countries, and regarding culture and sports preferences, the subcontinent seems to be unique. In the past 20 years, Under Armour could rely on their mostly ethnocentric-orientated marketing strategy. However, this approach has recently led to issues in Europe and might need to be adjusted before penetrating the India market. Under Armour also needs to consider the market entry and the distribution channels that fit the India market. Last but not least, the pricing strategy will be of great importance. Under Armour would be forced to modify their marketing, distribution, and pricing strategy to compete with the big players that are already operating in India’s sportswear market. Which road should Under Armour take to penetrate the home of Bollywood?

References Apparel Resources News-Desk. (2016). Under Armour plans to enter Indian sportswear market. Retrieved October 09, 2018 from https://apparelresources.com/business-news/retail/underarmour-plans-to-enter-indian-sportswear-market/. Business Standard. (2016). Number of yoga practitioners soars by up to 30% across metros in India: Survey. Retrieved October 09, 2018 from https://www.business-standard.com/article/ news-cm/number-of-yoga-practitioners-soars-by-up-to-30-across-metros-in-india-survey116062100197_1.html. Cao, S. (2015). Can under Armour win the world? Retrieved October 09, 2018 from https://wtop. com/news/2015/10/can-armour-win-world/.

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FashionatingWorld. (2017). Indian sportswear market grew 22 per cent in 2015-16. Retrieved October 09, 2018 from https://www.fashionatingworld.com/new1-2/indian-sportswear-marketgrew-22-per-cent-in-2015-16. Gugnani, A. (2014). Emerging trends in fashion retailing. Retrieved October 09, 2018 from https:// retail.economictimes.indiatimes.com/re-tales/emerging-trends-in-fashion-retailing/89. India Brand Equity Foundation. (2018). About Indian economy growth rate & statistics. Retrieved October 09, 2018 from https://www.ibef.org/economy/indian-economy-overview. Indiaretailing Bureau. (2015). Global brands drive India’s active sportswear market to over Rs 6,000 cr. Retrieved October 09, 2018 from https://www.indiaretailing.com/2015/03/22/fashion/ global-brands-drive-indias-active-sportswear-market-to-over-rs-6000-cr/. Katje, C. (2015). Under Armour’s plan to double revenue (UA). Retrieved October 09, 2018 from https://www.investopedia.com/articles/markets/112515/under-armours-plan-double-revenue. asp. McNew, B. S. (2016). The key to under Armour’s 30% revenue growth. Retrieved October 09, 2018 from https://www.fool.com/investing/general/2016/05/25/the-key-to-under-armours-30-reve nue-growth.aspx. Morency, C. (2017). Inside India’s booming sportswear market. Retrieved October 09, 2018 from https://www.businessoffashion.com/articles/global-currents/inside-indias-booming-sportswearmarket. Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. The Columbia Journal of World Business, 4, 9–18. Russell, B. (2018). Top 10 most popular sports in India. Retrieved October 09, 2018 from https:// sporteology.net//top-10-most-popular-sports-in-india/. Sarkar, J. (2016). Under Armour, US’ No. 2 sportswear brand, to enter India. Retrieved October 09, 2018 from https://economictimes.indiatimes.com/industry/cons-products/garments-/textiles/under-armour-us-no-2-sportswear-brand-to-enter-india/articleshow/50573952.cms? utm_source¼contentofinterest&utm_medium¼text&utm_campaign¼cppst. Schlossberg, M. (2015). Under Armour’s underdog strategy to becoming the anti-Nike. Retrieved October 09, 2018 from https://www.businessinsider.com/under-armours-underdog-strategy2015-9?international¼true&r¼US&IR¼T. Soni, P. (2016). Under Armour looks at aggressive growth outside North America. Retrieved October 09, 2018 from http://marketrealist.com/2016/04/armour-looking-aggressive-growthoutside-north-america/. SportsBusiness Daily. (2012). Under Armour seeking growth in Latin American market with individual, team deals. Retrieved October 09, 2018 from https://www.sportsbusinessdaily. com/Daily/Issues/2012/03/27/Marketing-and-Sponsorship/Under-Armour.aspx. Statista. (2018). India: Statistics & facts. Retrieved October 09, 2018 from https://www.statista. com/topics/754/india/. Under Armour. (2015). Under Armour & AZ Alkmaar partnership announcement. Retrieved October 09, 2018 from https://underarmour.pr.co/101704-under-armour-az-alkmaar-partner ship-announcement. Under Armour. (2016). Under Armour annual report 2015. Retrieved October 09, 2018 from http:// files.shareholder.com/downloads/UARM/4513908581x0x880876/7D1585BA-87FA-4E6693D3-6C17B3A57B1E/10-K_pef.pdf. Under Armour. (2018). History. Retrieved October 09, 2018 from http://investor.underarmour.com/ company/history.

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Joris ten Have is a consultant at Accenture in the Netherlands. He holds a Bachelor degree in Marketing, a Master in Financial Management, and a MScBA with a specialization in Change and Business Management. Joris is passionate about improving performance. This passion is expressed in his studies, work, and experience in teaching. Joris wrote his master thesis, titled “Exploring the Impact of Performance Management Approaches on Employees Performance and Goals” that provides analyses and recommendations on how to improve the performance of employees in consultancy firms. Currently, Joris is working in consultancy, where he is improving the performance of companies on a daily basis. As a consultant, Joris provided advisory services to a list of multinationals like Shell, ING, Jacob Douwe Egberts, Sara Lee, NXP, and APG, where his focus was improving the performance of a wide variety of IT-related topics.

Garuda Indonesia: A Turbulent Journey to Global Expansion Farrah Almira Ali

Case Synopsis Research Problem The problems facing the airline company Garuda Indonesia as an emerging market multinational were multifaceted: How to establish Garuda Indonesia’s brand in global customers’ minds? How to transfer Garuda’s strong position in Indonesia to the international market? And how to convince global travelers despite the unfavorable conditions and perceptions of Indonesia and its aviation industry?

Case Summary Despite Indonesia’s popularity as a tropical holiday destination, the past decade has been marked by episodes of plane crashes (though ranking low among traffic incidents), natural disasters, incidents and protest rallies driven by the country’s political instability, as well as terror attacks claimed by Islamic extremist groups. The subsequent travel warnings issued by a number of countries have negatively impacted Indonesia’s tourism industry. As the flag carrier of Indonesia, Garuda Indonesia’s vision was to become “a strong distinguished airline through providing quality services to serve people and goods around the world with Indonesian hospitality.” Garuda has made it its mission to promote Indonesia to the international society and to support national economic development by delivering professional air travel services. To some extent, the unfavorable perceptions of Indonesia have also affected Garuda’s global reputation. Although Garuda is perceived as the nation’s pride F. A. Ali (*) Tommy Hilfiger, Tias School for Business and Society, Utrecht, Netherlands # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_5

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and the most trustworthy airline by the Indonesians, perceptions from the past and recent incidents lingered in the minds of travelers, especially Europeans. Foreign travelers tend to be skeptical and more reluctant to choose Garuda over national or regional airlines. One of Garuda’s main challenges as an emerging market multinational is to overcome negative perceptions that can undermine its brand. Besides the poor safety history of the Indonesian aviation industry, there are other perceptions that have been of concern to the international community related to the country’s political instability following cases of terrorism and corruptions.

Learning Objectives Understand the linkage between country-of-origin (COO) effects and the selection of a product or service provider. Learn to distinguish the concepts of ethnocentrism, animosity, place branding, and other elements that can influence the product/service nationality perception. Learn how to systematically depict dilemmas and challenges in global marketing, such as standardization vs. adaptation, and how to do a risk analysis when entering new markets.

Themes and Tools Used • • • • • • •

Country-of-origin effect, ethnocentrism, and animosity phenomena Place branding Country attractiveness analysis Standardization vs. adaptation Hofstede’s Cultural Dimensions PESTLE analysis Political risk assessment matrix

Target Audience The case study is targeted to graduate students as a means to apply a wide range of marketing theories and concepts when analyzing the issues presented and in developing recommendations. The case is especially suitable for students who have already been exposed to courses in international marketing and services marketing and particularly to concepts such as the country-of-origin (COO) effect, the management of the 4P’s, as well as other basic insights into international marketing.

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Questions • What is your assessment on the linkage between country-of-origin (COO) effects and selection of product/service provider in this case study? • Which market segments should Garuda prioritize? Focus on a few key cities or spread itself over multiple world capitals? • How to organize its foreign market activities while addressing the cultural specifics in target countries? • How should macroeconomic, political, as well as corruption issues be balanced in a risk analysis? • How should exchange rates be considered?

Introduction Garuda Indonesia is the icon and asset of the nation. We must earn traveler’s trust to be able to compete with other international airlines. Arif Wibowo, CEO of Garuda Indonesia (Garuda Indonesia 2015)

Early in the morning of February 2, 2017, an Indonesian passenger plane carrying 130 people has skidded off the runway after landing at Yogyakarta Airport in heavy rain (The Guardian 2017). Although no one was seriously injured after the Boeing 737-800 operated by the national flag carrier Garuda Indonesia came off the runway, this incident just added on to an already long list of mishaps to hit the country’s aviation sector. According to the UN report published in May 2014, Indonesia scored just 61% for “airworthiness,” behind less developed neighbors such as Myanmar and Laos (Smith 2015). Arnold Barnett, an MIT statistician specializing in airline safety, stated that the death rate in plane crashes in Indonesia was 25 times the rate in the United States. “To assert that the disparity was only a coincidence or manifestation of bad luck would be preposterous,” Barnett said. Insurance companies even charged Indonesian airlines virtually double the global average for premiums due to their poor safety history. In 2015, as many as 59 Indonesian airlines were banned from flying in European Union airspace, putting Indonesia on top of the list of countries with the highest number of carriers banned from operating in Europe (Smith 2015). As the flag carrier of Indonesia, Garuda Indonesia’s vision was to become “a strong distinguished airline through providing quality services to serve people and goods around the world with Indonesian hospitality” (Garuda Indonesia 2017). Garuda has made it their mission to promote Indonesia to the international society and to support national economic development by delivering professional air travel services. Although Indonesia is well known for its five-star hospitality, cultural diversity, and beautiful holiday destinations, the problems facing Garuda as an emerging market multinational were multifaceted. How to establish Garuda Indonesia’s brand in global customers’ minds? How to transfer Garuda’s strong position in

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4.9

Fig. 1 Economic and transportation growth in Indonesia. Source: Adapted from IMF World Economic Outlook (2016) in Garuda Indonesia Corporate Presentation Q1 2016

Indonesia to the international market? And how to convince global travelers despite the unfavorable conditions and perceptions of Indonesia and its aviation industry?

The Point of Departure Indonesia is the world’s largest archipelago with more than 17,000 islands. With an estimated population of over 260 million people, Indonesia is the world’s fourth most populous country after China, India, and the United States (United States Census Bureau 2018). Indonesia has a great economic potential, with abundant resources and large young workforce. Over the past decade, the country recorded a remarkable economic growth rate, averaging 5% per year (see Fig. 1). Indonesia has made impressive progresses in social and economic management and is looking to its target of becoming a middle-income country by 2025 (Deloitte 2015). The archipelago’s geographic nature gives an advantage to air transportation, while the rising of middle class allows a growing part of the population to fly. Moreover, tourism, international trade, and the development of regional economic were expected to continue to drive demand in the country’s aviation sector (Maliangkay and Rumokoy 2015). Garuda Indonesia had its beginnings in the Indonesian war of independence against the Dutch in the late 1940s (Casius and Postma 1986). Garuda Indonesia airline was named after a mythical golden eagle, common to both Hindu and Buddhist mythology, which is also used as the national symbol of Indonesia. Entering its 70th year in the aviation industry, Garuda Indonesia has become one of the world’s key players and a member of the global airline alliance SkyTeam. Garuda operated regularly scheduled domestic and international flights to various destinations in Southeast Asia, East Asia, Australia, and Europe. In 2015, Garuda Indonesia operated 187 fleet of aircrafts which served 60 domestic destinations and 17 international destinations and generated an annual revenue of $3.8 billion in 2016 (Garuda Indonesia 2016). Despite Indonesia’s popularity as a tropical holiday destination, the past decade has been marked by episodes of plane crashes, natural disasters, incidents and protest

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rallies driven by the country’s political instability, as well as terror attacks claimed by Islamic extremist groups. The subsequent travel warnings issued by other countries, including the United States and Australia, have negatively impacted Indonesia’s tourism industry. To some extent, the unfavorable perceptions of Indonesia have also affected Garuda’s global reputation. Although Garuda is perceived by Indonesians as the nation’s pride and the most trustworthy airline, perceptions from the past and recent incidents lingered in the minds of travelers, especially Europeans. Foreign travelers tend to be skeptical and more reluctant to choose Garuda over national or regional airlines, as stated by a Dutch traveler, who said “Although people told me that Garuda was better in many aspects, I will still choose KLM or Lufthansa. They have better track records when it comes to safety, and they’re from developed countries, which gives a quality assurance” (Bolster 2017). Garuda, as an Indonesian company, was seen as lacking credibility as far as safety is concerned due to the country’s poor history in the aviation sector. The risk of being perceived as not having enough knowledge and high safety standards could not be ruled out. Thus, being an Indonesian-based entity could be both advantageous and disadvantageous.

The Aviation Industry The International Air Transport Association (IATA) projected a 7% growth in demand for air travel services in 2016. The total number of airline passengers worldwide was estimated to reach 3.8 billion with more than 54,000 routes. IATA also estimated global aviation industry’s net profit growth in 2016 to reach 5.1% to US$36.3 billion (Garuda Indonesia 2015). Passenger capacity growth in Asia Pacific was expected to be above the global growth, which increased from 6% in 2015 to 8.4% in 2016. Based on the data stated by IATA in 2016, air transport traffic was almost equal across North America, Europe, and Asia Pacific. However, in 2030, this composition was predicted to shift into 25% in North America, 25% in Europe, and 50% in Asia Pacific. According to the Association of Asia Pacific Airlines (AAPA), this condition offers a very promising opportunity for the air transportation industry player, including Indonesia (Garuda Indonesia 2015).

Garuda Indonesia: The Early Years In 1949, Garuda carried Soekarno, the first president of Indonesia, on a flight from Jakarta to Yogyakarta, marking its first flight under the name of Garuda Indonesian Airways. Throughout the revolution, Garuda supported national interests and often carried diplomats on its flights. In 1954, Garuda Indonesia officially became a stateowned company, and in 1956, the airline operated its first flight to Mecca, carrying over 40 Indonesian pilgrims. The amount of the airline’s fleet increased throughout

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the 1960s as the airline continued its route expansion. After taking delivery of its first jet aircraft in 1963, Garuda launched flights to Hong Kong. In 1965, Garuda began operating flights to China. In the same year, the airline grew beyond the Asian market it was originally focused on and started with operating flights to Amsterdam and Frankfurt, followed by Rome and Paris (Garuda Indonesia 2018). The following two decades marked a substantial point in the history of the company in which it underwent revitalization and restructuring across its organizational and operational activities as it entered the open competition era in domestic and international markets. During the process, Garuda focused on training and developing the competence of its employees through the establishment of employee training center. In 1985, under the leadership of the airline’s then new CEO, Reyn Altin Johannes Lumenta, Garuda made the controversial decision to hire foreign brand consultants to create a new logo, brand, and uniform for the airline, a project deemed as expensive and unnecessary at the time. However, this move was later on praised as vital to the reputation and corporate identity of Garuda Indonesia as the national airline. At its peak in the late 1980s up to mid-1990s, Garuda operated a wide network of international flights with regularly scheduled services to Los Angeles, Johannesburg, Cairo, and numerous cities in Europe, Australia, and Asia. The delivery of the first Airbus A330-300 in 1996 allowed more flexibility for the airline, as it was more fuelefficient. That same year, however, a new series of challenges was about to hit Garuda Indonesia.

Turbulent Times The late 1990s and early 2000s would prove to be a turbulent time for Garuda Indonesia. Two accidents in 1996 and 1997 in Japan and in Indonesia, respectively, added to the problems caused by the Asian financial crisis (AirSafe 2015). As a result, Garuda had to discontinue its service to the United States and drastically scaled back on its European operations. Garuda continued to operate flights to Amsterdam due to its historical links with the Netherlands. It also continued to fly to Frankfurt and London after the initial cutbacks. The situation was worsened by the 9/11 terrorist attacks in the United States, the 2002 Bali bombings, the 2004 Indian Ocean earthquake and tsunami, and the SARS threat, all of which contributed to a decline in air travel and Indonesian tourism. In September 2004, the situation was exacerbated when an Indonesian human rights activist Munir Said Thalib was assassinated by off-duty pilot Priyanto on a Garuda flight. Priyanto slipped arsenic into Thalib’s drink before the departure of the flight’s second leg to Amsterdam (BBC News 2008). Thalib died on board just about 2 hours before arriving in Amsterdam. Priyanto and the airline’s then CEO and deputy were all convicted of his murder, although it had been alleged it was under orders from the Indonesian State Intelligence Agency (BIN). Garuda was found negligent as it failed to perform an emergency landing. Just 1 month after this

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incident, which sparked international controversy, the remaining European routes (Amsterdam, Frankfurt, London) were also discontinued in October 2004. In June 2007, the EU banned Garuda Indonesia, along with all other Indonesian airlines, from flying into any European countries, following the crash of a Boeing 737-400 earlier that year in Indonesia (UPI 2007). In late 2007, the EU stated that the safety reforms already undertaken were a step in the right direction but still did not satisfy the EU’s aviation safety standards. The ban was finally lifted in July 2009, after which Garuda began evaluating service to Amsterdam and other European cities, as well as the United States (BBC News 2009). In 2016, Indonesia’s Corruption Eradication Commission (KPK) investigated a former CEO of Garuda Indonesia airlines for a bribery case between 2005 and 2014. According to several media reports, the CEO of Garuda was suspected of taking bribes related to activities of purchasing planes and machines from Rolls-Royce. According to a Garuda spokesperson, however, the corruption case was an individual action and that Garuda was cooperating with KPK (Marketing Interactive 2017). Moreover, the Indonesian economy had to cope with severe obstacles and challenges. The depreciation of the Rupiah against the US dollar also leads to the increasing airline burden, as nearly 70% of Garuda’s expenditure, from the operating cost, leasing, maintenance, and insurance, are paid in US dollar, while the income obtained is in Rupiah (Garuda Indonesia 2015). On the other hand, the weakening of the Rupiah also benefitted Indonesia as foreign tourists considered Indonesia as a more affordable travel destination.

An Ongoing Journey to Success As the nation’s flag carrier, Garuda Indonesia never ceased to enhance excellence and self-improvement, among others, by consistently trying to achieve the best security and safety standards. Upon this commitment, Garuda Indonesia became the only Indonesian airline that obtained certification of IATA Operational Safety Audit (IOSA) in 2008 (Smith 2015). Following the lift of the EU ban against Garuda, the airline announced in July 2009 an aggressive 5-year expansion plan known as the Quantum Leap. The plan involved an image overhaul, including changing the airline’s livery, staff uniform, and logo and nearly doubling the size of its fleet. “Garuda Indonesia’s new livery design is both beautiful and uplifting for Garuda and the image of Indonesia” said Susilo Bambang Yudhoyono, former president of Indonesia (Landor 2018). In 2011, Garuda Indonesia became a public company after holding IPO to the public, with Indonesian government retaining a majority of the shares. During this period, the airline reopened routes and added additional frequencies to many of its international routes, including Singapore, Bangkok, Beijing, and Shanghai from Jakarta (Garuda Indonesia 2015). Along with the increasing performance and growing existence in national and global aviation industry, Garuda Indonesia received several national and international awards. In 2013, Garuda Indonesia was awarded “The World’s Best Economy

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Class” and was ranked 7th in “The World’s Top 10 Airlines” and “Best Airline in Central Asia and Australasia.” In 2014, Garuda became one of seven airlines to earn the prestigious five-star rating from Skytrax, marking the end of the 5-year Quantum Leap program. Following this achievement, Emirsyah Satar, who had been CEO for 9 years, announced his retirement and promoted Arif Wibowo as CEO. Following Wibowo’s promotion, he began a “Quick Wins” cost-cutting drive to cut down on losses while increasing revenue through various measures, including cancelling unprofitable routes and increasing efficiency. Nevertheless, Wibowo remained committed to continue the airline’s international expansion. Along with the implementation of Wibowo’s strategies, Garuda Indonesia managed to record positive growth in its performance. By the end of 2015, Garuda Indonesia’s domestic and international flight frequency improved by nearly 10% compared to 228,329 flights in 2014. Number of passengers also grew by 13% to 33 million passengers compared to the same period in 2014. On-Time Performance (OTP) in 2015 slightly declined to 88% in 2014, due to volcanic eruptions and forest fires smokes that caused a high number of flight cancellations (Garuda Indonesia 2015). Garuda Indonesia’s steps in the realm of international flights were also increasing steadily since joining the airline alliance as part of its international network expansion program. Upon joining the SkyTeam, Garuda Indonesia’s service users could connect to 1064 destinations in 178 countries served by SkyTeam member airlines with a total of more than 15,700 flights per day. As of 2015, Garuda Indonesia had seven subsidiaries which focus on supporting business products/services. In its daily operations, Garuda Indonesia was supported by 8248 employees (Garuda Indonesia 2015).

Competitive Landscape The global aviation industry has become intensely competitive as airlines have greater latitude in the choice of which cross-border markets to serve. By the end of 2015, 34 foreign airlines entered Indonesia’s national airport, Soekarno Hatta. Moreover, the power of shared monopoly regimes has eroded, forcing airlines to undertake new marketing strategies to maintain and increase market share. In the international market, Garuda has to compete with brand names with stronger global recognition, such as Singapore Airlines, Emirates, and many more award-winning country airlines. In 2016’s World Airline Awards, Edward Plaisted of Skytrax said “We have seen many familiar names here today appearing as repeat winners, which I guess reflects that in many cases ‘once a winner, always a winner’ in many customers’ eyes.” (SkyTrax 2016a). The top 10 positions were dominated by Middle Eastern international airlines such as Emirates, Qatar, and Etihad, as well as Asian airlines such as Singapore Airlines, Cathay (Hong Kong), and Ana (Japan). Garuda was kicked out of the 8th position in 2015 to the 11th in 2016, as EVA Air (Taiwan) and Lufthansa moved up in ranking. However, Garuda’s market share in the international market was recorded at 27% in 2015, increased by 3.6% from 2014.

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The highest market growth came from the Japan-Korea region, followed by Europe, the Pacific Northwest, and China (Garuda Indonesia 2015). The aviation industry in Indonesia has also shown a sharp growth in the past decade. Several airlines have been competing tightly to seize the domestic and regional markets. The expansion of both Garuda’s fleet as well as competitors also contributed to the increasing number of passengers and offered routes and frequencies. In the domestic market, the main competitors include Lion Air, Batik Air, AirAsia, and Sriwijaya Air. Lion Air group is the largest privately run airline in Indonesia. In 2015, Lion Air Group (with Batik Air as a subsidiary) accounted for over 40% of domestic market share. As a low-cost carrier, Lion Air became the biggest rival for Garuda Indonesia. Sriwijaya Air came in third position, followed by Garuda’s low-cost subsidiary Citilink (Primadhyta and Jati 2015). Garuda’s domestic market share in 2015 was recorded at 33% or grew by 3.7% from the previous year.

Marketing Strategies and Tactics Product/Service To differentiate, most national country-based international airlines put emphasis on national characteristics to leverage country stereotypes that act in their favor. Fittingly, Garuda Indonesia used a similar approach in their marketing strategies (Garuda Indonesia 2015): 1. Create the image of Garuda Indonesia as the most caring airline, offering hospitality and caring in services that reflects Garuda Indonesia as a world-class airline. 2. Strengthen Garuda Indonesia’s position in the country as the domestic market leader through the world’s best cabin crew service and excellence in terms of safety and timeliness. 3. Enhance Garuda’s position at the European and Chinese markets by offering the best flying experience with Garuda Indonesia as well as the beauty of Indonesian holiday destinations. The implementation of the marketing strategies was supported by pertinent tactics: 1. Present Garuda Indonesia’s best service and products through the best flight attendant, food and drink menu quality, new aircraft, and exclusive service in first and business class. 2. Offer the best vacation destinations in Indonesia in cooperation with the Ministry of Tourism through Travel Pass product on several destinations with underwater attractions, culture, and adventure themes.

58 Table 1 Garuda Indonesia customer rating from 516 reviews

F. A. Ali Food & Beverages Inflight Entertainment Seat Comfort Staff Service Value for Money Source: Adapted from Barrance (2016)

Table 2 Listed ticket prices

Airline AirAsia Batik Air Lion Air Garuda Indonesia

Price starting from IDR 459,000 IDR 765,200 IDR 792,000 IDR 1,156,000

Source: Adapted from Traveloka.com

3. Build brand awareness and considerations through a campaign activity in Europe and China, and communicate Indonesian destinations and world-class fly services. As part of its strategy, Garuda Indonesia introduced a distinctive concept of service called “Garuda Indonesia Experience,” which brings hospitality, culture, and everything best from Indonesia through five senses, to be implemented throughout customer journey (Garuda Indonesia 2017). The strategies have brought Garuda Indonesia to win Skytrax “The World’s Best Cabin Crew” 2016 Award for three consecutive years. The award recognizes the highest all-round performance of cabin staff, covering techniques, efficiency, attention, attitude, enthusiasm, and overall hospitality. Based on customer reviews, Garuda scored 5 out of 5 in terms of staff service (see Table 1). Kevin Barrance, a British passenger traveling with Garuda from London to Jakarta commented, “The service was superb. The attendants are so kind and professional. Food was great— the best I’ve had on board any airline. Garuda is definitely up there with the best and I’ll most certainly travel with them in the future” (SkyTrax 2016b).

Pricing Strategy In terms of pricing strategy, as a market leader in the domestic market, Garuda positioned itself in the premium segment. Meanwhile, Garuda’s budget spin-off, Citilink, is aimed to compete in the low-cost carrier (LCC) market in Indonesia. For international routes, pricing strategies are varied, depending on the marketing objective in specific markets (e.g., buy market share, defend position, increase yield, increase seat load factor, etc.). Table 2 displays the search result for a direct, one-way flight from Jakarta to Singapore. It shows that a ticket in Garuda’s economy class was priced above its competitors. However, due to the nature of dynamic pricing strategy, the search

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results may indicate different prices in a different point of time. Dynamic pricing enables airline companies to charge different prices to different customers for the same product based on various variables, such as purchase history, preferences, etc. Based on massive historical databases and demand forecasts, prices are modified in response to the price sensitivity and needs of different market segments at different times of the day, week, or season. Albeit the overall passenger traffic indicated a positive trend, the fiercer competition has caused the average ticket price to drop. This was one of the main challenges faced by Garuda Indonesia in 2016.

Place and Promotion To reach the customers, Garuda utilizes direct distribution channels (Garuda call center, ticket office, and website) and global distribution systems (brick-and-mortar and online travel agents). The use of intermediaries, such as travel agents, helps to achieve reach and generate business. However, retail travel agents tend to charge 10% of commission, while tour operators typically markup up to 30% of the transaction value (Wirtz and Lovelock 2016). Therefore, service firms such as Garuda aim to maximize profit by distributing directly to their end customers. However, Garuda was facing the challenge to strengthen market penetration through its online distribution channel. By end of 2015, e-commerce, which becomes the center of operations for developed countries, only contributed to 18% of Garuda’s total sales, requiring major improvement (Garuda Indonesia 2015). In terms of promotion, Garuda uses a blended mix of tools, such as advertising, public relations, direct marketing, and sales promotion. Twice a year, Garuda holds Garuda Indonesia Travel Fair to promote Indonesia to international tourists by offering discounted ticket price and tour packages. In line with its brand identity, Garuda often depicts the images of friendly Indonesian crews and the country’s iconic destinations throughout their marketing communications.

Spreading Its Wings In 2015, Garuda restructured its network and encouraged fleet deployment on more specific market in order to improve revenue-related aspects including aviation network. Flight network restructuring was done by reducing less profitable routes, by postponing the opening of new routes, and by adjusting some routes. As of late 2016, Garuda has launched direct flights from Mumbai to Jakarta. “We are optimistic Mumbai is a promising market for us,” said Garuda Indonesia’s president director, Wibowo (Roy 2017). India was said to be the world’s fastestgrowing aviation market. Indonesia was one of the largest markets to India with 350,000 people traveling to the region for both business and leisure purposes. Furthermore, Garuda was set to launch chartered flights to five cities in China as of January 2017. The general manager of Garuda Indonesia’s Denpasar branch,

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Micky Irfandi, said the service would cover the Denpasar-Chengdu, Shenzhen, Kunming, Chongqing, and Xiamen routes. “We need to conduct an evaluation before launching the regular flight service. Garuda Indonesia’s regular flight currently only flies to Beijing, Shanghai, Guangzhou and Hong Kong” said Irfandi. According to the Bali Central Statistics Agency (BPS), the number of Chinese tourists visiting Bali between January and November 2016 reached 907,028, an increase by 20.2% compared to the previous year. Among the 4.5 million tourists visiting Bali, Chinese citizens ranked second, while Australian tourists ranked first (The Jakarta Post 2017). Moreover, Garuda intended to start flying to the United States in 2017 despite US President Donald Trump’s travel policy. Trump signed a directive banning the entry of people from seven Muslim-majority countries. Indonesia, despite its world’s largest Muslim population, was not one of the seven countries. Garuda continued to negotiate the rights to start its service. “We are staying on course, planning to start flying there (the U.S.) in June or July,” Garuda spokesman Benny S. Butarbutar said (Channel NewsAsia 2017). By expanding its operation to new markets, Garuda aims to increase its international market share by a double-digit percent in the coming 5 years. Can Garuda Indonesia successfully meet this objective in a highly competitive environment despite domestic challenges and international skepticism?

References AirSafe. (2015). Garuda Indonesia plane crashes. Retrieved October 09, 2018 from http://www. airsafe.com/events/airlines/garuda.htm. Barrance, K. (2016, September 25). The service was superb. Retrieved October 10, 2018 from https://www.airlinequality.com/airline-reviews/garuda-indonesia/. BBC News. (2008). Pilot guilty of activist murder. Retrieved October 09, 2018 from http://news. bbc.co.uk/2/hi/asia-pacific/7208597.stm. BBC News. (2009). EU lifts Indonesian airline ban. Retrieved October 09, 2018 from http://news. bbc.co.uk/2/hi/europe/8150352.stm. Bolster, E. (2017). Personal interview by Farrah Almira Ali, February 10, 2017. Casius, G., & Postma, T. (1986). 40 jaar luchtvaart in Indië. Alkmaar: De Alk. Channel NewsAsia. (2017). Indonesian airline Garuda still plans US flights despite Trump policy. Retrieved October 10, 2018 from https://www.channelnewsasia.com/news/asia/indonesian-air line-garuda-still-plans-us-flights-despite-trump-p-7550134. Deloitte. (2015). SMEs powering Indonesia’s success: The connected archipelago’s growth engine. Sydney. Garuda Indonesia. (2015). Annual report 2014: Elevating value of journey. Retrieved October 10, 2018 from https://www.garuda-indonesia.com/files/pdf/investor-relations/report/2014.pdf. Garuda Indonesia. (2016). Annual report 2015: Caring with passion to serve. Retrieved October 10, 2018 from https://www.garuda-indonesia.com/files/pdf/investor-relations/report/2015.pdf. Garuda Indonesia. (2017). Consolidated financial statements. Retrieved October 10, 2018 from https://www.garuda-indonesia.com/files/pdf/investor-relations/financial-report/FS_GIA_ Des16_-_AUDITED.pdf. Garuda Indonesia. (2018). About Garuda Indonesia. Retrieved October 10, 2018 from https://www. garuda-indonesia.com/id/en/corporate-partners/company-profile/about/index.page?

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Landor. (2018). Garuda Indonesia: Lifting profits in a downturn. Retrieved October 10, 2018 from https://landor.com/work/garuda-indonesia. Maliangkay, B. Y., & Rumokoy, F. (2015). The influence of brand equity and service quality to customer loyalty of Garuda Indonesia airlines. Jurnal Berkala Ilmiah Efisiensi, 15(4), 378–389. Marketing Interactive. (2017). Former CEO of Garuda Indonesia suspected in corruption case. Retrieved October 10, 2018 from http://www.marketing-interactive.com/former-ceo-garudaindonesia-suspected-corruption-case/. Primadhyta, S., & Jati, G. P. (2015). Garuda Indonesia gerus pangsa pasar penumpang domestik Lion. Retrieved October 10, 2018 from https://www.cnnindonesia.com/ekonomi/ 20150604112341-92-57614/garuda-indonesia-gerus-pangsa-pasar-penumpang-domestik-lion? Roy, G. (2017). Garuda Indonesia launches direct flights between Mumbai and Jakarta: Attractive all-in return fares to Jakarta and Denpasar - Bali from Mumbai. Retrieved October 10, 2018 from https://mediaindia.eu/news-india-outbound/garuda-indonesia-launches-direct-flightsbetween-mumbai-and-jakarta/. SkyTrax (2016a). The 2016 World Airline Awards are announced. Retrieved February 10, 2017, from http://www.airlinequality.com/news/2016-world-airline-awards-announced/. SkyTrax (2016b). Garuda Indonesia: Customer reviews. Retrieved February 20, 2017, from http:// www.airlinequality.com/airline-reviews/garuda-indonesia/page/5/. Smith, O. (2015). How dangerous is flying in Indonesia? Retrieved October 10, 2018 from https:// www.telegraph.co.uk/travel/destinations/asia/indonesia/articles/How-dangerous-is-flying-inIndonesia/. The Guardian. (2017). Garuda passenger plane with 130 on board skids off runway in Indonesia. Retrieved October 10, 2018 from https://www.theguardian.com/world/2017/feb/02/garuda-pas senger-plane-with-130-on-board-skids-off-runway-in-indonesia. The Jakarta Post. (2017). Garuda Indonesia taps into charter flight demand in China. Retrieved October 10, 2018 from http://www.thejakartapost.com/travel/2017/01/14/garuda-indonesiataps-into-charter-flight-demand-in-china.html. United States Census Bureau. (2018). U.S. Census Bureau current population. Retrieved October 10, 2018 from https://www.census.gov/popclock/print.php?component¼counter. UPI. (2007). Indonesian carriers banned from EU. Retrieved October 10, 2018 from https://www. upi.com/Defense-News/2007/06/28/Indonesian-carriers-banned-from-EU/60861183048659/. Wirtz, J., & Lovelock, C. H. (2016). Services marketing: People, technology, strategy (8th ed.). New Jersey: World Scientific Publishing. Farrah Almira Ali is a Senior Brand Strategist at Tommy Hilfiger’s head office in Amsterdam, the Netherlands. With 10+ years of international experience across various industries such as FMCG, technology, education and fashion, her passion and specialty lie in the area of marketing and brand management. She began her career as a Brand Executive at British American Tobacco, where she was based in the Netherlands, Germany, and Belgium. After a few years in the company, Farrah made the leap into the non-profit sector, volunteering as a Business Development Manager for a Jakarta-based educational NGO. Farrah received the Women in Business Scholarship from TIAS School for Business and Society in the Netherlands where she graduated cum laude with a Master’s degree in Business Administration. Her master thesis, titled “The impact of payment methods and marketing communications on online purchase decisions”, provides an empirical consumer analysis of Indonesian e-commerce start-ups. Her interest for this topic grew while she was working as a Marketing Event Manager at Google Indonesia.

New Game: Should the Multinational Crop Protection Company CPG Enter China’s M-Commerce Market? Marc Poetzsch and Zheng Han

Case Synopsis Research Problem Crop Protection Group (CPG) needs to decide if the company should start selling its products directly to Chinese farmers online. This includes the development of an integrated online strategy as well as taking potential risks into account. Furthermore, possible conflicts between a new online channel and the company’s “traditional” channel need to be considered while ensuring business growth at the same time.

Case Summary This case took place in China’s crop protection (CP) industry at the end of 2016. Many local CP companies like Noposion started to invest heavily in setting up an online business. Internet giants like Alibaba and Jingdong (JD) began to invest into the agricultural sector as well. However, the leading multinational companies decided to stay out of the Chinese online business and to continue selling their products solely through their traditional distributor-to-dealer-to-retailer-to-farmer sales channel.

M. Poetzsch BASF, Shanghai, China Z. Han (*) Sino-German School for Postgraduate Studies (CDHK), Tongji University, Shanghai, China e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_6

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CPG1 is one of the leading five multinational companies (MNCs) in China’s CP industry. In September 2016, Chris Ma became the new business director of CPG’s crop protection business in China. Being responsible for one of the company’s most dynamic and largest markets, Chris had to decide on how to position the company for the future and to ensure further growth. Should the company start to expand into electronic commerce (e-commerce) like the local Chinese competitors and become the pioneer among the MNCs? Or should CPG continue to wait like the other global competitors and see if e-commerce would be adopted by the Chinese farmers?

Learning Objectives The objectives of the study are to (1) illustrate the importance of an integrated online go-to-market strategy considering an existing offline channel in a B2B context in China; (2) discuss how to optimize sales channels to serve end customers, drive business growth, and solve potential conflicts between an online and offline sales channel as well as considering the advantages and disadvantages of a pioneer versus a follower strategy; and (3) design a robust digital transformation strategy in one of the most traditional industries, yet one of the most dynamic markets, China’s agricultural sector.

Themes and Tools Used • • • • •

B2B marketing and go-to-market strategy Digital transformation, electronic commerce, and mobile commerce Porter’s five forces, PESTL and SWOT analysis Pioneer versus follower strategy Adoption of new technology and diffusion of innovation

Target Audience The case can be used for graduate students, who have already been exposed to the essentials of marketing and strategy. The case is equally suitable for courses in international marketing, B2B marketing, e-commerce, and international strategy, especially with an Asian and m-commerce focus. It is recommended that students have already been exposed to issues of B2B marketing and channel management and some basic insights into electronic commerce as well as business strategy.

1 Names of all MNCs and of the main character in the case mentioned are invented. Any parallel to existing companies or people would be coincidence. The focus of this case is the development of a sustainable online channel strategy that could be applied by any MNC rather than an analysis of an individual company.

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Questions • What do you think are the opportunities and threats brought about by the emergence of e-commerce, for companies actively involved in China’s CP industry, especially for MNCs? • What are the competitive strengths and weaknesses of MNCs in China’s CP industry? • Should CPG enter into e-commerce now and become a pioneer among the MNCs or remain a follower, and why? • What are the key advantages and disadvantages (risks) of each strategy? • If you were Chris Ma, how would you design CPG’s digital transformation strategy, considering the short-, mid-, and long-run implications? • Do you think farmers would adopt a new e-commerce channel to an extent justifying the investment needed?

Introduction The multinational company (MNC), CPG, has been active in the Chinese crop protection (CP) market for three decades. Its business has developed very well in recent years. It has became one of the top three MNC in China’s CP industry in 2015 moving up from the fifth position. Successful launches of new and innovative products with a unique value proposition and positioning as well as a strong end customer (farmer) focus have helped CPG to outgrow the market. CPG built a professional on-ground sales team with over 300 promoters across China, providing technical training to farmers and retailers. Through farmer meetings, demonstration trials, and other marketing activities, the promoters helped CPG to create on-ground demand and deliver sustained business growth. Having spent most of his professional career in China’s CP industry, Chris Ma had a profound understanding of the industry and its current trends. Before Chris joined CPG, he was responsible for the marketing department of Number One Ltd., the market leader among the MNCs in China’s CP industry. Chris had observed that many industry trends had come and gone in the past. However, the popularity of e-commerce, especially enabled by the growing number of smartphones as well as the overall digital transformation, seemed to be the real next big thing. In the past few months, online commerce had become a “hot” topic in China’s agricultural industry and even named “Agriculture 4.0” by some. Attracted by the huge number of potential customers and strong political support from the Chinese leadership, Internet giants like Alibaba and Jingdong (JD) had started to enter into this market and set up special services for the rural population and farmers. Trying to seize the new opportunities and to differentiate, many local CP companies had also started to invest in e-commerce ranging from providing farming-relevant information to growers via WeChat, over operating special service apps, to setting up online sales channels. Other players, including the MNCs had been rather passive or even

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publicly stated that they are not entertaining any e-commerce sales channel, at last for time being. Chris felt that many aspects had to be considered to develop a successful online strategy and that its implementation would require many resources. However, would Chinese farmers adopt the new sales channel to purchase CP products to an extent of justifying any investment into e-commerce for CPG as well? Which type of online sales channels would farmers prefer: one directly set up and run by CPG like those of Rotam and Noposion, a dedicated crop protection online platform like Nongyi Net, or a general online shopping platform like Alibaba’s Village Taobao or JD’s Nong. JD? Would farmers purchase online through smartphones or desktop computers (m-commerce versus e-commerce)? And how would the current sales channel partners react if CPG invested in an e-commerce channel? How should the new online sales channel be set up and run? Should it be integrated with the traditional one or stand on its own? Chris understood that his decision would fundamentally impact the long-term faith of CPG. In 2 weeks’ time, CPG’s global president would come to China. Chris knew that by then he had to have decided on which direction to take in order to present a first integrated approach for a China go-to-market online strategy.

The History of Agriculture in China Agriculture has played an important role throughout China’s history. Archeological evidence indicates that rice and millet have been domesticated in north-central China and south of the Yangtze River already in the seventh millennium B.C. Latest biochemical research on the genetic origin of rice plantations confirmed the archeological findings and show that rice cultivation activities may have started as early as 8200–13,500 years ago, in the Yangtze Valley of China. Today, China is the largest producer, consumer, and importer of many agricultural commodities worldwide including the number one global producer of rice, wheat, potatoes, fruits, and vegetables as well as the second largest grower of corn (Ross 2018). With a population of 1.4 billion people, China has the largest population on Earth. This means that China has to feed about 25% of the global population. However, the country has only access to about 8% of the world’s arable land. Despite this imbalance of population size versus arable land, China has been able to largely achieve grain self-sufficiency with rice, wheat, and corn, to increase average rural income, and to substantially reduce rural poverty since the beginning of the political reforms in 1978 (Zhu 2013). Between 1978 and 2010, China has managed to increase grain production by 80%. These are quite some remarkable achievements, considering that disastrous famines have been a regularly occurring problem and a major cause for socioeconomic instability as well as political unrest throughout Chinese history. Therefore, food security, i.e., the grain self-sufficiency target of 95%, has been one of the fundamental objectives of the Chinese government since 1996 (State Council Information Office 1996). Despite the successful yield improvements over the last decades, China’s agricultural sector is still facing

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many challenges to ensure future self-sufficiency, and many experts dispute whether the country could and should further sustain grain self-sufficiency (The Economist 2015; TheCropSite 2014). Major challenges and trends include limited and declining/fixed arable land base, water shortages (shrinking water supply), diverse crop structure, inefficiencies of shrinking and aging workforce, growing (urban) population, and changes in dietary patterns (Chinese Academy of Agricultural Sciences 2013; Hays 2013). To solve these challenges, innovative solutions are needed to further increase crop yield and the overall efficiency of the agricultural sector by adopting new technologies.

The Crop Protection Industry in China One of the most important methods to intensify agricultural production and to increase crop yields is the application of chemical pesticides (crop protection products) (Popp et al. 2013). China’s crop protection industry consists of over 2000 chemical pesticide manufacturers (PR Newswire 2015). Combined, these companies produced over 3.7 million metric tons of agrochemicals in 2015, making China the world’s largest pesticide manufacturer (Poupard 2016). Furthermore, China is one of the biggest users of pesticides. With a total market value of $6.08 billion in 2014 (Ahmed and Fairclough 2015), China’s crop protection market was the third largest worldwide after the USA and Brazil.

Research- and Development-Oriented MNCs Versus Generic Players Agrochemical companies can be generally divided into two groups: research and development (R&D)-oriented multinationals who invest in the discovery of new active ingredients (AIs)2 and generic producers who usually use existing AI technology to formulate their own products. Developing new AI requires high financial investments and a lot of time. Between 2010 and 2014, the average investment to develop and launch a new AI was over $280 million with an average lead time of over 11 years (Rana 2016). In most countries, including China, new AIs and novel pesticide formulations can be patented as intellectual property (IP) rights. The patent holder receives a legal monopoly during the patent protection period. This is AIs are the part of the pesticides which are “intended to kill or control pests (insecticides, fungicides, herbicides, etc.)” (Joint Meeting on Pesticide Specifications (2016)). The production of pesticides takes place in two major steps. Firstly, the active ingredient is synthesized. This pure and highly concentrated product is usually not suitable for direct usage. Therefore, in the second production step, the formulation process, the AI is combined with other ingredients, which help to improve the chemical and physical properties of the end product, the (formulated) pesticide. Many different types of pesticide formulations exist ranging from gaseous over liquid to solid ones Herzfeld and Sargent (2017). Often the same AI is sold in different types of formulations, concentrations, and brand names. 2

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important to ensure that companies keep on investing in R&D as they can enjoy a “secure” return on investment. Moreover, it is also interesting from a marketingstrategic point of view, as it allows companies to trade IP rights with each other. A common industry practice is to grant “access” to certain AIs to close portfolio gaps. For example, one company strong in fungicides may grant access to one of their fungicide AIs to another company less strong in this field. Given the huge investments required and the technology gap between R&Dfocused companies versus generic ones, most of the global R&D to discover new AIs is conducted by the six worldwide leading multinational agrochemical companies. The majority of the industry players pursue a “follower” strategy and focus on the development and sales of products containing “off-patented” AIs (generic products). Almost all Chinese pesticide companies are generic producers, focusing most of their relatively small R&D spending on the development of new formulations of off-patented AIs and improvements of their current products. Until now, China’s CP industry has not developed any globally significant AIs. Compared to the MNCs, Chinese generic companies strive for a cost-leadership strategy (reduce cost and increase volume) instead of R&D-based innovation. They export a large proportion of their annual production output overseas. Besides high barriers to enter, the CP industry is also characterized by high barriers to exit. Huge capital investments are needed to set up property, plant, and equipment for pesticide production which cannot be easily used for other purposes. Consequently, competition among CP companies becomes even more intense. Due to the high price competition on generic products, generic companies try to get to market with newly off-patented products as soon as possible. Typically, this leads to quick price erosion once an AI loses its patent protection, especially for “blockbuster” AIs. In some cases, hundreds of generic companies start to produce products with the same, newly off-patented AI. Between 2015 and 2019, 28 AI patents will expire with a global market value of more than $4 billion (Xie 2015), and by 2023, another 166 pesticide-related patents will have expired (expected market value $11 billion). Many Chinese companies are looking forward to seize these upcoming opportunities. Expiring patents and strong generic competition are not the only challenges MNCs face in China. Once a product is successfully introduced, some local companies may start to produce and sell “fake” products (counterfeits) and thus infringe on patents and trademarks. Chris estimated that as much as 20–30% of the pesticides sold in China were counterfeits. This creates a serious problem not only because of the lost sales revenues and possible price issues but also because some of the fakes do not contain any or less AIs not delivering the desired protection of the crops. This may result in economic loss for the farmers, for example, reduced crop yield or in worst cases the loss of the entire harvest or plantation, creating an extremely negative user experience. To tackle this, the government and MNCs are undertaking various measures to combat product counterfeiting including revoking registration certificates or employing specialists dedicated to discover and report fake products and educating the market. However, given the size of the market and the number of companies, this problem remains difficult to solve.

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Market Outlook Despite the challenges, China’s CP market remains one of the most attractive ones worldwide, given its large size and growth potential both for domestic and for international producers. In recent years, the market had grown quite rapidly. Chris estimated that the market had almost quadrupled between 2000 and 2014. Agricultural consultants have estimated the year-on-year (YoY) growth rate between 2013 and 2014 to be around 9% (Ahmed and Fairclough 2015). Chris was also confident on the future market growth. He predicted a compound annual growth rate (CAGR) of 6–7%, leading to a market value of $8.5–$9.1 billion by 2020. Furthermore, Chris knew from conversations with distributors that the MNCs had grown much faster than the generics. However, he assumed that the market share of all MNCs was still relatively low (10–15%). He was confident that this share could increase to at least a quarter of the total market by 2020. The overall modernization of China’s agriculture industry and increasing treatment cost and volume were the main industry growth drivers Chris considered. For him, the key reasons for the faster growth of R&D-driven MNCs were further product upgrade from older and cheaper chemistry to more efficient and higher-priced CP products, awareness, and demand of creation activities of MNCs down to the farmer level, emergence of more professional and larger growers (land consolidation), increasing farm income and higher education levels of farmers as to how to select and apply CP products.

Distribution of CP Products CP products are typically sold through an extended distribution network in China, because of the country’s large geographical expansion and the huge number of farmers (over 200 million). Provincial distributors usually form the first active link in the CP distribution chain connecting manufacturers with farmers. County-level dealers, who resell to village-level retailers, are the second link. The third link exists as retailers who finally sell the CP products to the individual farmers. This three-tier or three-step channel is one of the most common channel models in China. Two other major types are the two-tier channel (without the dealer-level) and the mixed one (combination of two- and three-tier channel) (compare Fig. 1). Channel models vary by province and depend, for example, on the average farm sizes in each province or area. In some areas, where farmers cultivate large acreages, distributors may even sell directly to growers. However, direct sales of CP companies to farmers remain an exception. To avoid internal cannibalization or to obtain access to certain products, some CP companies conclude distribution agreements with each other. Besides selling products to farmers, retailers often provide technical advice to farmers meeting local climate and growing conditions as well as offer credit sales. Often the credit period will be as long as a whole growing season. Chris knew that the common, overall channel margin of the main CP channel models ranged from 30 to 50%. He estimated that the number of CP distributors and

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Fig. 1 China’s main CP channel models. Source: Authors

dealers was about 10,000 in China and the number of retailers above 1 million. At the time when Chris joined CPG, the company’s basic sales channel contributed to almost 80% of CPG’s annual revenue and consisted of around 100 distributors, with about 1000 dealers and more than 10,000 retailers. He called this the direct sales model. Additionally, CPG had distribution agreements with other MNCs and some local generics. He called this the indirect sales model. He made this distinction because of the different levels of influence CPG had over each sales model. In the direct sales model, CPG was actively steering sales by managing its channel patterns (push strategy) and creating on-ground demand at the famer level (pull strategy). Despite CPG’s recent successes, Chris worried that the current channel setup would not be sufficient to sustain future business growth and e-commerce seemed to provide unlimited growth opportunities for the company.

Online Commerce in China’s Rural Area and Crop Protection Industry China is one of the world’s oldest agricultural societies. At the same time, it has one of the fastest growing e-commerce sectors in the world, with highly adapted mobile payment systems, and the most rapid 4G network expansion of any country (Lee 2015).

Electronic and Mobile Commerce in China For most people, electronic commerce (e-commerce) means “online shopping.” In a broader sense, e-commerce is defined as “all business activities that use Internet technologies” (Schneider 2014) like B2B online commerce. Mobile commerce (m-commerce) is “the delivery of electronic commerce capabilities directly into the consumer’s device, anywhere, anytime via wireless networks.” This means m-commerce is a special type of e-commerce, using wireless networks and mobile

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25.2%

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21.1 18.0 15.0 12.3 10.1 6.4

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Fig. 2 China’s total e-commerce market development, 2011–2018. Source: iResearch (2015)

devices. Within a few years, the Internet has penetrated most areas of everyday life and business. It has led to the rise of completely new industries (.com) as well as in recent years to the transformation of the “traditional” manufacturing industry (Industry 4.0) and even farming (e.g., precision farming). This process is also called digital transformation. With smartphones becoming more and more ubiquitous, this digitalization process is accelerating into a “mobile commerce revolution”—a fundamental shift which is about to permanently change the way business is done (Hayden and Webster 2015). China’s e-commerce market is the largest, and it is one of the fastest growing in the world (Forrester 2016). Some experts predict that the country’s total e-commerce GMV (gross merchandise volume) will reach $3.5 trillion (¥24.2 trillion)3 by 2018, almost twice of its 2014 size (see Fig. 2). B2B e-commerce is estimated to remain the largest segment with a share of around 65%. Mobile online shopping is expected to be the fastest growing segment with a CAGR of 48%, contributing to almost 20% of all e-commerce activities in 2018 and overall online shopping (PC and mobile) to 30%. The remaining shares will comprise of online travel and local O2O (online-tooffline) lifestyle services like catering, leisure, and recreation. Main growth areas are expansions to the third and fourth tier cities as well as the rural and even global markets (iResearch 2015). China’s major online sellers are Alibaba (Tmall) and Jingdong (JD). In Q2 2016, Alibaba captured more than half of the country’s overall online market and over 80% of all m-commerce. JD’s online market share was about a quarter and its m-commerce share below 10% (iResearch 2016a, b). Within less than 3 years, China’s online shopping has turned from e-commerce into m-commerce (see

3

USD/CNY exchange rate used in the case: 6.8495 (as of November 11, 2016).

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91.0% 89.6% 86.7% 82.2% 76.2% 74.2% 67.5% 64.8% 55.8%

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Fig. 3 China online shopping sales share, PC versus mobile. Sources: Adapted from eMarketer (2016): Q1 (2013)–Q4 (2015) and iResearch (2016b): Q1–Q2 (2016)

Fig. 3). Higher convenience and flexibility as well as the development of more and better m-commerce solutions lead to an expected further increase in the future. With more than 688 million users, China’s overall Internet penetration rate exceeded 50% in 2015, up by 40 million users YoY (see Fig. 4). A total of 620 million of all 2015 “netizens” were also mobile Internet users (90%), and over 70% of the new “netizens” accessed the Internet through mobile phones. For nonusers, lack of Internet literacy and computer skills is the biggest obstacle to start going online (see Fig. 5). According to industry experts, China’s “easily converted population shrinks gradually,” decreasing the conversion rate of non-Internet users becoming new users (China Internet Network Information Center 2016). However, the government is actively promoting a further penetration of the Internet in China including into its rural areas.

Political Support: With “Internet Plus” to Modern Agriculture More will be done to promote the application of digital technology in the agricultural sector to reinvigorate the rural economy. China’s Vice Premier Wang Yang, 15 September, 2015 (State Council of the People’s Republic of China 2015)

The modernization of China’s agricultural sector has long been a top priority for the Chinese government. In July 2015, China’s State Council revealed the “Internet Plus” action plan, aiming to integrate the Internet and traditional industries, including the agricultural sector, to increase efficiency and to boost economic growth. Internet-enabled technologies and business models shall help to close the financial and developmental gap between urban and rural China and generate new economic growth. By combining one of the world’s fastest growing sectors (China’s

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34.3% 28.9% 22.6% 16.0% 8.5%

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60.0%

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Do not understand the computer / Internet

Too old / young

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Have no Internet access device, e.g. computer 2014

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2015

Fig. 5 Reasons for no Internet use. Source: CNNIC (2016)

e-commerce) with the up-to-now slower-paced agricultural one, China’s leadership aims to solve many problems with an integrated approach. To actively support the development of rural e-commerce, the government is planning to implement various measures, for example, improve the rural Internet infrastructure and logistics, nurture tech-savvy farmers, and encourage big data in agriculture. The government also wants to encourage “companies to explore sustainable business models and take

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advantage of the Internet to improve supply, techniques and services” (State Council of the People’s Republic of China 2015).

E-Businesses Set Up by a Single CP Company In April 2014, China’s second largest pesticide formulator, Rotam, launched its online store (http://store.rotam.com). This member-based store targeted farmers cultivating larger acreages (bigger farmers) like farm cooperatives and family farms. To match their needs, Rotam offered larger product pack sizes in its online store. With the store, the company aimed to broaden its overall sales channel and to capture the opportunities created by land consolidation and the increasing rural online trade. However, the website of the store was not optimized for smartphones, i.e., m-commerce. Besides Rotam, China’s largest pesticide formulator Noposion was also very active in establishing an online business and setting up many Internet-based services. Noposion’s most ambitious e-commerce project was the O2O platform Tian Tian Quan (http://www.ttq.com). The platform aimed to combine online transactions with offline services for its channel partners and farmers offering an integrated approach. In August 2014, Noposion announced to raise funds of about ¥730 million ($106 million) to build the platform: 40% for setting up of the platform, one third for developing new products, and the rest as working capital (Lv 2014). In May 2015, the company officially launched Tian Tian Quan and formed an “Internet alliance” with about 100 distributors who joined this platform. Noposion’s objective was to make Tian Tian Quan the most excellent service brand under China’s “Internet Plus agriculture” framework integrating different crop protection stakeholders like leading manufacturers and excellent local channel partners on one platform. This very ambitious objective was also reflected in the 2-year operation targets: • • • • •

Partner with >300 leading domestic distributors. Set up >50,000 Tian Tian Quan service stores (retailers). Nurture 500,000 planting specialists. Serve 50 million family farms (members). Influence hundreds of millions planting families (nonmembers).

Noposion did not aim to subvert the traditional sales channels but to optimize them. This meant offering a variety of online and offline services to farmers and channel partners as well as integrating former stand-alone Internet-based services and new ones into one single ecosystem. These services included Nongjiwang (njw88.com), a B2B e-commerce platform for selling pesticides and other farming inputs including small assets for channel partners (e.g., POS payment devices), a peer-to-peer (P2P) financial service platform for loans to foster agricultural development, “crop circle” a farmer community to share and agricultural-relevant information, and technical services provided by agricultural experts. Offline element included agricultural services stations (e.g., Tian Tian Quan retail stores) selling

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products and providing services to farmers. Noposion also planned to add a logistic system and sales platform for agricultural produce. Combined these elements should provide farmers and channel partners with an integrated and unique agricultural Internet ecosphere accessible also via an app (Think Real 2015a). Other major Internet-based services Noposion had set up were the agricultural Internet finance platform “NTJR China” (www.ntjrchina.com) to provide capital to players in the agricultural industry via crowd funding, who had been historically short of financing opportunities (Think Real 2015b). Another finance platform Noposion invested in was the P2P debit-credit platform Nongfadai (www. nongfadai.com). This service was launched in Q1 2015 to provide big growers and family farms with access to capital or investment options, either P2P or through financial institutes. With this service Noposion tried to close the financing gap that farmers encountered because of lack of effective data for credibility checks and insufficient collateral assets. Within the first 5 months of operation, the platform generated a turnover of about $80 million, reaching nearly 1000 family farmers (Think Real 2015c). Chris knew that Noposion’s ambitious e-commerce plans were based on the company’s chairman, Mr. Lu Baiqiang, who estimated that “it will take 5 years for rural areas to go through the 15-year urban Internet development in China” and that this would dramatically change China’s agricultural industry. It was obvious that Noposion wanted to seize the online opportunity and become the leading Internet company for farmers. Chris also knew that if Noposion succeeded, it would enable the generic producer to significantly differentiate itself among its competitors. Chris had observed that Noposion had taken several actions to make Tian Tian Quan a success, for example, training over 130 core distributors in 2015. Besides that, Noposion used Tian Tian Quan as part of brand name for some of its generic products, e.g., the fungicide mancozeb (Tian Tian Quan Shuangze). Furthermore, Tian Tian Quan sold products from other large domestic players like NutriChem. To speed up its digital transformation and enhance its mobile Internet-related capabilities, Noposion cooperated with companies like Beijing Zhenghe Ciye, a mobile Internet company. Going forward Noposion’s strategy was to grow in three areas: establishment of a highly efficient and low-cost distribution service platform, establishment of specific crop circles, and construction of Internet-based circle. To further pursue its online strategy with Tian Tian Quan, Noposion planned the following actions for the next 10 years: attract top online talents to set up the online operations system, engage in partnerships, accelerate construction of financial services (fund, payment, and security) and establish partnerships inside and outside of the industry, and cooperate with domestic and local agricultural companies to widen its product range (Think Real 2016a). But Chris wondered whether China’s agricultural online market develops as quickly as Noposion foresaw and would these high investments pay off. Chris reviewed the company’s financial results and noticed that in 2015, Tian Tian Quan accounted for 7% of Noposion’s total income (AgroPages 2016c). However, in the first three quarters of 2016, Tian Tian Quan was one of the reasons why Noposion’s

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bottomline dramatically dropped from a positive net profit of $34.1 million full year in 2015 to a loss of $31.5 million as expenses for the platform’s business expansion like marketing and technical services had increased and even worse the full-year net profit projection ranged from a loss of $44.3 million to $54.5 million (Think Real 2016b).

E-Businesses Set Up by Multiple CP Companies Between the introduction of Rotam’s online store and the launch of Tian Tian Quan, Nongyi Net4 (www.16899.com), China’s first joint e-commerce platform by multiple CP companies for pesticides, was launched in September 2014. Similar to the concept of Tian Tian Quan, Nongyi Net was designed as an O2O platform. However, it was financed and set up by multiple companies and positioned already at its launch to market high-quality pesticides from the top Chinese CP companies, rather than mainly focusing on one company like Tian Tian Quan. Jiangsu Huifeng Agrochemical Co., Ltd. (Jiangsu Huifeng), and the China Association of Pesticide Development invested ¥20 million ($2.9 million) to set up the platform. Many CP professionals viewed the launch of the platform as the beginning of a new era in China’s CP industry. At launch, 19 domestically well-known pesticide manufacturers joined the platform including China’s third largest and at that time fifth largest pesticide formulators: Guangxi Tianyuan Biochemistry Co., Ltd., and Beijing Yanhua Yongle Biotech. Co., Ltd. (AgroPages 2014). Nongyi Net offered direct online sales of CP products and services to large-scale growers, cooperatives, family farms, retailers, etc., who could access the service via the platform’s website, a WeChat account, and an app. As a long-term goal, Nongyi Net planned to develop over 2000 county-level workstations and 200,000 villagelevel crop protection service stations. Traditional channel partners could become either country-level stations (distributors) or village-level crop protection stations (retailers), providing services to the farmers. The workstations were independent from the Nongyi Net, however managed by the platform uniformly, as it provided the online platform and brand as well as the source of products. With the integration of county and village stations into its business model, Nongyi Net aimed to solve many challenges including those on how to provide logistics down to the village level and how to deal with the limited Internet literacy of some farmers, who could get support in the ordering process and receive the delivery at the service stations. Nongyi Net saw pesticide e-commerce as an inevitable trend and choice, as it would be more convenient and effective than the traditional channel. Furthermore, it could help to lower transaction costs and reduce information inconsistency between producers and end users. However, it would also lead to more intense competition and consolidation of the industry (Think Real 2014).

4 Other English names (translations) for the platform are Nongyiwang, Nongyi.net, and Nong1wang.

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Despite the positive outlook, the Nongyi Net had a negative impact on Jiangsu Huifeng’s profitability in 2015 as it was running at a loss and one major profit dragger caused by initial investments and promotion activities (AgroPages 2016b). In the third quarter of 2016, sales and net profit of Jiangsu Huifeng recovered. One reason was that sales of Nongyi Net had increased, while inputs had decreased (AgroPages 2016a). Furthermore, the number of partner companies had grown to 24.

“Traditional” Internet Giant-Operated Rural E-Businesses Attracted by the huge market opportunities and higher growth rates than the ones in urban areas, China’s traditional online giants like Alibaba and JD started to invest into rural e-commerce around the same time as the CP companies. Those companies have developed special platforms, apps, and service infrastructures to meet the specific product and service needs of the rural population in China. One of the first “traditional” e-commerce giants to heavily invest into the rural market was Alibaba. In October 2014, the company announced to spend ¥10 billion ($1.5 billion) over the next 3–5 years in China’s rural e-commerce in order to expand its presence in this segment. This massive investment was dedicated to set up 1000 county operational centers and 100,000 village service stations, extending Alibaba’s reach to the rural buyers. Once completed, Alibaba’s sales network would cover as much as one third of China’s counties and one sixth of the rural areas. The strategy was designed to adjust the company’s business model to meet the specific conditions of rural China, i.e., to improve the logistical services, as well as to acquire and train more buyers and sellers in the rural areas to overcome the Internet literacy gap. In addition to that, Alibaba developed “Village Taobao,” an online store specifically designed to meet the needs of farmers and other rural dwellers. We hope farmers can directly purchase materials from manufacturers to lower costs and sell farm produce all over the world without leaving home. Zhang Yong, Chief Operating Officer (COO) of Alibaba, Global Times (2014)

Besides Alibaba, JD invested into rural e-commerce. In August 2015, JD launched Nong.JD (http://nong.jd.com), JD’s own website dedicated to supply farming-related products and services like seeds, fertilizers, pesticides, feedstuff, veterinary product, machinery, tool and even flowers. Interestingly, JD’s approach to the seed business was to purchase seeds and hold inventory to ensure quality and delivery. Besides Nong.JD, JD offered installment payment and insurance service. At launch, various leading agricultural companies opened flagship stores on Nong. JD. According to local media, JD’s logistic network covered over 70% of China and was available in 50,000 villages. By the end of 2015, JD planned to open 500 service centers and to employ up to 100,000 promoters and marketing staff (Lee 2015).

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The Future: Ambitious Targets and Integrated Online Strategy Chris stood up from his desk and looked out of the window from his new office. He thought of the ambitious sales targets he had to meet in the upcoming years. Despite the recent successes of CPG, something new had to be developed to ensure future growth. Chris was confident that with the right go-to-market strategy CPG would be capable to outgrow the market and become market leader by 2020. E-commerce seemed like a welcomed opportunity to achieve this goal. So far, none of the other CP MNCs had made an attempt to seriously start e-commerce in China. On the contrary, most had recently published a letter officially informing channel partners and farmers that they would not sell any products online and would not take any responsibility for quality issues of online sold products. Chris wondered if CPG should make an aggressive move and be the first MNC to enter the online game. Is now the right time for that and is CPG ready for such a big step? Or should he wait and see how the whole e-commerce topic would develop further and focus on optimizing the “traditional” channel and the company’s core competencies, rather than diluting its efforts and limited resources? Would the potential advantages of being the first mover be greater than the risk of burning a lot of cash? Maybe e-commerce was just a big hype and the whole topic would be forgotten in a couple of months. Besides that, would farmers really want to buy a technical product like chemical pesticides online? Farmers were quite cautious and afraid of fakes sold online, so how could trust in the online system be built? Chris also thought of potential conflicts with the current channel partners and possible internal challenges for CPG during a change process, as he felt that the organization was not very strong in the whole digital topic yet. Chris was not sure if the risks already outweighed the opportunities. But there was this huge, untapped part of the market which CPG was not able reach with the current sales channel. E-commerce could help to dramatically increase channel coverage apart from other advantages like reducing the information asymmetry between producers and farmers. If Chris decided to set up an online business, the next question would be how to design and implement an integrated online strategy? Should CPG set up its own and independent online store, partner with other companies, or join one of the existing platforms? Possible partners Chris could think of were those MNCs and generics with whom CPG already cooperated. An alternative was the Internet giants like Alibaba and JD. Cooperating with industry peers could be problematic because of possible conflicts of interests in the long run or portfolio overlaps and difficulties to differentiate. A strategic alliance with one of the Internet companies could help to bridge the digital technology gap for CPG, but these players had only limited experience with the special requirements of the CP industry. Besides it had to be considered which of these models would be preferred by the farmers, followed by many operational and logistical issues: How to design the flow of goods and payment, and how to train farmers and channel partners? Should farmers really be the e-commerce target group or maybe channel partners, e.g., retailers? Would they purchase via their smartphones or PCs (m-commerce versus e-commerce)? And

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ultimately, how should online and offline operations as well as the sales team be integrated? Chris felt that the list of questions to be answered seemed overwhelmingly limitless. He knew that he had to quickly develop a solid plan. Time was pressing as the global president would come to China in 2 weeks’ time, and it was clear that Chris had to present at least his first draft of China’s future online strategy.

References AgroPages. (2014). China’s first pesticides direct marketing platform is online. Retrieved October 11, 2018 from http://news.agropages.com/News/NewsDetail%2D%2D-13456.htm. AgroPages. (2016a). Huifeng agrochemical achieved 37% sales income, e-business at considerable loss. Retrieved October 11, 2018 from http://news.agropages.com/News/NewsDetail%2D%2D17933.htm. AgroPages. (2016b). Jiangsu Huifeng: Revenue up by 40.4% YoY in Q1-Q3 2016. Retrieved October 11, 2018 from http://news.agropages.com/News/NewsDetail%2D%2D-20164.htm. AgroPages. (2016c). Noposion achieves 18.71% net profit increase in 2015, Tian Tian Quan accounts for 7% of total income. Retrieved October 11, 2018 from http://news.agropages. com/News/NewsDetail%2D%2D-17934.htm. Ahmed, N., & Fairclough, B. (2015). China’s crop protection market worth $6.08 billion in 2014. Retrieved October 11, 2018 from https://www.agribusinessglobal.com/agrichemicals/ kleffmann-group-estimates-chinas-crop-protection-market-at-6-08-billion-in-2014/. China Internet Network Information Center (CNNIC). (2016). Statistical report on internet development in China: January 2016. Retrieved October 11, 2018 from https://cnnic.com.cn/IDR/ ReportDownloads/201604/P020160419390562421055.pdf. Chinese Academy of Agricultural Sciences (CAAS). (2013). Agriculture in China. Retrieved October 11, 2018 from http://www.caas.cn/en/agriculture/agriculture_in_china/. eMarketer. (2016). Ecommerce turns into M-commerce in China: Mobile sales account for around half of ecommerce in the country. Retrieved October 11, 2018 from https://www.emarketer. com/Article/Ecommerce-Turns-Mcommerce-China/1013736. Forrester. (2016). Asia Pacific e-commerce market to reach US$1.4 trillion in 2020. Retrieved October 11, 2018 from https://www.forrester.com/Asia+Pacific+eCommerce+Market+To +Reach+US14+Trillion+In+2020/-/E-PRE8924#. Global Times. (2014). Alibaba targets rural expansion with major investment. Retrieved October 12, 2018 from http://www.globaltimes.cn/content/886054.shtml. Hayden, T., & Webster, T. (2015). The mobile commerce revolution: Business success in a wireless world. Indianapolis: Que Publishing. Hays, J. (2013). Agriculture in China: Challenges, shortages, imports and organic farming. Retrieved October 12, 2018 from http://factsanddetails.com/china/cat9/sub63/item348.html. Herzfeld, D., & Sargent, K. (2017). Private pesticide applicator safety education manual. Retrieved October 12, 2018 from https://extension.umn.edu/pesticide-safety-and-certification/private-pes ticide-applicators#study-manual-1093213. iResearch. (2015). China e-commerce market rises 21.3% in 2014. Retrieved October 12, 2018 from http://www.iresearchchina.com/content/details7_15565.html. iResearch. (2016a). China’s mobile shopping GMV soared 75.9% in Q2 2016. Retrieved October 12, 2018 from http://www.iresearchchina.com/content/details7_26646.html. iResearch. (2016b). China’s online shopping GMV broke one trillion yuan in Q2 2016. Retrieved October 12, 2018 from http://www.iresearchchina.com/content/details7_26685.html. Joint Meeting on Pesticide Specifications (JMPS). (2016). Manual on development and use of FAO and WHO specifications for pesticides. Retrieved October 11, 2018 from http://www.fao.org/

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fileadmin/templates/agphome/documents/Pests_Pesticides/Specs/JMPS_Manual_2016/3rd_ Amendment_JMPS_Manual.pdf. Lee, E. (2015). China’s e-commerce boom set to overhaul agriculture. Retrieved October 12, 2018 from https://technode.com/2015/08/21/e-commerce-agriculture/. Lv, C. (2014). Noposion plans to invest 730 million yuan to build O2O platform for pesticide projects. Retrieved October 12, 2018 from http://www.ccpia.com.cn/en/info.asp? classid¼L1007&newsid¼L409011449320580. Popp, J., Pető, K., & Nagy, J. (2013). Pesticide productivity and food security: A review. Agronomy for Sustainable Development, 33, 243–255. https://doi.org/10.1007/s13593-012-0105-x. Poupard, D. (2016). China’s pesticide production up 2.3% in 2015. Retrieved October 12, 2018 from https://agrow.agribusinessintelligence.informa.com/AG023897/Chinas-pesticide-produc tion-up-23-in-2015. PR Newswire. (2015). China pesticide industry report, 2015-2018. Retrieved October 12, 2018 from https://www.prnewswire.com/news-releases/china-pesticide-industry-report-2015-2018300176389.html. Rana, S. (2016). Agrochemical R&D costs continue upward trend. Retrieved October 12, 2018 from https://agrow.agribusinessintelligence.informa.com/AG024291/Agrochemical-RampDcosts-continue-upward-trend. Ross, S. (2018). 4 countries that produce the most food. Retrieved October 12, 2018 from https:// www.investopedia.com/articles/investing/100615/4-countries-produce-most-food.asp. Schneider, G. P. (2014). Electronic commerce (11th ed.). Stamford: Cengage Learning. State Council Information Office (SCIO). (1996). The grain issue in China. Retrieved October 12, 2018 from http://www.china.org.cn/e-white/grainissue/index.htm. State Council of the People’s Republic of China. (2015). China to accelerate integration of internet, agriculture. Retrieved October 12, 2018 from http://english.gov.cn/state_council/vice_ premiers/2015/09/14/content_281475190071964.htm. The Economist. (2015). China’s inefficient agricultural system. Retrieved October 11, 2018 from https://www.economist.com/the-economist-explains/2015/05/21/chinas-inefficient-agricul tural-system. TheCropSite. (2014). China’s food self-sufficiency policy. Retrieved October 11, 2018 from http:// www.thecropsite.com/articles/1946/chinas-food-selfsufficiency-policy/. Think Real. (2014). Agrochemical e-commerce platform set up mainly by Jiangsu Huifeng launched. Retrieved October 12, 2018 from http://www.think-real.com/Articles/articleid/81/ agrochemical-e-commerce-platform-set-up-mainly-by-jiangsu-huifeng-launched. Think Real. (2015a). Noposion initiates “Tian Tian Quan” internet alliance. Retrieved October 12, 2018 from http://www.think-real.com/Articles/ArticleId/487/tag/noposion/noposioninitiates-tian-tian-quan-internet-alliance. Think Real. (2015b). Noposion officially launches agricultural internet finance service brand ntjrchina. Retrieved October 12, 2018 from http://www.think-real.com/Articles/ArticleId/692/ tag/noposion/noposion-officially-launches-agricultural-internet-finance-service-brandntjrchina. Think Real. (2015c). Noposion: Turnover from P2P debit-credit platform exceeds USD78.3 million. Retrieved October 12, 2018 from http://www.think-real.com/Articles/ArticleId/614/ tag/noposion/noposion-turnover-from-p2p-debit-credit-platform-exceeds-usd783-million. Think Real. (2016a). Noposion: Efforts to build up internet-based agricultural ecological circle in 10 years. Retrieved October 12, 2018 from http://www.think-real.com/Articles/ArticleId/704/ tag/noposion/noposion-efforts-to-build-up-internet-based-agricultural-ecological-circle-in-10years. Think Real. (2016b). Noposion: Net profit largely down by 208.4% YoY to lose USD31.5 million in Q1-Q3 2016. Retrieved October 12, 2018 from http://www.think-real.com/Articles/ArticleId/ 5050/tag/noposion/noposion-net-profit-largely-down-by-208-yoy-to-lose-usd315-million-inq1-q3-2016.

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Xie, C. (2015). Four-billion dollar worth pesticides to come off patent in 5 years. Retrieved October 13, 2018 from http://news.agropages.com/News/NewsDetail%2D%2D-14166.htm. Zhu, L. (2013). Agricultural policy reform and food security in China. Retrieved October 13, 2018 from https://www.rural21.com/english/news/detail/article/agricultural-policy-reform-and-foodsecurity-in-china-0000959/. Marc Poetzsch is an Assistant Marketing Manager at BASF and leads marketing of the company’s Professional & Specialty Solutions business in China. Prior to this, he was responsible for market intelligence for BASF’s crop protection business in China, where he led over 10 market studies and generated market intelligence to better understand customer (farmer) needs. Before that, he traded chemical commodities with focus on China and Southeast Asia at Jebsen & Jessen (Hamburg, Germany). He is a certified Merchant in Foreign Trade. His interest includes international business with a strong passion for China and in building a bridge between the East and the West. He is fluent in Chinese and has been exposed to the Chinese language and culture since his early childhood. Marc obtained his executive M.B.A. (double degree) from the Mannheim Business School (Germany) and the Tongji University (China) as Best of Class in 2016. He completed his B.Sc. in Business Administration at the University of Mannheim (Germany) with an exchange semester at the Peking University (China). Marc is an alumnus of the Chinese-German Young Leaders Conference held by the Chinese People’s Institute of Foreign Affairs (China) and Global Bridges (Germany). Zheng Han is goetzpartner Chair Professor of Innovation and Entrepreneurship at the SinoGerman School for Postgraduate Studies (CDHK), Tongji University, in Shanghai. Prof. Han studied Industrial Engineering at TU Braunschweig in Germany and completed his Ph.D. at the University of St. Gallen, Switzerland, and was scholar of the Swiss National Science Foundation, visiting scholar of the China Europe International Business School (CEIBS) in China, and SMU in Singapore. His articles appear in renowned journals such as International Journal of Technology Management, R&D Management, International Journal of Entrepreneurship and Innovation Management, and International Entrepreneurship and Management Journal. Prof. Han teaches EMBA and top executive programs for leading international business schools and universities such as ESMT, ESSEC, ETH Zürich, Mannheim Business School, and University of St. Gallen. Before his academic career, he gained relevant practical experience working for McKinsey & Company in Germany. Prof. Han served as Chief Representative and Chief Investment Advisor of a Fortune Global 500 company in China for 7 years. He works on strategy, innovation, and marketing advisory projects and frequently gives workshops and keynote speeches for both MNCs and “Hidden Champions”.

Part III Ethnocentrism Revisited

Trung Nguyen Group and the Global Coffee Dream: Advantage at Home but Also Abroad? Quynh An Lu

Case Synopsis Research Problem How can a product be taken to a foreign market where the lifestyle and the product’s use contradict the home market? Can Trung Nguyen repeat its success with the Coffee House Chain and succeed in the US market?

Case Summary The case begins before the launch of Trung Nguyen in America in 2013. The brand was created with the desire to enhance the value of domestic coffee beans and to improve the lives of coffee planters in Vietnam. The founder—Vu Dang—was nicknamed the “paranoid guy” after he ditched his bright future as a socially respected doctor and instead took the rocky road to selling coffee. He was desperate to prove himself, hence the paranoia. In the beginning, there were many breakthroughs in marketing to gain the love of Vietnamese and build a mature brand among thousands of unknown coffee names in the domestic market. After 17 years’ successful operation with the coffee franchise chain in Vietnam and Asia, Trung Nguyen became a national coffee leader. Then he wanted to conquer the US coffee market by challenging Starbucks, with the ambition to change the coffee drinking culture of Americans of every social class. Despite the lack of resources and the existence of international trade barriers, Trung Nguyen’s game was set up with care. Vu Dang admitted that the battle was seen as “the grasshopper versus the

Q. A. Lu (*) TIAS School for Business and Society, Utrecht, the Netherlands # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_7

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elephant.” However, with his nation behind him, he was full of confidence for the fight.

Learning Objectives Understand the importance of national brands in their overall social and historical context and learn how to transfer them to foreign countries. Learn about differences in consumer behavior in Vietnam and the USA and how to systematically use them to internationalize a product. Evaluate the importance of country-of-origin effects for an emerging market company and its products and learn about the consequences for marketing strategy and implementation.

Keywords and Concepts • Transferability of local advantages abroad • 5M’s marketing communications: mission, money, message, media, and measurement • Country-of-origin effect, especially emerging market country • Consumer behavior in America and Vietnam • Comparing market segments across countries: premium, luxury, popular, goodenough market • Entering developed markets

Target Audience The case can be used for graduate students who have already been exposed to the essentials of marketing or international management. The case is equally suitable for courses in international marketing, brand marketing, consumer behavior, and entrepreneurship, especially with an Asian focus. It is recommended that students already have some knowledge of intercultural marketing and the management of the “4P’s,” “5M’s.” The case is also recommended for readers who care about Asia’s business trajectory or simply want to hear a story of an entrepreneur behaving with great responsibility toward his nation’s wealth and well-being.

Questions • What is the key positioning advantage of Trung Nguyen in Asia and in America? • What analysis should Trung Nguyen conduct for its international business before entering the US market?

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• Should Trung Nguyen follow its franchise strategy in the US market or consider merging with Starbucks? • Should Trung Nguyen rather stick to its domestic leader position instead of expanding to America?

Introduction Two thousand thirteen was one of the most changeable years in Vietnam’s economy after the 2008–2009 global crisis. Do (2014) described the national economic picture as “stable in difficulty.” Inflation was successfully controlled, helping to stabilize the economy on the macroscale. Consumer Price Index declined two-thirds, from 18.13% (2011) to 6.04% (2013) (NDH 2013). It was also an advantageous year for Vietnam’s major agricultural exports such as rice, cashew nuts, and, especially, coffee (NDH 2013). Further to this positivity, a coffee enterprise targeted broadening the nation’s specialty at home and internationally. Trung Nguyen Coffee Corporation is that company. From its foundation in 1996 in the domestic market to success and embarks on a journey to lay its first stone in the US coffee market, thereby confronting the giant of the global retail playground: Starbucks. At the end of 2013, when Starbucks landed onto the Vietnam retail coffee market, it threatened the survival of many small- and medium-sized domestic enterprises. Trung Nguyen Coffee and the man behind its tremendous story— Dang Le Nguyen Vu—decided to swim against the current. Instead of contriving how to stay safely in its shell, they surprised the national public by pursuing an American dream. A young man growing up in one of the poorest areas of Vietnam, the central highland, nurtured his vision of becoming the country’s leading coffee producer. After a long time with countless difficulties, the dream of being Vietnam coffee king became complete (FVL 2015). “We want to bring Vietnamese coffee culture to the world. It isn’t going to be easy but in the next year we want to compete with the big brands like Starbucks,” he said—“If we can take on and win over the U.S. market we can conquer the whole world” (Summers 2014). With complete conviction about the essential benefits of coffee, armed with confidence, Vu was ready for battle. The “paranoid guy” proclaimed, “If crude oil is the energy of the industrial economy then coffee is the energy of the knowledgebased economy” (Thomasson 2012).

The Life of the Paranoid Guy Vietnam’s “Doi Moi” period was an unforgettable time for many patriotic Vietnamese who were full of enthusiasm to create a more prosperous nation. There was both ample difficulty and advantage in an unsteady economy on its way to reaching out to the world.

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Doi Moi (Renewal), initiated in 1986, is political and economic reform period, which was observed as the most important change of the Vietnamese government after the reunification in 1975. The goal of implementing Doi Moi was to create a “Socialist-oriented Market Economy” because the economy at that time could not grow fast enough to feed its own people. Initially, the communist government under the Democratic Republic of Vietnam (DRV) adopted a centrally planned economy since its inception in 1975 (Beresford 2006). Vietnam prior to the Renewal in 1986 faced an economic crisis; inflation soared to over 700%, economic growth slowed down, and export revenues covered only less than the total value of imports. This led to an intense debate about past faults under the central planning system and the urge to introduce a major change in the run up to the 6th National Congress of the Communist Party of Vietnam (van Arkadie and Mallon 2003). Doi Moi witnessed a significant transformation of the nation. The number of private enterprises increased and created jobs for both urban and rural areas. A review of the Vietnamese economy from The World Bank (2018) stated that the Renewal has transformed the country from one of the poorest in the world, with per capita income around US $100, to lower middle income status within a quarter of a century with per capita income of around US $2100 by the end of 2015. Vietnam’s per capita GDP growth since 1990 has been among the fastest in the world, averaging 5.5% a year since 1990 and 6.4% per year in the 2000s. Vu was a high school student in 1986 when the country’s economy had moved to what was called “Market-oriented Socialism.” Vu’s childhood was typical of the rural highlands, helping his mother make bricks for a nearby kiln (Shmavonian 2012). After excelling at high school, Vu got a scholarship to attend Tay Nguyen Medical University. In 1992, the young man started his student life. The cost of the university was covered by trading quintals of rice which could sustain a whole family for a year. During his days sitting in lectures at medical school, Vu never stopped wondering about the lives of many Vietnamese that were still suffering from poverty and how to enrich their life. Despite shame at abandoning the Hippocratic Oath, he decided to walk away, planning to find a job in Ho Chi Minh city, the former Saigon. It didn’t work out and, following advice from a relative, Vu went back to finish his education. During this time, he learnt about the coffee industry and searched for the perfect roasting recipe.

From a Local Roaster to Vietnam Famous Coffee House Chain With no business background and only childhood experience of the coffee community, of how to harvest and grow coffee—the young man germinated his idea of building a reliable market for highland growers. A mission to extend the value of highland beans and improve the growers’ income began with the establishment of Vu’s own coffee company. When he wanted to leave the university, family and friends ridiculed him. Fortunately, there were two classmates with the same ambition, unwilling to “sleep in a narrow bed, dream those tiny dreams” (Che Lan Vien 1960). They

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decided to bet on Vu, so gathered 100,000VND (approximately $6 at that time) for him to embark on this uncertain and vague game. Formed in the coffee center of the Vietnamese highlands in the mid-1996, Trung Nguyen’s manufacturing base was specialized in roasting coffee from local plantations and delivering it to several coffee shops in Madrak, Vu’s home town in Dak Lak Province (Fig. 1). A first “headquarter” was located in a rickety attic. With a negligible capital of $6, an old bike, and a self-invented roasting machine, Vu and his friends had to convince local growers to let them borrow pure coffee beans. They roasted and sold them to local coffee stores. They paid an original price, with any extra profit used to enhance the roasting system (Shmavonian 2012). Robusta coffee in Vietnam, especially Buon Ma Thuot city, was considered one of the tastiest coffees in the world (Global Coffee Report 2013). However, due to Doi Moi’s characteristics and the general awareness of the domestic market toward the value of coffee, the coffee bean manufacturers and consumption stages were underdeveloped. The industry mainly utilized small and sparse distribution models. Fig. 1 Madrak community geographical location. Source: Vietnam-guide (2019)

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There was not yet a brand significantly in the mind of customers. The idea of this manufacturing base was not a pioneer concept in Vietnam at that moment. However, a desire to have a complete brand with distinctive packaging, guaranteed quality, and distribution channels across all provinces was something previous roasters never thought about (Shmavonian 2012). Accordingly, the first aim was to promote the immature coffee brand. Acknowledging the significance of a visual logo, Vu painted Trung Nguyen’s first sign: an arrow pointing straight to the sky, symbolizing the ambition to become Vietnam’s most popular coffee. In August 1998, with considerable capital and a reputation gained from local markets, Trung Nguyen landed in Ho Chi Minh City. Why “Trung Nguyen” (literally central high land)? Vu confessed “I sometimes read swordplay novels. There, people who capture the heartland are masters of the galaxy, so I decide to pick it for my own brand with a hope of being lucky!” (VnExpress 2001).

Vu showed his strategic vision through very concise actions. Stepping into the big city, Trung Nguyen attracted public attention by a unique marketing campaign— serving coffee free for 10 days. The purpose was to draw attention to the young brand, educating people how to make the right cup of filtered coffee and setting up places dedicated to coffee lovers. The campaign succeeded and got Trung Nguyen onto the select list for coffee in Ho Chi Minh City society. This marked the beginning of the Trung Nguyen franchise model in different provinces in Vietnam and, subsequently, many nations around the globe (Soha 2016). Trung Nguyen focused on franchising its coffee house chain: Trung Nguyen No. 1 coffee. Despite negligible in-house resources, by purchasing from other coffee plants, they were able to provide a remarkable quantity of coffee beans with a promise of quality. “Trung Nguyen does not invest capital in a shop but only lends the brand, while the franchise owner gathers stock and recipes to do their business. We guarantee the quality of a cup of coffee in one shop is as delicious as in any other in the country. This (franchise) method has been applied successfully by many foreign firms, but in Vietnam it is quite new”—Vu confided (VnExpress 2001). This franchise strategy is beneficial for both sides: Trung Nguyen does not spend on upfront investment, and those who borrow the brand can count on a reliable and pedigree product to deliver a good beverage to their customers. In addition, with the “Strategic Triangle” model, three coffee houses open near each other to take advantage of administration and inventory cost (Manh 2010).

Mission, Core Values, and Company Logo: Starting Internationalization Central to the success of Trung Nguyen coffee chain is its identity and mission (Petrotimes 2014). According to Trung Nguyen (Nguyen 2014), the company mission is “to connect and develop communities for coffee lovers with a passion for creative coffee to achieve a prosperous and sustainable world.” This mission

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implies the right technology to ensure that it is environment-friendly while meeting the rigorous demands from the Food and Drug Administration that enables export to the strict markets such as the USA, Japan, and Europe (TRUNGNGUYEN 2013b). The company believes it is following their correct aim of “Bringing Right Coffee, Wealth and True Happiness,” companion to seven core values as follows: big aspirations, national and global spirit, persistent breakthrough innovation, superior implementation, creating value, and sustainable development (Nguyen 2014). As mentioned above, Trung Nguyen’s logo developed into a combination of modern and traditional style (iColor 2011). A three-dimensional cubic space which was sculptured of the same color but a delicate sign, designed on a brown background, has proved solid foundation for development. Trung Nguyen signage system used warm colors with red, yellow, and brown, indicating youth and eagerness. Brown is the color of earth, of coffee, and ethnic origins. An incomplete curve told a truth-of-life: there are still gaps that need to be filled. The sign looked like a squiggly and innovative brushstroke on the night sky, delivered an essence soul of coffee to life. Continuing the success of the franchising strategy, in 2002 Trung Nguyen decided to expand their business to other parts of Asia. Roppongi district, one of the top luxury areas of Tokyo, Japan, was chosen to place the first franchise coffee house abroad, among 400 out of 6000 Starbucks stores. By investing $3 million to complete the signage system and hiring a New Zealand-based consultant to ensure the integrated franchising business, Daitsu Inc.—a Japanese coffee retailer—was acting as Trung Nguyen franchisee in Japan. The strategic price of a cup of coffee was set 50% higher than Starbucks and 25% higher than local coffee brands. The strategy focused on selling the Vietnam country-of-origin image as much as selling Trung Nguyen coffee. The coffee itself differentiates the brand from Starbucks and other coffeehouses; it is a bitter-tasting brew that can be flavored with sweetened condensed milk and served over ice (Larimer 2003). Surprisingly, this strategy made Trung Nguyen coffee succeed more than ever (Manh 2010). The next destination was Singapore, the Asian shopping paradise. Trung Nguyen opened the coffee house in Lion island’s lively areas such as Marina Bay Sands, Katong Mall (Zing News 2014; Marina Bay Sands 2018). “Five Trung Nguyen Franchise coffee shops in Singapore are major sites that reflect tastes and reactions to pilot samples that may be sold worldwide,” said Vu (Viet Nam News 2013). In 2003, the innovation of “G7” instant coffee added to Trung Nguyen product portfolio (VIETNAMCOFFEE.ASIA 2016). As the name implies, G7 is aimed at the seven most developed markets. Trung Nguyen had created a remarkable impression while beating Nestle international brand in Vietnam, 89% of participants chose G7 in a blind test (TRUNGNGUYEN 2013a). The brand was preferred nationwide and exported to Japan and Singapore. It became a gift selected by the Vietnam Ministry of Foreign Affairs for National Leaders at many international events such as the ASEAN summit, the Miss Earth 2010 pageant, and ASEAN Open Food Day 2010 (Global Coffee Report 2014). At the same time, Trung Nguyen Group was also penetrating its home market Vietnam. In 2002, there were 422 coffee houses throughout the country, at least 1 in

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each of Vietnam’s 61 provinces (Takada 2002); on its tenth anniversary in 2006, the company had approximately 1000 franchise coffee houses, around 7000 wholesalers and 59,000 retailers with Trung Nguyen brand in stock, creating over 15,000 jobs (Vo 2013). Today, the franchise system is distributed widely across Vietnam, mainly in the South Central Coast to Mekong Delta such as Da Nang City, Dak Lak, HCMC, Binh Duong, Can Tho, and Hanoi capital.

The Dream of “Bringing a Bell to Ring in His Land” This idiom in Vietnam means bringing the best assets and properties to another land and creating a new venture there. This idiom was formed a long time ago when Vietnamese talents went to China and succeeded. Two thousand thirteen was when Starbucks landed in Vietnam, targeting young professionals with a liking for foreign trademarks. Trung Nguyen CEO surprised the public with the statement “Starbucks is not a redoubtable rival,” describing the US brand as the giant with no character selling coffee-flavored water with sugar (VietNamNet Bridge 2014b). Vu admitted he had already set up a plan to bring Trung Nguyen coffee to the USA, in particular Seattle, where Starbucks dominates the coffee culture. To play this game, Vu aimed to restructure sales and increase new products while developing Buon Ma Thuot city as a “Kingdom of Coffee” to ensure the manufacturing of the best Robusta bean. They implemented new technology as well as planned to buy coffee plants in the USA (Viet Nam News 2013). A report by Financial Times (Fig. 2) revealed that Vietnam is the world’s top exporter of raw Robusta beans. These contain between 1.6 and 2.7% caffeine, giving

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Fig. 2 The world’s largest producer of Robusta coffee. Source: Financial Times, adapted from Romei (2014)

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a more bitter taste, mainly used for making instant coffee (Summers 2014). However, like many countries that produce soft commodities such as coffee, cocoa, and sugar, Vietnam stands close to the bottom line of the value chain generated by its crops once they are processed, packaged, and marketed abroad (Thomasson 2012). “Vietnam currently exports 90% of beans raw. These beans carry no brands. That needs to be changed,” said Vu (Viet Nam News 2013). Acknowledging the language constraints, since “Trung Nguyen” is not an easy brand name to pronounce, the company decided to focus on one strategic product— G7. VietnamPlus journal (2011) stated that to enter the US market, G7 had to pass strict examinations by SGS (Société Générale de Surveillance) and Bureau Veritas international verification agencies to ensure the product meets more than 20 requirements, including factory policies, equipment, processing technology, materials, preservation, transport, and labor safety. In an interview given to Bloomberg on February 2013, Trung Nguyen’s CEO said he would sell 15% of the company’s stake to raise money to improve crop processing, packaging, and marketing and buy some roasters in the USA (Viet Nam News 2013). G7 soluble coffee brand includes four specific products: G7 3-in-1, G7 2-in-1, G7 black coffee, and G7 cappuccino (hazelnut, Irish cream, and mocha). They see diversity of the product as important to the strategy.

The US Coffee Market During survey trips to the USA, brand expert Vo Van Quang realized that products from Trung Nguyen were sold at almost all Vietnamese and Asian stores. The most popular products were Trung Nguyen coffee powder and instant coffee G7. This is due to the assistance of its American distributors. However, that did not mean Trung Nguyen had gained significant market share, because consumers were mainly Vietnamese and people of Asian origin (Viet Nam News 2014).

Tariffs, Trade, and Economic Situation Due to the impact of import duties after the U.S.-Vietnam Bilateral Trade Agreement (BTA) signed in 2001, Vietnam goods penetrating the US market are temporarily assigned into two groups: those with low import duties or equal to zero and the group with a higher import duty (U.S.-Vietnam Trade Council 2009). Accordingly, all kinds of coffee beans are enjoying tax exemption, even if the exporter is not entitled to MFN (Most Favored Nation). However, Vietnam is not among the priority countries on tariffs for soluble coffee products. In addition to requiring a certificate on the observance of customs regulations and declarations of coffee providers, exporters need to ensure the ease of searching the origin of every batch. It is expected to increase export cost by at least 1%, about $10– $15 per ton at current prices. As long ago as 2007, The Wall Street Journal outlined

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Annual Rate in %

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Fig. 3 US GDP growth rates (2011–2013). Source: Bureau of Economic Analysis (adapted from Furman 2015)

how the US coffee industry had implemented trade measures to pressure Asian coffee growers and exporters, including Vietnam, hindering the development of high-quality coffee. America was the largest country by GDP per capita, according to The World Bank (Reinis Fischer 2016). The thriving economy is both an advantage and a difficulty for Vietnam businesses. Statistics from Bureau of Economic Analysis (Furman 2015) showed the GDP growth rate in 2013 was 4% in Q4 (see Fig. 3). This was welcome news for American’s trade partners, including Vietnam exporters. However, US importers counted on their economic power to peg the coffee prices on the London trading floor to only break even, constraining the penetration of Vietnam coffee business. The demand for coffee in the USA is relatively stable. According to figures from Caffeine Informer for 2013, the USA consumed 971 thousand of coffee tones. The USA typically imports more than 21.5 million bags a year, accounting for more than one quarter of global coffee (unroasted) imports, making it the world’s largest single buyer. In fact, Americans do not grow coffee but import it from around the world. Brazil, Colombia, and Vietnam account for 21%, 19%, and 11% of those imports, respectively.

Social Factors and Differences in Consumer Behavior The US population at the end of 2012 was more than 315 million people according to the US Census Bureau (Schlesinger 2012). Fifty-four percent of Americans over the age of 18 drink coffee every day and spend on average $164.71 on coffee per year

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(Statistic Brain 2016). This has made America one of the most profitable market for drinking coffee and the largest buyer of coffee worldwide. Even though the main function of coffee is not to relieve thirst, Americans have treated it as a popular soft drink for years. Over the past several years, coffee chains have become more and more popular among customers who enjoy their coffee to go. This out-of-home retail market was dominated by Starbucks and Dunkin Brands Inc. with a combined market share of almost 50% in 2011 (Statista 2018). America’s coffee culture, like its citizenry, is diverse (Olmstead 2014). The Americans are well known for their fast and free lifestyle. The coffee chosen, therefore, must be served with minimum waiting time and yet still retains its special aroma. Their coffee drinking culture is not as sophisticated as European, also not as fussy as Arabian; it is all about drinking casually. Since this on-the-go culture was introduced from Italian coffee by Howard Schultz in 1983, the barista coffee-making style has become widespread (Wulff 2016). What people need is convenient, quick, reasonably priced, and tasty coffee. Representing this type of culture is Starbucks, and Seattle is considered their capital, where residents believe it is the most delicious coffee ever. In contrast to the above style, the Vietnamese prefer their coffee in the morning, between 7 and 8 am. Drinking strong, filtered coffee has been popular among millions of Vietnamese people since the nineteenth century (Viet Nam News 2013). Vietnamese young professionals like to do their business in coffee shops, meeting friends or simply spending their free time in the store with their favorite style. Seniors want to enjoy traditional coffee in a very old place, no need for any music or servers, just reading newspapers or sharing their memories with neighbors. Some even replace their breakfast by a cup of coffee.

Market Penetration Strategy Through Vietnamese and Asian diaspora, Trung Nguyen infiltrated specific residential areas prior to its declaration of officially entering the market. To pursue an international business, it is necessary to have a careful preliminary test, and Trung Nguyen did just that. Global consumers associate prestige products with certain well-known countries: French wine, for example. Thus, Trung Nguyen decided to send a message to US coffee drinkers and calculate the reputation of Vietnam coffee. Trung Nguyen targeted people who drink coffee in the USA, from a certain sociodemographic segment and with a characteristic modern lifestyle. In line with the statement that Starbucks sell coffee-flavored water with sugar, Trung Nguyen positioned G7 with a real coffee for gastronomists and guaranteed that all coffee beans come from smaller farms certified for sustainable growing practices, with growers receiving guaranteed prices (Thomasson 2012). The approach of crosscultural consumer characteristics helped its differentiation among thousands of brands in the US market. It was hoped that, by forming a new status for a targeted segment and the brand itself, the strategy would make a counterattack to what

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Starbucks had done in Vietnam—creating a coffee experience and so fulfilling Trung Nguyen’s core desire. The first method of penetration was export to US retailers. In early October 2011, G7 instant coffee officially entered US retail supermarkets via leading corporation Costco (ranked third in the USA) with the first order of 100 containers in the same year. Consumers could also purchase the product through online channels via EBay, Amazon, etc. Constructing collaborative relationships with reliable distributors is a win-win situation. By doing so, Trung Nguyen could communicate with US consumers more easily. Costco, likewise, needed the product to succeed to not damage their reputation. However, it is a must to recognize the trap of acquisition if G7 is extremely successful—and the tradeoff of benefits, if a failure. Trung Nguyen already had 10-year experience of franchising in Asia. Their franchise cooperation in Japan and Singapore was successful and achieved a stable position in these markets. The launching of G7-Mart model was considered a breakthrough to compete with the giant Starbucks. Rice Field Company (USA) was officially recognized as Trung Nguyen agents in 2003 (Nguyen 2014).

The Rocky Road Ahead Americans’ coffee culture is associated with the Arabica bean (Wulff 2016). According to a survey by the American Coffee Association, local consumers favor Arabica coffee. Up to 70% of the coffee consumed is Arabica, imported from Colombia, Brazil, and Mexico. The 30% remaining Robusta coffee is imported from Vietnam and Indonesia (Viet Nam News 2014). Trung Nguyen, with the ambition of changing American habits, should first convince the market to accept its Robusta bitter flavor. Joining the US market, Trung Nguyen has to compete with not only Vietnamese coffee brands but also with many local coffee brands. Statistics show that consumption of Trung Nguyen coffee in the USA is very modest compared to the potential market. Total Vietnamese coffee brands in the USA account for about 10–15% of the volume and less than 6% of the value. In 2011, 1400 tons of Trung Nguyen coffee were exported to the USA. In 2012, the figure slightly increased to 1600 tons, mainly raw coffee (Viet Nam News 2014). Franchising can be a wise choice for Trung Nguyen, but the company will have to solve many problems, and the biggest one being direct confrontation with Starbucks. The VIA trademark of Starbucks alone reportedly brought a turnover of over $200 million in the US market in 2012, 2 years after its debut. Meanwhile, $200 million was the total turnover Trung Nguyen reached after its 10-year operation, from all of its products (VietNamNet Bridge 2014a). Vu confessed that the battle is, indeed, like the grasshopper versus the elephant (Thomasson 2012). The lack of administration experience over branding products played a role in the halting Trung Nguyen dream of global expansion. Ten years franchising in areas of slightly different cultures cannot prove readiness for global business. The US market

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is extremely difficult, with strict regulations on tariffs and rules. And the freestyle culture of modern American is not easy to change in a few days.

Trung Nguyen Today The story of the romantic “paranoid” guy from the sticks has ended. In the latter half of 2015, the public was surprised by a divorce scandal between Vu and his wife, Le Hoang Diep Thao, also one of the biggest shareholders in Trung Nguyen Group. When the couple disputed control of the company, it was said to be the end of Trung Nguyen coffee and its global dream (Anh 2016). However, in July 2016, Binh Duong Department of Planning and Investment confirmed Ms. Le Thao as controller of Trung Nguyen Instant Coffee Joint Stock Company and Trung Nguyen International Company—TNI (based in Singapore). Meanwhile, Vu still has his chair as CEO of Trung Nguyen Group. Under the management of Thao, TNI’s coffee production and export have continued to increase. In 2015, G7 coffee has achieved great results in many target markets, namely, China, the USA, Singapore, Korea, and Thailand. In December 2016, Thao launched a new product—King Coffee—in the China market. At the end of March 2017, King Coffee appeared in fourth position in the best-selling coffee product on T-Mall, a Chinese e-commerce website. Through T-Mall, JD, YHD, and the distribution channels of Hello Oyster and Carrefour, King Coffee has been widely delivered to the Chinese, said Tencent. At the 96th China Food and Drink Fair in 2017, Thao announced her plan to achieve $1 billion turnover in the China market (Viễn 2017). “The Chinese coffee market is growing steadily at 14% each year. Coffee/Bars sector is forecast to rise at 11.9%/year in the period 2016–2020. This is a big chance for TNI in this 1.4-billion market” (Viễn 2017). To complete the stated plan, Thao said she focused on building a strong network by having 11 distributors across China, putting King Coffee on Alibaba to utilize the broadcast reach of this e-market. In addition, to ensure a supply of King Coffee to new markets, a sixth soluble coffee factory was opened in Nam Tan Uyen Industrial zone, Binh Duong province, Vietnam, in April 2017. The plant is built on a total area of 51,300 square meters and is expected to provide 9000 tons of ground-roasted coffee and 19,800 tons of instant coffee each year (Thao 2017). In America, King Coffee has started to appear on the shelves of many Vietnamese supermarkets from Southern California to Houston and San Jose. Trung Nguyen’s dream of conquering the whole American market is temporarily shelved. What happens next to Trung Nguyen Group and their global expansion in the future?

References Anh, N. (2016). Vợ đại gia Đặng Lê Nguyên Vũ quyền lực cỡ nào? Retrieved October 13, 2018 from http://m.doisongphapluat.com/kinh-doanh/bi-quyet-lam-giau/vo-dai-gia-dang-le-nguyenvu-quyen-luc-co-nao-a154379.html

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Beresford, M. (2006). Vietnam: The transition from central planning. In G. Rodan, K. Hewison, & R. Robison (Eds.), The political economy of South-East Asia: Markets, power and contestation (3rd ed., pp. 197–221). Melbourne: Oxford University Press. Đỗ, T. A. T. (2014). Kinh tế Việt Nam 2013–2014: Nhìn lại và bước tới. Retrieved October 13, 2018 from http://www.fetp.edu.vn/vn/tin-tuc-su-kien/giang-vien-fetp-tren-bao-chi/kinh-te-viet-nam20132014-nhin-lai-va-buoc-toi/ Fischer, R. (2016). Top 10 largest countries by GDP 2013. Retrieved October 13, 2018 from https:// www.reinisfischer.com/top-10-largest-countries-gdp-2013 Furman, J. (2015). Second estimate of gross domestic product for the third quarter of 2015. Retrieved October 13, 2018 from https://obamawhitehouse.archives.gov/blog/2015/11/24/sec ond-estimate-gross-domestic-product-third-quarter-2015 FVL. (2015). Đặng Lê Nguyên Vũ: Người dẫn lối cà phê Việt- Cà phê Trung Nguyên. Retrieved October 13, 2018 from http://blog.first-viec-lam.com/uncategorized/dang-le-nguyen-vu-nguoidan-loi-ca-phe-viet-ca-phe-trung-nguyen.html Global Coffee Report. (2013). Vietnam, Buon Ma Thuot - A coffee success story. Retrieved October 13, 2018 from http://gcrmag.com/market-reports/view/vietnam-buon-ma-thuot-a-coffee-suc cess-story Global Coffee Report. (2014). Trung Nguyen is bringing Vietnamese coffee to the world. Retrieved October 13, 2018 from http://gcrmag.com/marketing/view/trung-nguyen-is-bringing-vietnam ese-coffee-to-the-world iColor. (2011). TRUNG NGUYÊN - thương hiệu cafe Việt. Retrieved October 13, 2018 from https:// icolor.vn/kien-thuc/kien-thuc-thuong-hieu/trung-nguyen%2D%2D-thuong-hieu-cafe-viet.html Lan Vien, C. (1960). Người đi tìm hình của nước. Retrieved October 13, 2018 from http://www. thivien.net/Ch%E1%BA%BF-Lan-Vi%C3%AAn/Ng%C6%B0%E1%BB%9Di-%C4%91i-t% C3%ACm-h%C3%ACnh-c%E1%BB%A7a-n%C6%B0%E1%BB%9Bc/poem-6qD3j1-dnI_ XosAv5YFM5Q Larimer, T. (2003). Chasing Starbucks dreams: Trung Nguyen and its global expansion. Retrieved October 13, 2018 from https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/192/ Trung_Nguyen.pdf Manh, T. (2010). Chiến Lược Marketing Trung Nguyen. Retrieved October 13, 2018 from https:// www.wattpad.com/276291-chi%E1%BA%BFn-l%C6%B0%E1%BB%A3c-marketing-trungnguyen/page/3 NDH. (2013). 10 “điểm nhấn” của kinh tế Việt Nam năm 2013. Retrieved October 13, 2018 from http://ndh.vn/10-diem-nhan-cua-kinh-te-viet-nam-nam-2013-20131226100723849p145c151. news Nguyen, H. (2014). Chiến Lược Thâm nhập thị trường M~y của Cà phê Trung Nguyên. Retrieved October 13, 2018 from https://text.123doc.org/document/1082232-chien-luoc-tham-nhap-thitruong-my-cua-ca-phe-trung-nguyen.htm Olmstead, G. (2014). Why do Americans drink coffee? Retrieved October 13, 2018 from https:// www.theamericanconservative.com/2014/03/27/why-do-americans-drink-coffee/ Petrotimes. (2014). Tập đoàn Trung Nguyên nhượng quyền thành công chuỗi quán cà phê. Retrieved October 13, 2018 from https://petrotimes.vn/tap-doan-trung-nguyen-nhuong-quyenthanh-cong-chuoi-quan-ca-phe-172941.html Romei, V. (2014). Datawatch: Vietnam is the world second-largest coffee producer. Retrieved October 13, 2018 from https://www.ft.com/content/927ba795-a741-3628-8fd5-d91feed3c512 Sands, M. B. (2018). Trung Nguyen Café. Retrieved October 13, 2018 from https://www. marinabaysands.com/restaurants/cafe/trung-nguyen.html#Mrtj7Tm6oCWVMmQz.97 Schlesinger, R. (2012). U.S. population 2013: More than 315 million people. Retrieved October 13, 2018 from http://www.usnews.com/opinion/blogs/robert-schlesinger/2012/12/28/us-popula tion-2013-more-than-315-million-people Shmavonian, K. (2012). Chairman Vu, Vietnam’s coffee king. Retrieved October 13, 2018 from http://www.forbes.com/sites/forbesasia/2012/07/25/vietnams-coffee-king-dang-le-nguyen-vu/ 3/#62916bed1e7f

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Soha. (2016). Cà phê năm thứ 20 của ông Đặng Lê Nguyên Vũ đầy vị đắng. Retrieved October 13, 2018 from http://soha.vn/ca-phe-nam-thu-20-cua-ong-dang-le-nguyen-vu-day-vi-dang2016071809402046.htm Statista. (2018). Statistics, facts & analysis on the U.S. coffee market/industry. Retrieved October 13, 2018 from https://www.statista.com/topics/1248/coffee-market/ Statistic Brain. (2016). Coffee drinking statistics. Retrieved October 13, 2018 from https://www. statisticbrain.com/coffee-drinking-statistics/ Summers, C. (2014). How Vietnam became a coffee giant. Retrieved October 13, 2018 from https:// www.bbc.com/news/magazine-25811724 Takada, A. (2002). Vietnam coffee chain lands in Tokyo, eyes world. Retrieved October 13, 2018 from http://www.hungnguyen.com/PRNews/news_060202.htm Thao, N. (2017). Tham vọng phủ cà phê Việt - King Coffee trên toàn thị trường Trung Quốc. Retrieved October 13, 2018 from http://khampha.vn/kinh-doanh/tham-vong-phu-ca-phe-vietking-coffee-tren-toan-thi-truong-trung-quoc-c10a520167.html The World Bank. (2018). The World Bank in Vietnam. Retrieved October 13, 2018 from http:// www.worldbank.org/en/country/vietnam/overview Thomasson, E. (2012). Vietnam’s coffee plan: The next prestige global brand. Retrieved October 13, 2018 from https://www.reuters.com/article/vietnam-coffee-idUSL5E8M1FY420121108 TRUNGNGUYEN. (2013a). No. Coffee @. Trung Nguyên Coffee. Retrieved June 03, 2016 from http://www.trungnguyen.com.vn/en/no-coffee-en/ TRUNGNGUYEN. (2013b). Trung Nguyên Coffee. Retrieved June 03, 2016 from http://www. trungnguyen.com.vn/en U.S.-Vietnam Trade Council. (2009). US-Vietnam Bilateral Trade Agreement (BTA). Retrieved October 12, 2018 from http://www.usvtc.org/trade/bta/text/ van Arkadie, B., & Mallon, R. (2003). Viet Nam: A transition tiger? Canberra: Asia Pacific Press. Viễn, T. (2017). Hãng cà phê của bà Lê Hoàng Diệp Thảo gây ấn tượng ở Trung Quốc. Retrieved October 13, 2018 from https://kinhdoanh.vnexpress.net/tin-tuc/hang-hoa/hang-ca-phe-cua-bale-hoang-diep-thao-gay-an-tuong-o-trung-quoc-3590884.html Viet Nam News. (2013). Coffee company builds global brand. Retrieved October 13, 2018 from https://vietnamnews.vn/economy/business-insight/236854/coffee-company-builds-globalbrand.html#CdHv75gkbtmhgGaW.97 Viet Nam News. (2014). Experts look back at a year in the markets. Retrieved October 13, 2018 from https://vietnamnews.vn/economy/249645/experts-look-back-at-a-year-in-the-markets. html#we2GmHCaJd7Zi0cX.97 VIETNAMCOFFEE.ASIA. (2016). History and development of Trung Nguyen coffee brand. [Author’s translation]. Retrieved May 29, 2017 from https://vietnamcoffee.asia/ca-phe/ thuong-hieu-ca-phe/lich-su-hinh-thanh-va-phat-trien-thuong-hieu-ca-phe-trung-nguyen-114. html VietNamNet Bridge. (2014a). Coffee King’s Trung Nguyen down on its luck. Retrieved October 13, 2018 from http://english.vietnamnet.vn/fms/business/93829/coffee-king-s-trung-nguyendown-on-its-luck.html VietNamNet Bridge. (2014b). What has Trung Nguyen achieved in the US? Retrieved October 13, 2018 from https://english.vietnamnet.vn/fms/business/118504/what-has-trung-nguyenachieved-in-the-us-.html VietnamPlus. (2011). Trung Nguyen’s instant coffee enters US, RoK shops. Retrieved October 13, 2018 from https://en.vietnamplus.vn/trung-nguyens-instant-coffee-enters-us-rok-shops/ 32187.vnp Vietnam-guide. (2019). Vietnam maps. Retrieved June 26, 2019 from http://www.vietnam-guide. com/maps/ VnExpress. (2001). Độc chiêu nhượng quyền thương hiệu Trung Nguyên. Retrieved October 13, 2018 from https://kinhdoanh.vnexpress.net/tin-tuc/doanh-nghiep/doc-chieu-nhuongquyen-thuong-hieu-trung-nguyen-2665110.html

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Vo, L. (2013). Trung Nguyên. Retrieved October 13, 2018 from https://www.wattpad.com/ 17573231-trung-nguy%C3%AAn Wulff, A. (2016). A brief history of American coffee culture. Retrieved October 13, 2018 from https://theculturetrip.com/north-america/usa/articles/a-brief-history-of-american-coffee-culture/ Zing News. (2014). Từ quán cà phê đầu tiên đến hành trình chinh phục thế giới. Retrieved October 13, 2018 from http://news.zing.vn/Tu-quan-ca-phe-dau-tien-den-hanh-trinh-chinh-phuc-thegioi-post450824.html Quynh An Lu is a sales consultant and a business development executive. She has been working with many Asian companies especially in South East Asia. Quynh has gained experiences in different industries, such as, media and technology, software banking, hospitality and tourism. Quynh received the Women in Business Scholarship (2015) from TIAS School for Business & Society in the Netherlands where she graduated with distinction obtaining a Master’s degree in Business Administration: Marketing Management. Quynh is passionate in bringing a better work solution and the quality services for organizations in developing countries. She is always willing to learn from industrial experts and to build a fair world.

Late to the Party: Can Starbucks Become the Life of It? Khoi Bui-Kinh

Case Synopsis Research Problem Vietnam has an entrenched coffee market with many players already active. Its people also have their own way with coffee, having developed a distinctive culture which has been barring the expansion of many international coffee brands in the country. When standardized quality and local preference collide, it comes the challenge of finding a window for growth opportunities while maintaining brand identity and product and service quality, especially in a saturated market.

Case Summary The case presents Starbucks’ international marketing challenges, as the global coffee powerhouse made its highly anticipated entry to Vietnam in 2013. Many observers and coffee aficionados were skeptical about the company’s success in the new market, as it is quite distinctive and at the same time saturated. Yet, the key to tackle the challenges may lie within Starbucks’ business philosophy, which the case examines through the company’s history and manifesto. The author presents a brief analogy between the Vietnamese coffee market and those of France and Italy, to gain further understanding of Starbucks’ challenges and similar strategic adaptions available to the company. Additionally, the case discusses Starbucks’ current strategies in Vietnam and their possible direction and future outcomes.

K. Bui-Kinh (*) Global Customer Development, Unilever HQ, Tias School for Business and Society, Tilburg, Netherlands # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_8

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Learning Objectives Readers will be able to understand the influence of local preference on the reception of international products and services in a new market. The case illustrates the need for a certain level of localization within a company’s standardization strategy and how Starbucks attempts to balance between them. The case also provides insights on strategies for thriving within trenched, highly competitive markets.

Themes and Tools Used • • • •

Consumer behavior in Vietnam, Vietnamese coffee culture Standardization and localization Positioning in competitive market Country of origin effect

Target Audience The case can be used for the study of international marketing and consumer behavior with a focus on Asian cultures or developing countries. Readers should be equipped with the essentials of marketing such as marketing mix, brand positioning, as well as the basics of international marketing, consumer behavior, and intercultural difference in marketing.

Questions • What is your assessment of Starbucks’ integration of localization to its standardization policy? • What product/service dimension(s) can Starbucks take advantage of when positioning itself in the Vietnamese market? What can Starbucks do to communicate such advantage(s)? • Should Starbucks attempt to sway or to embrace Vietnamese coffee preferences in the future?

Introduction As part of Starbucks’ growth strategy, the company has been exercising a rapid international expansion. Even though it still expands operations in the United States, the highly saturated domestic market and the fact that Starbucks is at brand maturity stage leave less room for further growth (Trefis Team 2016; Khan 2010). The company’s strategies for global expansion have few key factors: a mix of company

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owned stores and licensed ones, early market penetration (cluster stores at prime locations in populated areas), and a high level of standardization (maintain service experience quality, while selling certain additional products in order to compromise with local taste) (Khan 2010; Wang 2012). Naturally, each country or its national market has its own characteristics, which often raises issues that Starbucks’ global expansion process has to tackle, for instance, the prolific coffee-drinking culture in France and the resulting disapproval toward American standardized coffee (Khan 2010) or, by contrast, the lack of it in China—as people historically drink tea instead (Wang 2012). As Starbucks entered Vietnam in 2013, the company once again faced the national identity test. This time, the question was widely speculated whether they could break into a proud and very distinctive Vietnamese coffee culture, drawing many similarities to the company’s highly anticipated expansion in France in 2004.

Starbucks’ History and Its Manifesto The story of Starbucks began in 1971, from a small shop in Seattle, WA [USA], with a vision of a company that not only sells coffee but also tasks itself to “inspire and nurture the human spirit—one person, one cup and one neighborhood at a time” (STARBUCKS 2017). As of 2017, the company operates over 24,000 stores across 72 countries in the world, making it the biggest coffee retailer in the world (Loxcel Geomatics 2018). In many countries, especially the United States, Starbucks is considered a part of the popular urban culture. The company strives to put its brand perception beyond coffee; it considers itself as a lifestyle, a symbol of quality and innovation, and a “third place between work and home” in the mind of the customers (STARBUCKS 2017). The idea of a place for conversation, communion, and belonging came to Howard Schultz, executive chairman of Starbucks, when he visited Italy in 1983 and got imbued with the romance of Italian coffee experience (STARBUCKS 2017). Walking through the city center of Milan, Schultz’s heart was taken by the fragrance of roasting coffee, elegant coffee shops, as well as the culture and energy that evolved around those places. There was minimal formality; all kinds of locals, from children to elders, men and women, who would gather at the coffee shops, exchange light banter with the barista and among one another. Strangers stepping into the shops ceased being ones. Instead, it was “comfort, community, and a sense of extended family” (Schultz and Yang 1997). Schultz was struck by the above-and-beyond attitude that the Italians commit to their coffee experience. He realized that Starbucks, then merely a coffee bean seller, was missing the point. According to Schultz, “The Italians turned coffee drinking into a symphony. Starbucks was playing in the same hall, but without a string section” (Schultz and Yang 1997). Captivated by this revelation, Schultz was determined to introduce premium coffee romance—best of quality and sense of community—from Italian expresso bars to the United States and through which offers more value to people’s lives. It was this vision that went on to form the contemporary business philosophy of Starbucks. Schultz interpreted “sense of community” in numerous ways, which are

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manifested in many of the company’s policies. Starbucks aims for profitable growth by having deeper relationships with customers, offering innovative products, and enriching as many lives as possible through opening more stores selling such products. The company also attempts a balance between profit and sustainability, as the community it tries to build is made of people involved in the business (Schultz and Gordon 2011). Having said that, how do all these messages come across to the customers as the business grows? Original messages are always altered as more people pass it on, as in a game of Chinese whisper. Along with declination of quality, diminishing core values are the devils that haunt any expanding business. Despite the company’s famous origin story, it is doubtful that nowadays customers, especially those from outside the United States, actually associate Starbucks with Italian coffee culture. Years of continuing success proved it difficult to keep everyone’s feet on the ground. In his article, Quelch (2008) claimed that by 2007, Schultz realized how Starbucks’ current offering no longer matched the original growth strategy and philosophy. Quelch also pointed out how the brand lost the sense of personal connection between barista and customers by having their staff’s skills and products line focus on too broad a mass appeal, rather than maintaining the sense of exclusivity with the regulars. This expansion thus only generates superficial growth and eventually leads to decreasing brand health by offering no substantial value to both staff and customers. As Schultz felt that the company went astray from the core of its philosophy amid multiple rising business threats, he broke his 8-year hiatus and returned as CEO in 2008 to once again transform Starbucks. A “Seven Big Moves” transformation agenda was introduced and soon became the company’s manifesto in recent years: (1) be the undisputed coffee authority; (2) engage and inspire; (3) ignite emotional attachment; (4) expand globally and stay at the heart of each local neighborhood; (5) be a leader in ethical sourcing and environmental impact; (6) keep innovating; and (7) develop sustainable business model. Schultz implemented the agenda with exhaustive and risky measures, including a nationwide store close in 2008 and a costly employee conference later that year (Koehn et al. 2014). Just as his first days at Starbucks over 30 years ago, Schultz’s vision faced doubt both internally and externally; yet he persisted and triumphed. Transformation and innovation at Starbucks are parts of an ongoing process to pursue growth opportunities, and both belong to the business philosophy that the company is not going to compromise.

Challenges from Local Preference and Market Competitiveness Coffee is more than just a beverage. The manifold coffee traditions, types of preparation, and flavors are linked to the cultural identity, and for many coffee drinkers, the individual coffee choice is kind of a statement. No wonder that a diverse and emotionally charged product like coffee needs local adjustment to the regional preferences. In the global expansion, the emphasis on transformation and

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innovation in Starbuck’s philosophy turns out to be a must to establish the brand in the specific markets. In the case of France as one of the most traditional coffee cultures in the world, the very definition of “stylish” emanated from Starbucks stores worldwide weighs significantly less. “Très chic” is sipping rich, dark expresso under the haze of cigarette smoke at a tiny table on the sidewalk. To many French people, drinking coffee and smoking have been parts of their daily communion. The bright, upbeat image of Starbucks stores, plus the non-smoking policy, could hardly communicate with the French’s sense of community (Tiplady 2006). In addition to cultural resistance, high real estate and labor costs in Europe caused sales and growth to lag far behind those in Asia and America. Until 2012, after 8 years spent setting up 63 French stores, Starbucks had never turned a profit in France (Alderman 2012). The anticipation was even bigger when Schultz returned to Italy in 2016 to announce that Starbucks would open in Milan early 2017. After 33 years, Schultz finally took the idea of Starbucks back to where it was inspired. Despite creating a $10-billion-dollar-worth coffee market, the biggest one in the world, Italians enjoy it differently to the way Starbucks serves it (Sola 2016). Italians don’t “drink” (bevere) coffee, they “take” it (prendere un caffe). It is already beyond coffee, it is a daily dose of experience. They make coffee mostly at home, and in the occasions that they go out for coffee, chain stores are not a popular option, as the number of these stores only makes up approximately 1.5% of Italian market (Sola 2016); and like the French, they consume different beverages to Starbucks’ typical menu. Despite arduous entry to European countries with strong coffee cultures, there could be room for Starbucks to grow in such entrenched markets. First, Europe’s high tourism traffic can be a sizable target market for Starbucks stores, which are often located in most popular areas (Tiplady 2006). Second, Starbucks can adapt its experience to local preferences. In fact, the company has been making great efforts trying to understand the wants and needs of coffee aficionados across Europe, resulting in adding more seats to stores that serve the sit-and-sip French or drivethrough locations for the Brits who prefer take-away coffee (Alderman 2012). Third, if the traditional culture is a tough nut to crack, then possibly create a new one. When facing a century-old tradition of tea drinking in China, Starbucks opted to target the young, brand-conscious professional class—that is more open to Western culture and willing to try new products. From stocking the stores with educational brochures to holding tasting sessions, Starbucks gradually formed a coffee-drinking culture among young Chinese (Alon et al. 2017). The same principle can be applied to the European youth, which is more liberal and more familiar with American affluence and culture. When the first Starbucks opened in Ho Chi Minh City, Vietnam, it was in fact a huge buzz for the locals; many curious young customers waited up to 2 h in queue to try out the new American coffee, worth nearly 100,000 VND or approximately $4 for each cup—a price way above those of local cafés (Tran 2013). However, initial publicity did not guarantee Starbucks’ growth speed in Vietnam. As of March 2017, Starbucks’ growth in the country of 90 million is rather modest, with only 20 locations opening since 2013 (Loxcel Geomatics 2018).

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Soon, it came under wide scrutiny from locals, including several key opinion leaders, for being “inferior” to Vietnamese coffee, both in terms of quality and the attached culture. Coined by Dang Le Nguyen Vu, CEO of the Vietnamese coffee powerhouse Trung Nguyen, the term “coffee-flavored tap water” (referring to Starbucks coffee) was widely popularized on Vietnamese media (Vu 2013). This is due to Vietnamese customarily drinking coffee made from Robusta beans, while Starbucks retains a strict policy of roasting only Arabica beans, of which flavor is considered “inferior” by most Vietnamese coffee enthusiasts (Luc 2013). In addition, the company’s entry to Vietnam was considered tardy. For many years, local café stores had already been able to give the customers what Starbucks would have given them: Italian coffee in an ambient, aspiring setting (Bui-Kinh et al. 2017).

A Proud Coffee Culture: But Not Without Opportunity for Growth Vietnam’s pride for national coffee culture was likely inherited from the French during the colonial era. Now being among the top three coffee exporters in the world (International Coffee Organization 2018), Vietnamese enjoy coffee in their own distinctive way. This can be observed through how coffee transcends Vietnamese lifestyle and how bizarre the menu is in an ordinary café in Hanoi or Saigon. Besides the infamous otherworldly coffee combinations with raw egg yolk, condensed milk, yogurt, etc., traditional Vietnamese coffee itself is distinctively strong, often served in basic drip maker. This method is extremely time-consuming as it often takes 5–10 min for a small cup of coffee to be ready. Yet, a Vietnamese coffee enthusiast enjoys the wait. It is a full-package coffee experience that includes ambient setting, the antique drip coffee maker, the aromatic scent of fresh, hot coffee, and the tranquil state of mind facilitated by the whole experience. This is indeed contrary to the somewhat fast-paced, standardized, less sensory experience from an American coffee store chain. It is not uncommon for Vietnamese to drink coffee at midnight for no reason, as coffee is a way of life. Coffee time connects or reconnects people; business and romance may both ignite at the very same place. Weekends turn the coffee stores into football pubs, where patrons gather to watch European football together (Bui-Kinh et al. 2017). It is also worth noting that for young people in the country, it is not all about the coffee taste. They are willing to overlook coffee quality for sitting in a fancy setting, following the latest trends or sometimes delighting in the baked goods that localstyled cafés do not normally offer. Adding to that, different regions in the country have their own coffee-drinking identity. For instance, hot drinks are more popular in the North, while Southerners are more casual in the way they take their coffee. It is entirely possible to buy coffee in Saigon for less than 30 cents and proceed to drink it in one go while strolling in the park (Bui-Kinh et al. 2017). One internationally reputed brand, PhinDeli, which is famous for its Buford publicity stunt in the United States (Chilton 2013), even sells drinks entirely through small street vendors. The difference in coffee consumption is just one of many in economics, culture,

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High Price

Other chains

Low Service Augmentation

High Service Augmentation

Small Vendors

Low Price

Fig. 1 Entrenched coffee retail market in Vietnam. Source: Author

consumer behavior, etc.; Saigonese, and Southerners in general, buy everything the same way they buy coffee; they are more open to try new products and generally spend more than their northern cousins. The friendlier and more dynamic business environment convinces many international companies, including Starbucks, to make Saigon their entry point in Vietnam. Hanoians, in contrast, had to wait until July 2014 for their first store—over a year after the grand opening in Saigon (Folkmanis and Nguyen 2014). While Starbucks is attributed with both artisanal and casual characteristics, such are what differentiate Hanoi and Saigon (Rosen 2014), suggesting that the company can curate its menu and service in accordance with each city’s preference. “Vietnamese eat and drink coffee all time” is a popular consensus among expats in the country. Coffee stores and restaurants are perhaps the most popular amenities in a Vietnamese city. History and modern living trends have produced new types of coffee stores in Vietnam. Small café or street vendors can be found on almost every city block, mostly located at crossroads; these stores are often frequented by regular customers. Millennials may select between numerous boutique cafés that invest heavily in store setting and menus that are comparable to the big franchises’. The highly entrenched market is complete with the presence of major franchises, both local and international (Bui-Kinh et al. 2017 and Fig. 1). As a result, Starbucks struggled to become the coffee authority in Vietnam, despite having done so in other neighboring, similar Southeast Asian markets (see Table 1). Local chain Trung Nguyen, the self-proclaimed main competitor of Starbucks, serves a less similar group of customers with higher age and different buying priority; however, Trung Nguyen can be considered a “coffee authority” in Vietnam as its products and brand are making their way outward internationally. Vietnamese companies Cong Caphe (literally “Commie” Café) and Highlands

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Table 1 Southeast Asia’s most visited coffee chains, (top-down order) Indonesia Starbucks J.CO Donuts & Coffee Dunkin’ Donuts

Malaysia Starbucks Seattle’s Best Coffee McCafe

Philippines Starbucks Dunkin’ Donuts McCafe

Thailand Starbucks McCafe

The Coffee Bean

The Coffee Bean

Kopitiam

Dunkin’ Donuts

The Coffee Bean Bo’s Coffee

The Coffee Bean Dunkin’ Donuts

Coffee World

Vietnam Trung Nguyen Highlands Coffee The Coffee Bean Starbucks McCafe

Source: Adapted from Financial Times Confidential Research (Bowring 2016)

Coffee are in closer competition with Starbucks, all striving to clinch prime locations in cities. While Highlands Coffee leans more toward mature customers and businesspersons, Cong Caphe operates a vast chain of themed stores that boldly move away from the usual ambient, modern setting, and Italian coffee menu that other millennial-oriented stores employ. Instead, the nostalgic pre-open-market decorations and the menu of only Vietnamese comfort foods and traditional coffee and drinks help Cong Caphe in attracting mostly young Vietnamese, tourists, and expats, effectively stealing Starbucks’ destined position in Vietnam (Bui-Kinh et al. 2017).

Marketing Strategy and Adaptation for the Vietnamese Market Starbucks has always been a faithful practitioner of standardization. They take pride in the quality of the product they deliver, as well as the service their customers are entitled to. As a “third place between work and home,” the company brand always seeks to emulate personal space, staying close to the customers’ heart. As a result, Starbucks is very active on the highly personalized social media, retaining accounts on Facebook, Twitter, etc., while advertising modestly on traditional media such as print, TVC, etc. The company lets its coffee stores do the talking, because “a good product sells itself” (Kiley 2006). Starbucks even takes the company-customer relationship further by involving the customers in product development (i.e., share personal Starbucks experience, suggest new drinks, etc., Shayon 2013). With such practices, Starbucks is able to include the sense of belonging into the service experience. The representation of a strong company-customer bond also projects mutual loyalty. As the brand and the customers become integral parts of each other’s stories, Starbucks becomes a part of the popular culture. Upon entering a new, different geographical market, however, the establishment of a new relationship is required, as countries and even regions within a country have different characteristics. Standardization may put the company at risk of losing touch with the local base of customers. The management of Starbucks Asia-Pacific has been optimistic about moving into Vietnam, planning to target the country’s

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Table 2 Starbucks’ specific products for different markets Region Asia UK Germany Argentina Thailand India Indonesia Japan Peru Turkey Ireland Philippines

Products Coffee Jelly Frappuccino, Red Bean Frappuccino, Asian Dolce Latte American-style Pancake, Flat White Yogurt Frappuccino Lox on a Bagel Meringue Brownie Coconut Pandan Roll, Charcoal Walnut Raisin Bun Lemon Jazz Cheescake Peanut Butter Panini Iced Coffee with Summer Jelly, Pumpkin Pie Lucuma Frappuccino, Algarrobina Frappuccino Mystical Sandwich Chocolate Start Cake Spam Bagel

Source: Adapted from Misener (2014)

“emerging middle-class consumers who want to enjoy international products.” The company intended to work with a small but growing group of local Arabica producers, hoping to introduce Arabica to Vietnamese coffee culture (Noble 2013). This can be seen as an effort to penetrate and change the traditional coffee habit of the locals. At the same time, Starbucks adapts to the local taste and culture in each country and offers additional products (Table 2). In Vietnam, this principle is followed with the additions of Caphe Sua and Caphe Sua Da (Coffee with condensed milk and with ice). Indeed, losing personal connection with customers is against Starbucks’ philosophy. The company’s international expansion needs a working model that harmonizes standardization and the sense of community across different markets. This challenge is tackled by partnering with local companies who helped tweak Starbucks’ menu and services to local taste and preference (Sun 2015). A joint venture has its perks; sometimes, it is the only alternative to enter a country where government does not allow foreign companies to have majority of shares (Gillespie and Hennessey 2011). Besides providing local expertise, partners may share resources, as well as business and political risks to achieve mutual benefits (Alon et al. 2017). When Starbucks conquered the Chinese market, Maxim Group was one of its strategic allies; the Hong Kong-based company went on to operate Starbucks stores in Vietnam and possibly other Southeast Asia locations in the future as well. The latter decision raised questions on the exclusion of a “more local” alliance with a Vietnamese partner. This could be an indication of Starbucks’ strategic variation in Vietnam; as the country’s economy has yet to produce a company capable of operating international chain of coffee stores, Starbucks opted for an experienced, long-time partner. Having identified the key components of Starbucks’ strategy in Vietnam, an adaptation of the company’s marketing mix in this market can be devised as following:

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Price Taking the positioning of a premium brand, Starbucks sells coffee at a relatively high price compared to that of other competitors. Prior to the company’s entry to Vietnam, analysts argued that the price for Starbucks in Vietnam would be lower than in the United States and neighboring China, as Vietnam is a country with low average personal income and lower operational costs (VietNamNet Bridge 2013). However, a recent survey proves quite the contrary as Vietnam ranks third in the list of 44 countries where buying Starbucks is most extravagant. Price sensitivity and operational costs do not seem to influence the company when it comes to serving consumers who look for exotic, status-laden products (Reynolds n.d.) Place In accordance with the overarching global strategy, Starbucks opens stores at prime locations in city centers, staying highly accessible to millennials, businesspersons, and urban families. Product Starbucks Vietnam offers both drinks and foods, from sweets to sandwiches. Drinks are categorized into espresso, chocolate drinks, tea, ice blend, and frappuccino; each has a wide variety of options. The menu includes items localized for Vietnamese tastes (STARBUCKS VIETNAM 2017). Promotion In general, Starbucks does not spend money on advertising. Instead, the company largely relies on loyalty and the culmination of its relationship with the customers. The stores in Vietnam offer various promotions related to its services, including Wi-Fi codes, complimentary foods and drinks on special occasions, a customer loyalty system (Starbucks Rewards), and others (STARBUCKS VIETNAM 2017).

Can Starbucks Be the “Undisputed Coffee Authority” in Vietnam? Market penetration is always more difficult in a saturated market. Tackling a century-old coffee culture and a swarm of modern, fully evolved local competitors makes Starbucks’ Vietnam entry a massive obstacle in the company’s global conquest. Besides, standardization means that certain core elements of the business remain unchanged. For instance, the “Arabica-only for high quality” policy does not resonate well within the Vietnamese coffee enthusiast audience, as they maintain contradictory views. As the state of the market indicated, Starbucks was perhaps late to the party; nevertheless they have every intention to be the life of it. This is somewhat true even during market entry; it is likely that no foreign company has ever gotten that much attention upon entering Vietnam. Those who know about Starbucks were excited, while the others became curious about the brand. And despite a rocky start, Starbucks has been able to establish its foothold in a vastly different Vietnamese market. Although the new frontier was deep-rooted and unwelcoming, opportunities can still be presented to those who can offer more to the customers; and Starbucks has shown that they have accumulated good understanding of the new market, i.e.,

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choosing good partners—teaming up with the regional expert Hong Kong Maxim Group and trying to move away from the entrenched segment of the market, etc. They have somewhat successfully implemented standardization in one of the most challengingly distinctive markets. The resulting consistency helps the company perform financially better as cost may have been saved from localized marketing and advertising. Although the coffee retail market in Vietnam will remain entrenched in the foreseeable future, it is possible for a brand to differentiate and move away from the masses by looking at different dimensions of their brand in comparison with competitors’. For instance, Starbucks could tap into the recently surging wave of entrepreneurial spirit—as a modern, ambient space beyond drinks and relaxation; Starbucks stores offer a certain level of an aspiring atmosphere. It is also worthwhile for business practitioners who are responsible for Starbucks’ operation to go back to the company’s transformation agenda (or the “seven big moves”) for devising strategies against challenges. Countries like Vietnam are still able to present plethora of opportunities to innovative and transformational companies. As an operator in a global top manufacturing country for coffee beans and other raw materials that Starbucks stores use, the company has the unique opportunity to demonstrate its leadership in ethical sourcing and environmental impact. When it comes to doing business for greater good, sky is the limit.

References Alderman, L. (2012). In Europe, Starbucks adjusts to a cafe culture. Retrieved October 13, 2018 from https://www.nytimes.com/2012/03/31/business/starbucks-tailors-its-experience-to-fit-toeuropean-tastes.html. Alon, I., Jaffe, E. D., Prange, C., & Vianelli, D. (2017). Global marketing: Contemporary theory, practice, and cases (2nd ed.). New York: Routledge. Bowring, G. (2016). Local chains take on coffee giants. Retrieved October 13, 2018 from https:// www.ft.com/content/189c23bc-055b-11e6-9b51-0fb5e65703ce. Bui-Kinh, K., van Driel, G., Chang, R., & Pipo, E. (2017). Repositioning Starbucks in Vietnam. Utrecht. Chilton, J. (2013). PhinDeli Town Buford: Open for business. Retrieved February 12, 2017 from http://www.wyomingnews.com/news/phindeli-town-buford-open-for-business/article_ e7f79e6e-6dfb-5c1c-910f-2bf888350af8.html#.VICflzHF91Y. Folkmanis, J., & Nguyen, D. T. U. (2014). Saigon beating Hanoi four decades after Vietnam war. Retrieved October 13, 2018 from https://www.bloomberg.com/news/articles/2014-09-03/ saigon-beating-hanoi-four-decades-after-vietnam-war. Gillespie, K., & Hennessey, H. D. (2011). Global marketing (3rd ed.). Mason: South-Western Cengage Learning. International Coffee Organization (ICO). (2018). Monthly export statistics. Retrieved October 13, 2018 from http://www.ico.org/trade_statistics.asp. Khan, S. (2010). Starbucks international marketing strategy. Retrieved October 13, 2018 from https://www.slideshare.net/sk_prince/starbucks-international-marketing-strategy-3900413. Kiley, D. (2006). Best global brands. Bloomberg Businessweek, 2006(3996), 54–56. Koehn, N. F., McNamara, K., Khan, N. N., & Legris, E. (2014). Starbucks coffee company: Transformation and renewal. Harvard Business School Case 314-068.

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Loxcel Geomatics. (2018). How many Starbucks stores are out there? Retrieved October 13, 2018 from https://www.loxcel.com/sbux-faq.html. Luc, H. (2013). Starbucks đang bị "tín đồ" cà phê Việt xa lánh? Retrieved October 13, 2018 from http://giaoduc.net.vn/Kinh-te/Thi-truong/Starbucks-dang-bi-tin-do-ca-phe-Viet-xa-lanhpost126425.gd. Misener, J. (2014). 20 Starbucks items you can’t get in the U.S. Retrieved October 13, 2018 from https://www.buzzfeed.com/jessicamisener/starbucks-menu-in-other-countries#1pd9p38. Noble, J. (2013). Starbucks takes on Vietnam coffee culture. Retrieved October 13, 2018 from https://www.ft.com/content/c8cd8e62-5562-11e2-bdd2-00144feab49a. Quelch, J. (2008). How Starbucks’ growth destroyed brand value. Retrieved October 13, 2018 from https://hbr.org/2008/07/how-starbucks-growth-destroyed. Reynolds, P. (n.d.). Countries where buying Starbucks is the most and least extravagant. Retrieved October 13, 2018 from https://www.valuepenguin.com/countries-where-buying-starbucksmost-and-least-extravagant. Rosen, E. (2014). Vietnam’s tale of two cities. Retrieved October 13, 2018 from https://thediplomat. com/2014/10/vietnams-tale-of-two-cities/. Schultz, H., & Gordon, J. (2011). Onward: How Starbucks fought for its life without losing its soul. New York: Rodale. Schultz, H., & Yang, D. J. (1997). Pour your heart into it: How Starbucks built a company one cup at a time. New York: Hyperion. Shayon, S. (2013). My Starbucks idea turns 5, sparking a latte innovations. Retrieved October 13, 2018 from https://www.brandchannel.com/2013/04/01/my-starbucks-idea-turns-5sparking-a-latte-innovations/. Sola, K. (2016). Six challenges Starbucks must address to succeed in Italy. Retrieved October 13, 2018 from https://www.forbes.com/sites/katiesola/2016/03/01/six-challenges-starbucksmust-address-to-succeed-in-italy/#3e6c279535b3. STARBUCKS. (2017). Starbucks. Retrieved February 12, 2017 from https://www.starbucks.com. STARBUCKS VIETNAM. (2017). Starbucks Vietnam. Retrieved February 12, 2017 from http:// www.starbucks.vn. Sun, L. (2015). Should Starbucks corporation fear this underdog in Asia? Retrieved October 13, 2018 from https://www.fool.com/investing/general/2015/09/01/should-starbucks-corpora tion-fear-this-underdog-in.aspx. Tiplady, R. (2006). Can Starbucks blend into France? Retrieved October 13, 2018 from https:// www.bloomberg.com/news/articles/2006-04-19/can-starbucks-blend-into-france. Tran, V. (2013). Giới trẻ Sài Gòn xếp hàng dài để chờ . . . 'check in' Starbucks. Retrieved October 13, 2018 from https://news.zing.vn/gioi-tre-sai-gon-xep-hang-dai-de-cho-check-in-starbuckspost301129.html. Trefis Team. (2016). Let’s look at Starbucks’ growth strategy. Retrieved October 13, 2018 from https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-look-at-starbucks-growth-strat egy/#41a402793d71. VietNamNet Bridge. (2013). How expensive will Starbucks coffee be in Vietnam? Retrieved October 13, 2018 from http://english.vietnamnet.vn/fms/business/57067/how-expensive-willstarbucks-coffee-be-in-vietnam-.html. Vu, D. L. (2013). Đặng Lê Nguyên Vũ: Starbucks chỉ là "ngườ i khổng lồ không bản sắc. Interview. Retrieved October 13, 2018 from http://giaoduc.net.vn/Kinh-te/Nguoi-Viet-hang-Viet/DangLe-Nguyen-Vu-Starbucks-chi-la-nguoi-khong-lo-khong-ban-sac-post105801.gd. Wang, H. H. (2012). Five things Starbucks did to get China right. Retrieved October 13, 2018 from https://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-chinaright/#60daf65453af.

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Khoi Bui-Kinh works at the Global Customer Development department of Unilever HQ in the Netherlands, having attained an MSc in Business Administration: Marketing Management from TIAS School for Business & Society in December 2017. Previously, he was a marketing communications consultant based in South East Asia, using his extensive network of regional media and key opinion leaders to provide international clients with local solutions. Khoi is a versatile marketeer with an acute understanding of digital media, change management, and consumer marketing. A writer by aptitude and a reader by vast curiosity, he is always willing to offer his wide range of expertise while aspiring to embark on future academic pursuits. Find Khoi on LinkedIn or connect with him via email [email protected].

Paris Baguette: How a South Korean Bakery Is Entering Europe Through the Capital of France HeeJo Hannah Kim and Simon Fietze

Case Synopsis Research Problem The South Korean company Paris Baguette, established in 1988, successfully conveyed its products as authentic Parisian bakery in the local and global markets around the world. Finally, they have expanded to the actual home of the boulangeries, France, by opening a flagship store in Paris. The company is using localization and product differentiation strategy (glocalization), and it is almost wholly adapting itself to the French market. It seems that this strategy helps the company to overcome its challenge of satisfying the high standards of the knowledgeable French customers in the “spiritual home of [Paris Baguette] bakery products” (Bae 2014). The questions now are the following: Which country should Paris Baguette expand to after entering France? Which is the best strategy for other European markets? Should they simply replicate their strategy for France? Does Paris Baguette need to adapt its strategy to the local pastries of the respective European country to the German brown bread (or pumpernickel), the Spanish pan cateto, or the Italian focaccia?

H. H. Kim (*) PVH Corporation, Tias School for Business and Society, Tilburg, Netherlands S. Fietze University of Southern Denmark, Sønderborg, Denmark e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_9

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Case Summary This case study is about the internationalization project of the South Korean franchise company Paris Baguette that offers different Frenchified bread and pastries. Over the past 15 years, the company successfully expanded to international markets including the United States, China, and other Southeast Asian countries. In Europe, the company started its first expansion project in Paris, France, in 2014. Paris Baguette strives to be known as a high-quality bakery, which offers products with an equivalent quality to the authentic French-baked products. They offer both traditional French croissants and other pastries as well as products with a unique Korean twist. The case analyzes the company’s historical roots and follows its growth strategy on international markets from China and other Asian countries over the United States to Europe and France. Paris Baguette’s success in all markets can be drawn back to their strict localization and product differentiation strategy (glocalization). Every market they enter is previously analyzed including customer habits regarding food as well as demands, which are studied in order to adapt the products to the specific market demands.

Learning Objectives After working with this case, the students will be able to explain the differences between a global strategy and a strategy focusing on localization and product differentiation. Furthermore, students will learn how an Asian brand is using one of these strategic approaches to expand to both Asian and Western overseas markets successfully.

Themes and Tools Used The case study addresses two themes: First, it discusses the issue of how a South Korean company develops a brand that is recognized as French and associated with traditional French bakery products and then later adapts an internationalization strategy culminating in the opening of their first store in Paris, Europe, in 2014. Second, the case study looks at the internationalization strategy itself to “become the world’s biggest bakery company [. . .] by 2020” (Parl 2015).

Target Audience The target audience of the case study ranges from undergraduate and postgraduate to executive education students who want to study international market strategies. Students will have an opportunity to discuss the glocalization framework (“Think global, act local!”) and its advantages and disadvantages in comparison with the two extremes globalization (standardization) and localization (differentiation).

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Questions • What should Paris Baguette’s product strategy be for other European markets? • Which would be the next market Paris Baguette should enter? • Should Paris Baguette “just” replicate their strategy for France or should they adapt its strategy to the local pastries of the respective European country to the German brown bread (or pumpernickel), the Spanish pan cateto, or the Italian focaccia?

Introduction Finally, they made it. Four years ago, Stephanie Kim,1 global marketing director of Paris Baguette since 2001, was not sure how to deal with The Wall Street Journal’s article. She still remembers the moment when she first saw the article, and the headline read: “South Korean Chain Tries to Sell Baguettes Back to the French—But Will French Bread Traditionalists Sniff at Sweet Concoctions?” (Cheng 2014). She smiled. “Yes, they did it. We did it!” she thought and looked out of the window. Paris Baguette faced many challenges when it first announced to open its franchise in Paris in 2014. As a South Korean franchising company, selling French bakery products, which belong to the national and cultural identity of France back to the French customers, is a hard nut to crack to gain acceptance. “France is home not only to Paris and the baguette but also to some of the most demanding bread lovers in the world, people who are famously finicky about a food many consider part of the national identity” (Cheng 2014). The article is critical about the acceptance of a company whose dough is centrally produced in a South Korean factory, frozen and shipped to the franchise outlets around the world (though not to France) for on-site baking. The author cites French expatriates in South Korea who wonder whether the company’s success has gone to its head. What people did not recognize was how much research and effort were put behind the scenes for this first move. Looking back at all the obstacles Stephanie Kim and her marketing team had sailed around, being aware of all the risks and drawbacks for a South Korean bakery in France, she was proud about what they had accomplished so far. The company had made the brave decision to enter the market and seemed to work its way up to positive results and go beyond the Korean roots. Similar to Paris Baguette’s market entry in China and the United States, Stephanie Kim and her team applied a localization and product differentiation strategy and developed a new concept for France. Following their vision “to maintain the 1 Stephanie Kim is a fictional character. Any resemblance to reality is pure coincidence. In this case, Stephanie Kim is the marketing director of Paris Baguette since its internationalization in 2001. She has been responsible for the market entry in all Asian countries, the United States, and finally France.

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authenticity of a local bakery that focuses on connecting with customers in each of the communities we are in and tailor to their preferences” (Paris Baguette 2018) the Parisian store “employs local chefs”—experienced French bakers—using “only traditional French bakery ingredients and methods” (Willsher 2014). To show that they are genuinely French, the store in Paris is also a member of the professional French bakery association (Chambre Professionnelle des Artisans BoulangersPatissiers) requiring all members to follow the standards of traditional French bakery handcraft. In 2016, a team of South Korean Paris Baguette bakers became, for the first time in the history, World Bakery Champions at Coupe du Monde de la Boulangerie—Bakery World Cup (Masters de la Bounlangerie 2016). At any rate, succeeding in the French market is paving the way to enter the markets of other European and francophone countries in the future (Jung 2015). Paris Baguette does not doubt their ability to become the best franchise brand that offers French-baked products in the world (Cheng 2014). Paris Baguette was actually able to enter the “spiritual home of our bakery products” as Hur Youngin, founder of Paris Baguette, was quoted in the Korean Herald, and the opening of their Paris flagship store highlights Paris Baguette’s commitment to continually improve and perfect the quality of their European-style bread and pastries (Willsher 2014). However, to enter the European market successfully, Paris Baguette invested a large number of resources in building its localization strategy for success. The company also modified its brand identity, which was initially in white letters on a blue background to gray-based colors to fit in with the city’s old-fashioned historical feeling (Kang 2014). The expansion into the European market seems to be another success story of Paris Baguette in its internationalization. Until today, Paris Baguette has opened one additional store in the French capital and will open its third French outlet in Mont Saint-Michel (Chae 2018). For Stephanie Kim there is no doubt—the company’s boundless localization and product differentiation strategy is their recipe for success: maintaining local authenticity and focusing on connecting with customers in the community and tailoring to their preferences.

History of Paris Baguette Background of the CEO In 1986, a bakery named Paris Croissant was founded and opened its first store in a central area of Seoul to introduce the European bakery culture to South Korea. In 1988 Paris Croissant launched Paris Baguette as a bakery and café franchise brand which opened their first store in another central location of Seoul. The Korean businessman Hur Young-in is the founder of this bakery chain. Today, Paris Baguette is a company under the SPC Group, a large South Korean chaebol, which was founded as SangMiDang in 1945. The SPC Group is South Korea’s leading company in the food and bakery industry (Kim 2017). In 2014, the chairman of the company Hur Young-in ranked as the 27th wealthiest Korean according to Forbes’ latest list of 50 richest Koreans (Kirk 2014). Hur studied at

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the American Institute of Baking (AIB) in order to ensure that he understands the industry and also to ensure the quality of the products. SPC is the abbreviation for “Samlip/Shany,” “Paris Croissant,” and “Companies.” They include other brands with French and Italian names such as L’Atelier, an upscale café, LaGrilla (Italian restaurant), Parlour (European casual cuisine), Vera Napoli (Italian restaurant), and Caffè Pascucci, a famous Italian-style espresso café, which are very commonly spotted throughout the business and residential districts of Seoul and other Korean cities (Kirk 2014). By 2015, the SPC Group operated approximately 6000 stores of its 30 brands under 43 different subsidiaries in South Korea, including Paris Croissant that owns the Paris Baguette bakery brand, Samlip General Food, and BR Korea that operates two major US brands Baskin Robbins and Dunkin Donuts in the country.2 The SPC Group also established SPC Food Life Lab in 2005 and an Innovation Lab in 2012. The Innovation Lab continues to develop approx. 500 new products a year including non-sugar bread loaf, which was released by Paris Baguette in 2013 and turned out to be a success. The factory can produce 360 types of products in 30 product lines of total 4,150,000 standardized quality products (Dong 2016).

Paris Baguette The name Paris Baguette was established to represent the authentic European bakery products—especially the French-style croissant and baguette. Paris Baguette’s goal is to provide high-quality French bakery products to the customers (in South Korea and all over the world) and is operated as franchise stores. Stephanie Kim explains how Paris Baguette brought the French breakfast style to Asia: “In Korea, dishes are typically made from rice, noodles, and soup [. . .] We brought bread and croissants to their breakfasts, changing the format of the morning meal.” The trend was helped along by American fast-food chains, which introduced ethnic cuisines like pizza and burgers. Eventually, younger populations in large cities started seeking out coffee shops and bakeries. “We helped Korean people to accept French baked goods comfortably,” Stephanie Kim explained. “We introduced the croissant to Korea and made it mainstream. Only a few people knew about French baked goods back then, in the 1970s and 1980s, with a few small bakeries making the products in the country” (Shah 2015).3 For Koreans—especially those born in the 1970s—Paris Baguette is a very nostalgic brand. The unique bread that is sold in Paris Baguette has also become signature bread that is still being often purchased by Korean households. This generation grew up with Paris Baguette, and everyone knows Paris Baguette (Shah 2015). The founder of Paris Baguette succeeded in striving for a company

2

For more details see http://www.spc.co.kr/spc/eng/main.spc. The quotes were made by the actual marketing director Jessie Sou in an article published on eater. com Shah (2015). 3

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that is acknowledged as a global French-style bakery chain brand like McDonalds which many acknowledge being one of the most well-known burger brands around the world (Cheng 2014). According to Michael J. Pettid, professor of pre-modern Korean and Asian American studies and author of the book Korean Cuisine—An Illustrated History, baked goods have not been part of Korean cuisine for long. He is quoted in an article on eater.com: “Traditionally, Koreans didn’t eat bread like in the West [. . .] They did have some types of steamed bread—often made from a mix of rice flour and wheat— but these were introduced from Central Asia in the 13th century and not really a regular meal item” (Shah 2015). “Based on our market experiences we have developed a clear core Paris Baguette strategy,” Stephanie Kim reflects. “We want to become the most famous bakery café in the world. This is our vision. Moreover, we intend to accomplish this by maintaining authenticity in the local community by focusing on customers’ preferences in each community. At our core, we are a bakery that is French inspired and innovative through global influence” (Paris Baguette 2018). Paris Baguette wants to bring a new level of satisfaction to people by continuing to create new products and implement innovative ideas for the future (through SPC Groups Food Life Lab and an Innovation Lab). Stephanie Kim continues: “As a franchise company, we seek to ensure the world best partnership with store representatives, customers, and members as well as leaping forward to a world-class company that creates the best enterprise value.” With the vision of “world-class company, worldclass partnership,” Paris Baguette emphasizes clearly on its franchise business. The numbers for 2017 are reflecting this: There are about 3400 Paris Baguette franchise stores in South Korea and a total of more than 300 stores across China (240), Vietnam (9), Singapore (6), the United States (60), and France (3) (Chae 2018; Lee 2015; Chosun.com 2017). The company produces millions of bread products a day, placing itself as the number one franchise bakery in South Korea. They offer unique pastry products that combine high-quality classic French baking techniques with Korean and Asian ingredients. The stores of Paris Baguette offer a variety of bakery products, combining the style of French techniques with Korean ingredients and Korean coffee bar, savory pastries, and pleasantly designed unique occasion items from cheesecake to choux cakes in small to medium sizes.

Global Strategy The success of Paris Baguette in France—the spiritual home of the baguette—is the temporary “peak” point of an expansion strategy with more than 3700 stores worldwide. Limited growth on the home market in South Korea leads to the decision to expand internationally. The global expansion project started with the success of Paris Baguette in Asia and the United States. In 2004, Paris Baguette entered the Chinese market with its first store in Nanjing. In 2012, already the 100th store opened, and by 2017 the company operated as much as 170 stores in China. Stephanie Kim explains how they followed a localization strategy for Paris Baguette

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on the Chinese market: “Our focus is customer satisfaction. Before we entered the market, we sent some of our staff to China to better understand the preferences of customers, to analyze their regional appetite, taste and food culture. Paris Baguette also adapted to China’s own specific culture ‘GuanXi’.”4 A different experience had the French company Fauchon, one of the world’s leading bakery. They were unsuccessful in their attempt to conquer the Chinese market because they failed to fulfill local customers’ preferences. Less than 2 years after opening their flagship store in Shanghai, they had to close it again. “We had and have a strong localization strategy,” Stephanie Kim thinks proudly. “We were focused on developing a product that goes with the unique Chinese taste and appetite. Chinese like chopped meat in sandwiches and we began to produce the Rou-Song bun, a popular food product in China. Also, we have Chinese-style brand names.” Approximately 20% of the Paris Baguette products in China are localized for the Chinese market. The other products are Korean style and an attempt to let the Chinese adapt themselves to the Korean and original Paris Baguette style (Ryu et al. 2014). In 2005, the first store opened in the United States. “We entered the U.S. market in Los Angeles by first targeting the customer of Korean descent and other Asians,” Stephanie Kim remembers Paris Baguette’s strategy during the expansion in North America. “The idea was simple, and maybe that contributed significantly to our success on the U.S. market.” The brand Paris Baguette was familiar to the Koreans living there. They recognized and accepted the brand quickly and formed the basis for a critical number of consumers to expand further to central commercial areas all over the country, including main locations in Manhattan. Until 2017, Paris Baguette had opened in 60 US cities including New York, Las Vegas, Los Angeles, Sacramento, San Diego, and San Francisco. The plan until 2020 is to have opened 350 Paris Baguette US stores (RestaurantNews 2016). Moreover, how can Paris Baguette’s success on the US market be explained? Stephanie Kim had to think about their market entry into China and Paris Baguette’s strategy with a localized menu and a wide selection of high-quality ingredients: “An analysis of the U.S. bakery market showed us that our competitors—like Au Bon Pain which is another franchise bakery—primarily target the morning customers. Paris Baguette is different: We have something to attract customers the entire day: espresso and pastries in the morning, sandwiches and salads for lunch, and bread and cakes in the evening” (Kim 2015).

Current Strategy in France Paris Baguette entering the French market has something of selling ice to Eskimos, and many press releases and media attention raised challenging voices questioning its ability to successfully win over the French customers who are used to authentic

4

GuanXi in China is the system of influential relationships and social networks facilitating (business) dealings.

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baked goods that Paris Baguette was trying very hard to convey. In 2014, the company opened its flagship store Paris Baguette Chatelet located in the city center of Paris, close to Pont Neuf, Notre Dame, and the Louvre. Eleven months later in July 2015, the second Paris Baguette opened in the city’s opera district in the same neighborhood as the Palais Garnier, cinemas, and major department stores. A lot of research and effort was put behind the scenes for this first move into the “spiritual home” of Paris Baguette. Again, Paris Baguette applied a localization strategy: The Parisian flagship store, which comprises 200 m2 and 46 seats, is operated by French bakers and employees who are using traditional French bakery ingredients and methods. The store is also a member of the professional French bakery association who requires all members to follow to the standards of traditional French bakery handcraft. The company also modified its brand identity, which was originally in white letters on a blue background to gray-based colors to fit in with the city’s old-fashioned historical feeling (Kang 2014). Following their localization and product differentiation strategy, the menu mostly consists of French bread and pastries and sandwiches to appeal to local consumers. However, exclusive items such as fresh cream chiffon cakes and specially “stuffed” bread with red beans and cream are also available. Paris Baguette invested 20 years in research in order to enter the French market since it is known to be the most challenging market to enter (Jong 2014). The company found a place to stay in France for research since 1998 to study the market and to develop its strategy. The company also invested millions of euros in research and development. Paris Baguette imported French flour and bakery machines to South Korea to develop authentic products to satisfy the French customers. In 2006, the company registered itself as a local corporation and began preparing to open the store and started to develop the menu (Kang 2016). After the success of other global expansion projects and more understanding of the local market, the company ensured the first store to offer freshly baked goods using health conscious goods to earn positive feedback from the local customers. Moreover, the expansion continues: SCP group recently announced that Paris Baguette will build a bread factory in Brittany, France (Chae 2018). First, the SPC Group implemented the “Premium Artisan Boulangerie” concept in the store. They hired local and highly trained bakers but also sent top trainers to train the bakers. In the bakery market of France, there are two types of bakeries: the “Artisan Boulangerie” and other common bakeries that provide snacks. The artisan boulangeries provide freshly on-site baked goods using traditional recipes. Paris Baguette Chatelet, for instance, starts baking from 2 am and presents freshly baked bread from 7 am on. However, in order to differentiate itself from French boulangeries with hundreds of years of history, Paris Baguette also increased the quality of the ingredients and does not sell any other snacks produced by other companies such as chocolate or jelly that are available at boulangerie bakeries. As well, the director of Paris Baguette mentioned that many French customers search for healthy food at boulangeries. Therefore, Paris Baguette does not sell the factory produced sweet bakery products (Kang 2016).

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In keeping with that approach, Paris Baguette is a little reluctant to publicize its history as a Korean company (Kirk 2014). The bakery offers French products that are very commonly eaten such as croissants, sandwiches, and baguettes. Nevertheless, they also offer “unique” products which incorporate the company’s technique of combining French style of baking with Asian fuses such as the red bean filled buns and even Korean food like “Bingsoo,” shaved ice with ice cream and fruit on top.

Outlook and Conclusions The story of the company does not end here. Today, Stephanie Kim faces the challenge to decide on how to develop Paris Baguette’s strategy to expand to other countries in Europe. She turned away from the window and looked at her watch. In half an hour, she will meet with her marketing team to discuss the future market entry strategies in Europe. So far, Paris Baguette’s strategy to localize their business to each country (or region) and to differentiate their products has proven to be successful. The long history of baked goods and the diversified food habits and bread preferences across the European countries despite their close locations seem to make it difficult adjusting to every single market. However, Stephanie Kim has the task on her desk to look for further expansion across the European continent. Germany—another country rich in bakery traditions—seems to be the natural next challenging conquer for Paris Baguette. “We have just received notice, that the German Patent and Trade Mark Office granted our trademark ‘Paris Baguette’ in Germany,” Stephanie Kim felt excited and reluctant at the same time. “But I need to be more certain that this is the next right move to make.” There were many unanswered questions on her mind.

References Bae, J.-S. (2014). Paris Baguette opens first store in Paris. Retrieved October 13, 2018 from http:// www.koreaherald.com/view.php?ud¼20140723000494 Chae, S.-J. (2018). Korea’s Paris Baguette to build bread factory in France. Retrieved October 13, 2018 from http://english.chosun.com/site/data/html_dir/2018/05/29/2018052901389.html Cheng, J. (2014). South Korean chain tries to sell baguettes back to the French. Retrieved October 13, 2018 from https://www.wsj.com/articles/paris-baguette-a-south-korean-chain-has-found-anew-marketparisians-1407378604 Chosun.com. (2017). 파리바게뜨 상생기업 출범, 매장수는 몇개나? Retrieved October 13, 2018 from http://news.chosun.com/site/data/html_dir/2017/12/01/2017120102216.html Dong, N. J. (2016). [?랜차이즈 ‘명품시대’] '빵의 본고장' ?랑스도 이린 파리바게뜨. . .미국중 국 등 해외 매장만 240여개. Retrieved October 13, 2018 from http://news.hankyung.com/ article/2016110241901?nv¼o Jong, L. M. (2014). 파리바게뜨, 파리로 가다. Retrieved October 13, 2018 from https://www. huffingtonpost.kr/2014/07/23/story_n_5611798.html Jung, S.-Y. (2015). Paris Baguette going global. Retrieved October 13, 2018 from http://www. businesskorea.co.kr/news/articleView.html?idxno¼11650 Kang, J. (2014). 26년만에 이룬 허영인 회장의 꿈. . .파리바게뜨 '바게트 본고장' 파리 입성. Retrieved October 13, 2018 from http://news.hankyung.com/article/2014072310261

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Kang, J. (2016). 파리 안착한 파리바게뜨 '빵빵한' 성공 비결. Retrieved October 13, 2018 from http://plus.hankyung.com/apps/newsinside.view?aid¼2016080106371& category¼NEWSPAPER Kim, K. (2015). What made a bakery franchise No. 1 in Korea?: The story of Paris Baguette and its success factors. Journal of Marketing Thought, 2(1), 14–26. Kim, M. (2017). SPC, 계열사간 내부거래 비중 30.7%. . . 전년 대비 3.5%p 늘어. Retrieved October 13, 2018 from http://www.ceoscoredaily.com/news/article.html?no¼32117 Kirk, D. (2014). Mon dieu, Korea’s Paris Baguette is now a real Parisian boulangerie. Retrieved October 13, 2018 from https://www.forbes.com/sites/donaldkirk/2014/07/23/mon-dieu-koreasparis-baguette-is-now-a-real-french-cafe/#2b778e946b4d Lee, H. (2015). [K-?랜차이즈 신드롬] 빵의 본고장 파리서 “트레 봉, 파리바게뜨”. Retrieved October 13, 2018 from http://www.econovill.com/news/articleView.html?idxno¼260444 Masters de la Bounlangerie. (2016). The 2016 bakery world cup. Retrieved October 13, 2018 from https://www.mastersdelaboulangerie.com/the-competitions/the-bakery-world-cup/the-2016bakery-world-cup.html Paris Baguette. (2018). About us. Retrieved October 13, 2018 from http://parisbaguette.com/aboutus.html Parl, S.-S. (2015). Bakery giant to spend W2.6 tril. on R&D. Retrieved October 13, 2018 from http://www.koreatimes.co.kr/www/tech/2015/10/129_189660.html RestaurantNews. (2016). Paris Baguette continues aggressive U.S. franchise expansion with first multi-unit deal. Retrieved October 13, 2018 from http://www.restaurantnews.com/parisbaguette-continues-aggressive-u-s-franchise-expansion-with-first-multi-unit-deal/ Ryu, S., Jang, W., & Cho, H. (2014). China market entry strategy of Paris Baguette. Journal of Business Case Studies (JBCS), 10, 155–164. https://doi.org/10.19030/jbcs.v10i2.8504. Shah, K. (2015). Pastries born in France, raised in South Korea. Retrieved October 13, 2018 from https://www.eater.com/2015/12/30/10685588/korean-bakery-paris-baguette-tous-les-jours Willsher, K. (2014). Korea’s Paris Baguette chain expands to . . . Paris. Retrieved October 13, 2018 from https://www.theguardian.com/world/2014/aug/12/korea-paris-baguette-chainexpands-french-bakery HeeJo Hannah Kim is a Production Coordinator at PVH Corp. in Amsterdam, the Netherlands. Her interests are in adaptive clothing for adults and children and to expand it in international market as well, she has great interest in writing. She was educated in the Netherlands where she obtained her MSc in Business Administration, specialized in Marketing. Her Bachelor’s degree was obtained from South Korea with double majors in English literature and Business Administration. She has international educational background in early age in South Korea, Canada, and the United States. Her professional experiences are in fashion industry in marketing and merchandising in the Netherlands as well as PR consulting in South Korea. Simon Fietze is Associate Professor of Management and Entrepreneurship at the Department of Entrepreneurship and Relationship Management at the University of Southern Denmark, Sønderborg. Simon Fietze studied work and organisation psychology and human resource management at the University of Flensburg (M.B.A.) and obtained his Ph.D. at the Helmut-SchmidtUniversity/University of the Federal Armed Forces Hamburg. His research focuses on organisational behavior of individuals and the influence of human resource practices like working time arrangements, employee financial participation, and employee voice on organisational performance. Simon Fietze has participated in several international projects. He is currently involved in the EU Horizon 2020 project (Marie Sklodowska-Curie) “Knowledge and Innovation in, to and from Emerging Markets” (KITFEM) and the research project “The Development and Application of a Market-Friendly Business Model for Social Innovation Enterprises in the Connected Society” at Kyungpook National University, Daegu, South Korea. Simon Fietze is editor-in-chief of the ABS-ranked journal management revue—Socio-Economic-Studies.

Part IV Corporate Social Responsibility on the Move

Lipton’s Tea Plantations in India: Is There a Gap Between Saying and Doing in Sustainability? Gwen van Driel

Case Synopsis Research Problem Unilever wants to investigate the actual (human) conditions on its tea plantations in India and how they are affecting the company. This includes bottom-up countermovements that are visible against multinational companies dominating mass production. Unilever has to take major action to maintain sustainability.

Case Summary The case focuses on the conditions on tea plantations in India. It demonstrates that Unilever is facing difficult times in the Indian market and that sustainability is urgent. Furthermore, it describes the way in which Unilever provides sustainable solutions. The Scotsman Thomas Lipton founded the brand Lipton in 1850. Today, Lipton is the registered trademark of Unilever, one of the world’s largest tea companies. In addition, Lipton’s tea plantation in Kericho, Kenya, was the first tea plantation in the world to be certified by the Rainforest Alliance®.

Learning Objectives The objectives are as follows: to understand why it is recommended for a company to further integrate sustainability, ethics, and social issues into its business operations; to gain a broad understanding of the risks a company may encounter in G. van Driel (*) Independent Consultancy, Tias School for Business and Society, Tilburg, Netherlands # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_10

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specific parts of its value chain and learn how to keep these risks as manageable as possible; and to develop a sense of how caring for responsible and sustainable business operations—within and beyond the organization’s boundaries—increasingly contributes to the image of a company.

Themes and Tools Used • • • • •

Corporate social responsibility (CSR) analysis Impact of durability and sustainability on performance Fair trade as a competitive advantage Analysis of external and ethical conditions at tea plantations in India Strategic planning including sustainability issues such as people, planet, and profit • Bottom-up countermovements

Target Audience The case can be used by students or organizations with an interest in fair trade products; it creates a broader vision of the urgency of sustainability. The case is equally suitable for courses in (leadership in) sustainability, international marketing, and corporate social responsibility.

Questions • What are the living and working conditions on plantations in India where tea is produced for well-known brands such as Lipton? • How can products be handled in a responsible and fair manner? • What is the importance of a long-term agenda to eradicate poverty and tackle climate change? • How does Unilever increase consumers’ awareness of their society and the environment in emerging markets? • How well is Lipton handling the conflict of being more sustainable in emerging markets? • Are the Indian economy and the tea market likely to change?

Introduction Back in 2015, Paul Polman received the Durable Ribbon on sustainable Tuesday in the Netherlands. He earned this medal for his long-standing commitment to sustainability and his leadership as CEO of Unilever. His ongoing mission for both the company and society at large was expressed in Unilever’s Sustainable

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Living Plan, which was intended to double the size of the company by 2020 while reducing its environmental footprint and increasing its positive social impact (van Ewijk and Ariëns 2015). This afternoon, when Polman was about to prepare his speech for the next day’s press meeting, he remembered the ceremony when he had been awarded the ribbon. He thought about what had happened since that day and his dedication to the company’s sustainability mission. Looking at some of the tea bags in beautiful packaging lying on his desk, he mused on the sustainability label of Unilever’s brand Lipton, the world’s leading tea brand, sold in more than 150 countries.1 He knew that his sustainability policy was answering consumer requirements. Unilever was growing and flourishing, which was also good news for shareholders. Still, it was not just joy. In recent years, Unilever had faced affairs that had damaged its image as a socially responsibly operating company. This concerned not only the environment but also working conditions—in Unilever’s own factories and among its many thousands of suppliers. The group was therefore vulnerable. In September 2015, the UK Broadcasting Corporation aired a documentary about maladministration on Indian tea plantations bought by Unilever. It had been found that children worked on these tea plantations and that workers sprayed poison without being protected for this purpose (Rowlatt and Deith 2015). Other horrifying stories about the treatment of children abound, including the following: Elaina Kujar, 14 years old, had always dreamed of becoming a nurse. However, she had just returned from school one day when a trafficker knocked on her door. Her dream did not come true. On the contrary, from that moment on, Elaina spent 4 years of her life as a child slave. Sitting on a chair in her cabin, playing with her long, black hair, she told the camera how her owner sat next to her and watch pornography while she tried to fall asleep on the hard floor. “Then he raped me,” she stated (Chamberlain 2013). Elaina was brought to the Delhi house because her parents were so badly paid that they could not afford to keep her. Like Elaina, thousands of other children are sold as slaves, raped, abused, and very poorly paid (Chamberlain 2013). While this story might be an extreme case, the conditions on Indian farms all seemed to be the same, with the documentary narrator stating: “Every tea plantation pays the same wages. Every leaf of every box of Assam tea sold by Tetley and Lipton and Twinings and the supermarket own brands—Asda, Waitrose, Tesco, Sainsbury’s and the rest—is picked by workers who earn a basic 12p an hour” (Chamberlain 2013). Using certification labels like Fairtrade or the Rainforest Alliance on the box did not make a significant difference for neglected workers: Employees earned the same basic payment of €1.21 a day. The reason why wages were kept so low had to do with false promises made by traffickers. They promised poor parents that taking their daughters would open the door to a surprisingly good life with high wages. For most families, it was difficult to refuse. “He said he would change our lives,” Elaina said 1

The scenario is fictitious and meant to better communicate the major issues.

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(Chamberlain 2013). Elaina was never paid, and, in addition, she was detained as a prisoner without any contact with her family. Today, retailers, brands, and certification agencies generally agree that wages on tea plantations are a problem. The Rainforest Alliance, which marks Unilever’s Lipton brand, hopes that certified farms will pay realistic wages by 2018. Unfortunately, much remains to be done to resolve this overall harmful situation. While Unilever had launched several initiatives, as he prepared his speech, Polman was well aware of the ongoing violation of labor rights, malnutrition, and child labor on Indian tea plantations, and this was of great concern to him. How could he address these issues the following day?

The History of Unilever and Its Brand Lipton Unilever originated from a merger of the Dutch margarine company the Margarine Union and the British soap manufacturer Lever Brothers in the 1930s. The Margarine Union and Lever Brothers were both well running businesses; together they had offices in 40 countries by the 1920s. However, they competed for the same raw materials, and they both engaged in producing domestic products and used similar distribution channels (Unilever 2018c). Thus, merging forces was beneficial to both of them, and the company Unilever emerged as an ongoing result of collaboration. During the 1940s, Unilever’s global activities began to decrease, partly because of World War II, but the company continued to expand its food business and increased its investment in development. In the years that followed, business experienced a time of great prosperity, as new technologies and the European Economic Community (an institution of the European Union) provided good conditions for Unilever. The global economy expanded and Unilever did the same, developing new products and entering new markets. In the 1990s, Unilever expanded to Central and Eastern Europe and concentrated more strongly on a smaller number of product categories. More recently, the twenty-first century has been the road to the development of a strategic annual plan. Unilever has focused primarily on consumer demand and listened to global issues, such as the urgency of sustainable business (Unilever 2017a). In 2016, Unilever had 168,000 employees and achieved a turnover of €52.7 billion. Thirty-eight percent of this turnover was generated in Europe, 35% in North and Latin America, and 27% in the rest of the world (Unilever 2017b). Unilever’s financial results for the year 2016 are displayed in Table 1. One of Unilever’s main brands is the registered trademark Lipton, which was originally founded by the Scot Thomas Lipton. It all began in 1871, when Lipton opened his first shop, Lipton’s Market, in his hometown of Glasgow, Scotland. This shop proved to be highly successful, and Lipton therefore quickly opened up more shops in Scotland. In 1888, he owned a total of 300 shops. With his passion for tea, Lipton bought his first tea plantation in 1890 in Ceylon, today’s Sri Lanka. Sir Lipton had a clear goal. He wanted to make quality tea accessible on a worldwide basis. At that time, tea was a luxury item and not available for everyone.

Lipton’s Tea Plantations in India: Is There a Gap Between Saying and. . . Table 1 Unilever’s financial results

Key financials Sales growth Turnover Operating profit Net profit Core earnings per share Diluted earnings per share Turnover developed markets Turnover emerging markets

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Full Year 2016 3.7% €52.7 billion €7.8 billion €5.5 billion €1.88 €1.82 €22.5 billion €30.2 billion

Source: Adapted from Unilever (2017a, b)

One of his achievements was ensuring that drinking tea was possible for the large masses: the young, old, rich, and poor; he wanted tea to be accessible to everyone. And he succeeded. Hence, his appropriate slogan was “direct from the garden to the teapot.” More recently, Lipton, and its enrichment of Lipton Ice Tea, has become one of the largest tea brands in the world (Unilever 2018b). When Thomas Lipton died on October 2, 1931, at the respectable age of 83, his business was sold to Unilever. Since then, the brand had expanded further, and today’s product line consists of the following items: Fresh Packs, Lipton Yellow Label, Green Tea, Herbs & Infusions, Black tea, Indulge Tea, and Lipton Ice Tea. With its clear growth objectives, Unilever further explored the Indian market, both as a source of tea cultivation and because producing in India was attractive: due to its great industrial landscape, India had sufficient suppliers that could deliver quality, wages were low, and the infrastructure had improved.

The Role of India in Unilever’s Global Strategy Tea Production in India For many years, India had played an important role in Unilever’s global strategy, and the organization wanted to continue growth in the country. Namely, India had always had a strong position with regard to its tea plantations. The country produces about 800,000–950,000 tons of tea annually and has more than 13,000 tea plantations with a total area of about 1 million hectares. Most tea plants are located in Northern India. In terms of tea exports, India is the second largest tea exporter in the world. From April to September 2016, India exported 101.04 kg tea with a value of US$ 306.9 million (India Brand Equity Foundation 2018). India began to grow tea for business purposes in Assam around 1839, but its tea history goes back far further than that. Since 1839, India has developed as an important tea country with plantations in the North and South of India in areas such as Darjeeling, Assam, and Nilgiri. The highest quality and most expensive tea comes from Darjeeling, an area located in West Bengal in northeastern India. Darjeeling tea is grown on the foothills of the Himalayas at heights of

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1000–2000 m. The climate is perfect for tea growing: it is cool and moist, and the soil is of high quality and very fertile. Assam, located in Northern India, is the oldest and largest tea county in India; it is responsible for the largest share of tea production, though of comparably lower quality. It is responsible for about 45% of total tea production. Most of Assam’s production is cultivated in the Brahmaputra. The heights at which the tea is grown in Assam range from 90 to 230 m. Nilgiri is an area located in the Indian province of Tamil Nadu in Southern India, and it is famous for the so-called Blue Mountains. Tea from Nilgiri is grown at varying heights from 1000 to 2500 m. This area is highly suitable for tea growing because of its cool and humid climate. For more than 100 years, tea has been cultivated here, and it is one of the most important industries in the Nilgiri area (Theeliefhebbers 2011).

Slave Labor in Indian Tea Plantations According to a report by British broadcaster the BCC (Rowlatt and Deith 2015), workers at the plantations are so poorly paid that they are malnourished because they cannot afford food. They are housed in broken homes without proper sanitation, and many children work on the plantations. The drains are open and unlined and many clogged with effluent. In some cases, cesspits are overflowing into the living areas of people’s homes. Many homes have no electricity, and on one estate workers had to drink rainwater piped from a stream. Nine out of ten patients from tea plantations are malnourished, according to the medical director of Assam Medical College, one of the main general hospitals serving the tea region (Rowlatt and Deith 2015).

The BBC researchers reported on extremely low wages in the tea sector: the workers in Assam earn 115 rupees (1.53 euros) per day. That is below the minimum wage, established by law, of 177 rupees (2.36 euros). The combination of poor maintenance and extremely low wages can have deadly consequences. In addition, the BBC showed images of flooded latrines, plantation workers spraying poison unprotected, children picking the tealeaves, and poor hygiene. In this vein, the broadcaster described the following: Professor AK Das says malnutrition makes tea workers and their families vulnerable to diseases caused by their unhygienic living conditions. Diseases of poverty are common, he says, with lots of patients coming in with diarrhoea, respiratory tract infections, skin lesions and serious infections like TB and meningitis. (Rowlatt and Deith 2015)

Temporary workers receive no adequate compensation for overtime work. They are not protected when they use pesticides, and they cannot join a union, for instance. According to the India Committee of the Netherlands (Glocal Research and India Committee of the Netherlands 2016), these problems require immediate attention. McLeod Russel, a manager of the world’s largest tea producer, which supplies major

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tea sellers such as Lipton, recognizes these serious matters. “There is a major repair backlog on some Indian plantations,” he told the BBC (Rowlatt and Deith 2015). For several years, activists from the Indian society had tried to bring attention to the problems they encountered. They claimed that Unilever was responsible for poisoning the groundwater and soil in the Indian city of Kodaikanal. As a result of these toxins, former employees became ill and died. Unilever, which buys tea in these plantations for its brands PG Tips and Lipton, told the BCC that it takes these abuses very seriously. The conditions on the plantations have improved since the problems were raised for the first time in 2010 (Rowlatt and Deith 2015). However, as he prepared his speech, Polman knew that much more was to be done to achieve a responsible and sustainable environment. He wanted to present some more evidence of Unilever’s engagement, so he asked his assistant to bring the files concerning Unilever’s memberships and commitments to sustainability to his office. He was well aware that the company had long been concerned about having tea sourced in a responsible and fair manner. However, especially in recent years, public awareness on the subject had risen, and, among other multinationals, Unilever had to prove that it did not only preach sustainability but also acted on its own commitment.

Unilever’s Sustainability Strategy Sustainability in Mission and Vision Unilever has a long-term agenda to eradicate poverty and to tackle climate change. Its aim has always been to make consumers aware of actions they can take themselves with regard to the environment and society. An amazing 2 billion people a day use Unilever’s products; thus, the company has an enormous impact. In a market study, the organization examined the views of consumers about sustainability and then translated these views into actual purchasing choices. Most participants not only believed that sustainability was important but also took steps to live more sustainably. In addition, the survey2 showed that consumers attached importance to sustainability in both developed and emerging markets. This supports Unilever in its vision that sustainability offers companies opportunities for growth (Unilever 2016c). In an interview with OneWorld, Polman was very clear on the importance of this mission. He explained that the business should continue on the same sustainable course for the next 15 years, stating that, “It is about fighting poverty, hunger, and climate change, but also about empowerment and safe drinking water before the year A research project commissioned by Unilever and conducted by Europanel in five markets. The surveyed households showed their actual purchases and received questions about specific purchases, not just about purchase intent.

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2030” (van Ewijk and Ariëns 2015). Unilever wants to increase sales and halve its environmental impact, improving the health and well-being of more than a billion people and raise the living standards of millions working in Unilever’s chain of production. “It is a huge challenge—one that we will never achieve on our own,” Polman said (van Ewijk and Ariëns 2015). On September 25, 2015, the UN launched 17 Global Goals for Sustainable Development (Global Goals). A total of 193 world leaders signed their support for these goals, with the overarching aim of ending extreme poverty, inequality, and injustice, and addressing climate change. It was a historic opportunity to build a better future for everyone, and Unilever acknowledged that Global Goals could boost the global economy (Unilever 2015). Polman stated: “The Global Goals provide a ‘way out’ in a time in which our economic model pushes the boundaries of our planet” (Unilever 2018a). As a result, the Business and Sustainable Development Commission (BSDC) was born. This commission, which Polman co-founded, was launched on January 21, 2016, at the World Economic Forum in Davos, Switzerland (Unilever 2016b). The purpose of this committee, consisting of top businesspersons, is to encourage companies to take the lead in poverty reduction and sustainable development. Over the past year, the BSDC has examined how business can create a sustainable economy that helps to realize the Global Goals. On January 16, 2017, the committee announced that by 2030, sustainable business models could provide economic growth annually. This growth could amount to at least 12 trillion dollar and 380 million jobs. Only if the Global Goals have a central place in the global economic strategy, people can jointly create growth and productivity with a boost in sustainable infrastructure as a driving force. For 2017, the BSDC intended to work closely with businesses to make their company even more tuned to the Global Goals. They did this, for instance, by coaching future leaders with a view to developing sustainable development and action plans for each sector (Unilever 2018a).

The Rainforest Alliance Because of Polman’s commitment, Unilever has been able to anchor sustainability in its organization by integrating it into its brands, including Lipton, and innovations to promote growth. For instance, the company has collaborated with its customers and suppliers, involved employees, and started new partnerships. Lipton’s mission is to support farmers and their families by raising their standard of living while protecting the planet with a view to the future. In addition, the tea that Unilever sources for its Lipton tea is branded with the mark of the Rainforest Alliance. This international nongovernmental organization ensures that the cultivation of tea is not done at the expense of the environment and the people who work on the plantations. Unilever recently announced that all purchased Lipton tea must have the hallmark of the Rainforest Alliance, symbolized by a little green frog. At the end of 2015, all tea in Lipton tea bags was certified by the Rainforest Alliance, which was a crucial step for one of the largest tea brands in

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the world. Moreover, Lipton’s concrete ambition consists of making a yearly payment of 3 million euros to the tea farmers. This will not only benefit the crops but will also improve the incomes and lives of some 2 million people around the world. In addition, Lipton will globally help to protect the environment from the depletion of natural resources (Unilever 2018d). Together with its suppliers, Unilever also claims to be improving working conditions. Unilever’s purchasing director Buch explained that the company could either help to solve problems or choose to ignore them and pull back. In other words, Unilever could help either address the problems on Indian tea plantations or choose to withdraw. The first case would cost the company much time, money, and energy, but the second case could lead to a bad reputation and a damaged image. Despite the issues, Unilever was determined to continue collaboration. We are determined to work with the very best suppliers across all our categories and supply chain in a way that is responsible and an exemplar of integrity. But that is a two-way street and, in return, we expect the very highest standards from our suppliers. We believe in challenging, but fair relationships, open, honest and built on trust—we know that we only want to work with supply partners who share our values (Buch n.d.).

How to Maintain a Sustainable Brand Reactions to Bottom-up Counter Movements Many Indian people who have experienced poor living conditions have started to respond with so-called countermovements. These consist of statements such as “small is the new big,” for instance, and looking for different ways of organizing their activities. This could include different layers and groups working together to defend themselves against multinationals with their dominating mass production. Several of these countermovements were visible when yoga guru Baba Ramdev, founder of the spiritual and principles-based Patanjali Ayurved, surpassed multinational Unilever with its local and healthy products. An attack on Hindustan Unilever (HUL), Unilever’s Indian brand, took place because the Indians believed that Unilever dominated the mass products in their society (Janssen 2016). According to Ramdev, major internationally operating companies such as Unilever are guilty of “theft.” As a result, Ramdev claimed to be in favor of social projects. In addition, ingredients for Patanjali’s products were bought directly from the farmer, and because of their simple packaging, they were affordable. This explained their popularity among the Indian population. More importantly, with its emphasis on natural and organic products, Patanjali positioned itself as healthy and claimed that Unilever’s products were “synthetic” (Het Financieele Dagblad 2016). Ramdev further promoted and stimulated the purchase of his own products during his yoga classes; his product range includes drugs, personal care items, and food. Images of the yoga guru were deployed in the Indian streets, and the products were available at regular grocery stores and via the Internet (Janssen 2016). In addition,

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Patanjali was working on the creation of 100 megastores. Since its launch in 2006, Patanjali Ayurved has become a million-dollar business. Polman wondered whether this meant difficult times for Unilever and HUL. He remembered that Ramdev had predicted that HUL would fail within 2 years (Het Financieele Dagblad 2016) and that his own company would be larger than HUL within 3 years. However, in recent years, the labor shortage and the better job opportunities for indigenous tea plantation workers have resulted in some positive changes in the employment of workers in the Havukal and Kairbetta tea estates. This relates to the payment of minimum (but not livable) wages, the establishment of better (but not yet conclusive) procedures for the safe handling of chemicals, and the provision of basic medical care and education facilities for all temporary and permanent employees (Glocal Research and India Committee of the Netherlands 2016). For this reason, Unilever’s contributions, as well as those of the BSDC, may prove to be positive.

Corporate Social Responsibility Unilever is committed to a CSR strategy that fits its identity and positioning. In addition, its CSR strategy is woven throughout the organization, and it is allowed to be communicated to its target group (Unilever 2016a). Polman’s ongoing mission for Unilever was to create “Brands with a Purpose.” The need for Lipton to pay attention to sustainably certified tea was one major example of a purpose, and the company consequently followed in implementing targeted marketing strategies. The effective use of a carefully formulated CSR strategy in these activities had proven to be very useful. In this way, Unilever has generated sharper positions for brands like Lipton and activated them with a social mission. These so-called Sustainable Living Brands are now growing 30% faster than the rest of the company’s portfolio (SAMR 2016). Hence, it can be stated that sustainability may contribute to higher growth and lower cost, along with less risk and greater confidence. Unilever formulated its strategy in “The Compass,” a corporate document where it set a long-term fixed route for the company. The strategy was first developed in 2009 and tightened in 2015, but the core remained almost identical. The Compass describes the specific objective of sustaining life as a community and Unilever’s vision to grow the company while decreasing the environmental footprint of its growth and boosting its positive social impact. Unilever has developed new ways to grow the business and communities while also answering people’s increasing need for more sustainable products and creating a better future for everyone (Unilever 2017a). The organization builds on a world in which everyone lives comfortably within the natural boundaries of the planet. This includes: • Brands that offer balanced nutrition, good hygiene, and the confidence that comes from clean clothes, clean hair, and healthy skin

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• Products that are manufactured durably and are used in a way that protects the natural resources of the earth • Respect for the rights of people and communities with which Unilever works all over the world Unilever actively uses its global scope to connect with consumers through BrightFuture, its global initiative to motivate millions of people to live sustainably by taking small steps daily, which ultimately makes a huge difference in the world. This approach has proved to make a significant contribution to Unilever’s success as a company. By 2015, the Sustainable Living Brands had grown even more than in 2014. They also accounted for almost half of Unilever’s growth and grew significantly faster (30%) than the rest of the company (Unilever 2017b). The organization further strives to achieve its social and environmental aspirations through the Unilever Sustainable Living Plan, launched in 2010—its blueprint for sustainable growth. It is the strategic answer to the challenges that Unilever faces in an uncertain and changing world. The plan helps boost profitability for Unilever’s brands, save costs, and innovate (Unilever 2017a). The three major objectives are as follows: • Improve health and well-being: By 2020, Unilever will help more than a billion people to take action to improve their health and well-being. • Reduce the environmental impact: It is Unilever’s goal to halve the environmental footprint of the production and use of its products by 2030, while the company continues to grow. • Increase living standards: Unilever will increase the living standards of millions of people by 2020, while the company continues to grow. Polman stated: “By defining global goals, for the first time in history, there is a clear framework for solving the biggest problems in the world. The goals are certainly ambitious, but if we can realize them, we may once again eliminate poverty, fight inequality and tackle climate change” (van Ewijk and Ariëns 2015). Unilever’s goals, as well as the Sustainable Development Goals, can be achieved if global issues are tackled systematically. However, changing total systems is not possible without collective action. “It is equally important for companies as well as governments and society to work faster on that vision. There are even great opportunities for committing to action,” as Polman stated (van Ewijk and Ariëns 2015). Much more is needed than one company, government, or community to solve the problems Unilever sees. There are totally other forms of cooperation, innovation, and partnership between these groups needed if we want to give impetus to collective action to achieve a more beautiful and lasting future for all (Polman in van Ewijk and Ariëns 2015).

The Global Goals proved that it was possible to lower the environmental footprint and to contribute to better life conditions. Every year, 3 million fewer children die

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Table 2 Unilever’s global goals for sustainable development No poverty Zero hunger Good health and wellbeing Quality education

Affordable and clean energy Decent work and economic growth Industry, innovation, and infrastructure Reduce inequality

Gender equality Clean water and sanitation

Sustainable cities and communities Responsible consumption and production

Climate control Life under water Life on land Peace, justice, and strong institutions Partnerships for the goals

Source: Adapted from Unilever (2015)

from the effects of poverty, and more children than ever go to school. Contributing to sustainability seems to provide higher growth at a lower cost, with both less risk and greater confidence. On June 10, 2016, sustainability experts discussed this urgent topic and found ways in which a joint action could help to achieve the Sustainable Development Goals (Table 2). Today, consumers expect even more from brands and companies—and businesses reward those who buy fair products at an affordable price and contribute to society on a broader level (Unilever 2016c).

What Is Next? Polman very much looked forward to presenting his ideas at the upcoming meeting, and he knew that with all the options to promote sustainability, he could integrate fair trade into his company and foster growth. He knew that participants would certainly be talking about changing trends in consumer attitudes toward sustainability and about Unilever’s new study analyzing the common idea that sustainability does not sell. Polman also knew that Unilever’s research proved that sustainability was no longer a niche issue and that 54% of consumers wanted to buy more products that are durable. Many consumers already paid attention to such products, and the study showed that even more people wanted to do so. They also preferred everything in one: they wanted high-performance products and/or services, for the right price, and with a mission that appealed to them (Unilever 2016c). However, Polman also faced the dilemma that consumers wanted convenience. Unilever was committed to providing this convenience while capitalizing on the green trend. He wanted to emphasize that Unilever had increased its effort to develop products that were less carbon- and water-intensive and that the company continued to work with partners to address the challenges of the consumer use phase as well as help consumers to understand how they could live more sustainably. Since the plan was launched, Unilever has helped more than 482 million people to improve their hygiene and health conditions. Furthermore, the company has provided training and support to approximately 600,000 small-scale farmers and 1.8 million small shopkeepers. Since 2008, Unilever has reduced its CO2 emissions from energy by

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39% per ton of production and its waste to landfill by 97% per ton of production (Unilever 2016a). With these figures, Polman was confident that he could show his audience that Unilever was seriously engaged in elevating the level of CSR activity and that the company cared about the living and working conditions in India. However, he also knew that much remained to be done, and he was looking forward to an intense discussion.

References Buch, D. (n.d.). Working together. Retrieved October 16, 2018 from https://www.unilever.com/ about/suppliers-centre/working-together/ Chamberlain, G. (2013). How poverty wages for tea pickers fuel India’s trade in child slavery. The Guardian. Retrieved October 16, 2018 from https://www.theguardian.com/world/2013/jul/20/ poverty-tea-pickers-india-child-slavery Glocal Research, & India Committee of the Netherlands (ICN). (2016). Certified Unilever tea – A cup half empty: Follow-up study on working conditions in Rainforest Alliance certified tea plantations in India. ICN-Paper – August 2016. Retrieved October 16, 2018 from http://www. indianet.nl/pdf/CertifiedUnileverTea-ACupHalfEmpty.pdf Het Financieele Dagblad. (2016). Yoga-adepten steken Unilever India naar de kroon. Retrieved October 16, 2018 from https://fd.nl/ondernemen/1157624/yoga-adepten-steken-unilever-indianaar-de-kroon India Brand Equity Foundation. (2018). Tea industry in India. Retrieved October 17, 2018 from https://www.ibef.org/exports/indian-tea-industry.aspx Janssen, C. (2016). Yoga-goeroe jaagt op klandizie Unilever in India. Retrieved October 16, 2018 from https://www.foodlog.nl/artikel/yoga-goeroe-jaagt-op-klandizie-unilever-in-india/ Rowlatt, J., & Deith, J. (2015). The bitter story behind the UK’s national drink. Retrieved October 16, 2018 from https://www.bbc.com/news/world-asia-india-34173532?ocid¼socialflow_twitter SAMR. (2016). Zo verweef je MVO-strategie succesvol in je marketing. Retrieved October 16, 2018 from https://www.duurzaam-ondernemen.nl/events/clinic-zo-verweef-je-mvo-strategiesuccesvol-je-marketing/ Theeliefhebbers. (2011). India. Retrieved October 16, 2018 from https://www.theeliefhebbers.nl/ encyclopedie/geografisch/india Unilever. (2015). De global goals: Hét moment voor actie. Retrieved October 17, 2018 from https:// www.unilever.nl/news/overig-nieuws/2015/de-global-goals-het-moment-voor-actie.html Unilever. (2016a). Focus op duurzaamheid laat Unilever sneller groeien. Retrieved October 17, 2018 from https://www.unilever.nl/news/overig-nieuws/2016/Inzet-op-duurzaamheid-laatUnilever-nog-sneller-groeien.html Unilever. (2016b). Nieuwe mondiale commissie ziet sleutelrol voor bedrijven bij duurzame ontwikkeling. Retrieved October 17, 2018 from https://www.unilever.nl/news/overig-nieuws/ 2016/nieuwe-mondiale-commissie-ziet-sleutelrol-voor-bedrijven-bij-duurzame-ontwikkeling. html Unilever. (2016c). Unilever sustainable living plan: Mobilising collective action. Retrieved October 17, 2018 from https://www.unilever.nl/Images/uslp-voortgangsverslag-2015%2D% 2D-wereldwijd-en-in-de-benelux%2D%2Den%2D%2Dweb_tcm1351-483900_1_nl.pdf Unilever. (2017a). Sustainable Development Goals kunnen de wereldwijde economie een boost geven. Retrieved October 17, 2018 from https://www.unilever.nl/news/overig-nieuws/2017/ sustainable-development-goals-kunnen-economie-boost-geven.html

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Unilever. (2017b). Unilever annual report and accounts 2016: Making sustainable living commonplace. Retrieved October 17, 2018 from https://www.unilever.com/Images/unilever-annualreport-and-accounts-2016_tcm244-498744_en.pdf Unilever. (2018a). Duurzaamheid verankeren. Retrieved October 17, 2018 from https://www. unilever.nl/duurzaam-leven/strategie/duurzaamheid-verankeren/ Unilever. (2018b). Lipton: Ons verhaal. Retrieved October 16, 2018 from https://www.lipton.nl/ ons-verhaal.html Unilever. (2018c). Onze geschiedenis. Retrieved October 17, 2018 from https://www.unilever.nl/ about/who-we-are/our-history/ Unilever. (2018d). Over onze strategie. https://www.unilever.nl/duurzaam-leven/strategie/overonze-strategie/ van Ewijk, E., & Ariëns, H. (2015). Paul Polman: 2 miljard mensen bewust maken, interview Paul Polman, Werelddoelen op naar 2030. OneWorld magazine (7). Gwen van Driel obtained her Master’s degree in International Marketing Management and Entrepreneurship in 2017, at TIAS School for Business and Society in Utrecht, The Netherlands. With a great passion for sustainability and a strong ability to think in solutions, Gwen has researched the biggest challenges to make the most polluting industries, such as the clothing industry, more sustainable. In addition to her extensive knowledge within the fashion industry, Gwen has 10+ years of experience in the offshore industry—where she once again witnessed what pollution does to the earth. On her way to becoming a young and successful entrepreneur, who is able to see into every person, community, or organization the underlying and endless potential for improvements toward a better future for them, and everything around them, Gwen is, therefore, starting up her own consultancy for SMEs.

A New Home for MusHome? Positioning Mushroom Growing Kit Through Social Media Marketing Astriani Dewanto

Case Synopsis Research Problem The Indonesian company MusHome cultivates mushrooms for local markets as well as mushroom kits for home-growing. Gilang, the new marketing manager, must gain the attention of potential customers and maintain the company’s sales. The company needs to investigate the behaviour of the Indonesian customers and send a consistent message to its target customers. Relying solely on social media, Gilang needs to understand how to utilize his marketing tools to reach MusHome’s vision.

Case Summary Gilang is a new marketing manager working for MusHome. He is responsible for managing the social media activities of the company and for taking sales orders. During his conversation with Agung, the owner of MusHome, Gilang was asked to think about a strategy to increase sales. With this in mind, Gilang thought to himself that the company had not even been well settled in terms of their current marketing strategy in Indonesia. MusHome is a byproduct of mushroom production. The company produces its own mushroom baglog (‘soil’ for growing mushroom) and harvests fresh mushrooms to be sold to the local market. The baglogs are also sold in the form of MusHome, a home-grown mushroom kit. The company distributes MusHome via online sales (door-to-door shipment via post), direct marketing on trade fairs and organic stores. Aspiring to provide children with an educative A. Dewanto (*) Tias School for Business and Society, Tilburg, Netherlands e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_11

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message to grow their own food, MusHome considered changing their marketing message to include educational information on their products. Currently, MusHome relies mostly on social media to promote their product, but the activity has not been very successful in attracting many new customers. With limited resources, Gilang is challenged to create a strategy to bring more sales to the company that also satisfies Agung, who has his own ideas.

Learning Objectives The readers are intended to understand the communication mechanism that can be applied to attract Indonesian people, especially on social media. Moreover, the case could be used to understand the needs of consistent and proper communication in order to position a start-up in the market.

Themes and Tools Used • Marketing communications with regard to educational messages • Cultural analysis of Indonesian habits and food culture • Utilization of social media marketing for start-ups in Indonesia

Target Audience The case can be used for graduate students, who have already been exposed to the essentials of marketing. The case is equally suitable for courses in international marketing and consumer behaviour with an Asian focus. Students can learn about intercultural differences in marketing, the challenges start-up companies face in Asia and the respective strategies to meet these challenges.

Questions • • • •

What are the strengths and weaknesses of MusHome? Can MusHome position itself as an educational food company? What is the current image of MusHome? How do they communicate it? How can social media be of use to boost sales? How does this work in Indonesia?

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Introduction MusHome was established by Agung1 in September 2016. The company sells a doit-yourself Mushroom kit, which is a log of shaved sawdust in a bag (baglog) with active culture of mushrooms to grow ones’ own mushrooms at home. The company’s production is located in Bandung, the capital city of West Java, Indonesia. The production site is a mushroom farm, whose core activity is to produce and sell fresh mushrooms to the markets around the city. MusHome is produced as a spare product of baglog, originating from the actual mushroom farming. The spare baglog is packaged and sold under the name MusHome. MusHome is available via online order and can be shipped across Indonesia. After running the company for more than 6 months, Agung felt that MusHome had a great growth opportunity, especially with its mission to spread the idea of organic home farming. With this potential in mind, Agung and his partner considered employing Gilang. Gilang was appointed as marketing manager, whose responsibilities included managing the social media account of MusHome and helping to receive orders from customers by email or other online messaging tools. While hearing this, Gilang was thinking about the product’s perception in the Indonesian market, and he wondered whether the expansion would be such a good idea. MusHome was new to the market, and according to Agung, many customers were actually concerned with the idea of growing their own food. However, Agung had been invited a couple of times to the national media to talk about his product innovation, and the current social media activity of MusHome had so far helped the company to gain popularity among Indonesians. Despite MusHome’s opportunities for growth, Gilang was not sure whether he understood how Agung wanted MusHome to grow in the future. Agung himself was ambitious to introduce MusHome as an educational tool for organic farming, but the idea had not clearly transcended the company’s activities. Listening to Agung’s request for international expansion, Gilang reluctantly nodded and agreed with his boss. However, he first needed to familiarize himself with his responsibilities and the market situation of MusHome as well as similar and competitive products on the market to be able to develop a clear marketing strategy for MusHome.

About MusHome Agung grew up in North Sumatra. After graduating from high school, he moved to Bandung, where he obtained his bachelor’s degree from Institut Teknologi Bandung (ITB), one of the most prestigious university and research facility in Indonesia (QS 2017). During his study, he majored in microbiology and did a 2-month internship at a mushroom-producing company where he obtained knowledge on mushroom production. 1

Names in this case are fictional.

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After graduating from ITB, he was awarded a scholarship to pursue his Master’s degree in Wageningen University, the Netherlands. He studied Food Quality and Management where he learned about managing food quality and safety from a business perspective. Moreover, Agung also learned to process industrial and household waste, reusing the wastage into energy and compost, or to process it into another product, such as paper from Dutch companies (Crittenden 2011). Upon graduating and returning to Indonesia, Agung decided to start his own business. Utilizing the idea of reusing waste, Agung recalled his experience during his first internship and his bachelor study in microbiology. The idea of MusHome (Mushroom at Home) was inspired by another mushroom kit producer, Growbox, that sold its product as a souvenir. It took Agung 3 months of research to understand mushroom production from waste, package development and how to differentiate his product from existing competitors. Agung considered using MusHome as an educational tool for Indonesian people to help them grow their own food. This differentiation and vision of MusHome goes along the school garden movement by FAO (Food and Agriculture Organization of United Nation). School garden programme is an initiative by FAO in developing countries to increase knowledge about food security from early childhood onwards by providing a garden and some opportunity for growing food in schools. The garden is used as a learning playground, in which students are encouraged to grow their own food to understand the methods of growing healthy food, increasing their awareness towards healthy eating habits (Food and Agriculture Organization 2006, 2015). When Gilang gathered this information, he thought MusHome’s vision could be connected to FAO’s school garden programme’s goal. MusHome’s initial vision has shown the interest of the company to be socially responsible for the community surrounding the company by trying to be an educative brand. The ideas of FAO’s programme and MusHome’s vision could also inspire the company to focus their communication message on MusHome as an educative brand. Growing your own food to teach children about the origin of food, creating a powerful connection to the dinner plate that’s simply magical. Kids can help plant, water, weed, and harvest produce, and after spending time caring for the plants, they’ll be more apt to eat the fruits of their labour. This same magic has an effect on adults, too. When you toss a homegrown salad together, cook a pot of greens, or serve a stir-fried medley of vegetables, you have a deeper appreciation of its amazing path to your plate. (CookingLight 2013)

Agung also felt the increasing demand for organic food, thus claiming MusHome as an organic product, with no artificial ingredient and fertilizer.

MusHome Production While the production of normal plants requires soil and sunlight, the production of mushroom requires a dark and humid place. The soil in plant production is equal to a baglog in the mushroom production. Baglogs can be made from filling a heatproof

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plastic bag with dense sawdust, coffee pulp, straw, paper or food waste (e.g. molasses waste). The filling depends on the species of mushroom (Beetz and Greer 1999). The baglog is then sterilized to prevent contamination of bacteria, which could harm the cultivation of the mushroom. Thereafter, the baglog is added to the mushroom culture (comparable to plant seed) and left for about 30 days in dark and warm conditions (17–23
C) for incubation (Scelta Mushrooms 2018). When it is ready, the cultured baglog is cut open and the mushroom will start growing from it. Earlier, MusHome used a pre-order system to fulfil the sales. At the beginning, Agung gathered orders from the customers at a defined timeline (2 weeks). Then, Agung ordered cultured baglogs (logs with mushroom culture inside) from mushroom farmers. The farmers then sent their products to Agung, and he packaged it into MusHome boxes, before shipping it to the customer. Besides the colourful box, Agung also added an instruction booklet on how to use the kit at home and a water spray bottle. The whole box is considered as the Mushroom growing kit. After saving enough money from the business and obtaining further help from an investor, Agung decided to build his own mushroom farm. He thought it would be easier and faster for him to produce fresh mushrooms and MusHome. The increasing demand of mushroom consumption in Indonesia gave him the opportunity to not only sell MusHome but also to produce and sell fresh mushrooms. Agung and his investor, who also acts as his mentor, did their own research on building a mushroom farm. In the early December of 2016, the farm was ready to fully run and start producing both mushroom baglog and fresh mushroom. The farm is located in the outskirts of Bandung, West Java, Indonesia. Bandung and the surrounding area is located at about 750–2400 m above the sea level. Due to the elevation, the temperature remains at around 23
C throughout the year. The geography of Bandung was suitable for mushroom production, and overall, West Java has the largest volume of mushroom production in Indonesia (Sonnenberg et al. 2005). Agung also considered Bandung to be attractive since the farm would be close to the ITB research facility, which might be useful in case he wanted to expand his mushroom production and to consult on research matters in innovating his production system. The farm produced up to 1000 baglogs of sawdust per month and spared 100–150 baglogs to be packaged into MusHome, depending on the orders received from the customers. The rest of the baglogs were used for fresh mushroom cultivation. The fresh mushrooms were sold at the local market. Currently, there are two types of mushrooms, white and brown oyster mushrooms, which are sold at 50,000 IDR/log (¼€3,51, as per 21 April 2017). Depending on the season, MusHome often sells seasonal mushroom varieties such as Hiratake mushroom and golden oyster mushroom. These special items are sold at 60,000 IDR/log (¼€4,21, as per 21 April 2017). To grow the mushroom, the grower must first cut the baglog open, then soak it in water for 24 h. Afterwards, the MusHome kit needs to be stored and watered according to the instruction booklet. It takes around 3–4 weeks for the mushroom to start growing. When the mushroom has started budding, it only takes 4 days until it reaches its optimal growth, and mushrooms are ready to be harvested. If sufficient

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care is taken according to the instructions, the baglogs could last for four harvests before the mushroom culture deteriorates. Per harvest, the mushroom log could produce up to 500–600 g of mushroom. Growing mushrooms needs special care, because they grow by absorbing and concentrating, either good or toxic substances. This could include heavily polluted water, which is the case in many Asian regions and cities, such as Jakarta (Evans et al. 2012). Thus, Agung had to carefully address this issue to answer potential customers’ hesitation in buying MusHome, yet he also had to make sure that his answers would not backfire on his sales. Addressing this issue at an early stage of sales would help MusHome to compete in the market of home-growing kits.

Growbox: MusHome’s Inspiration and Competition MusHome’s competitor, Growbox, has existed since 2012. The company is known for providing mushroom souvenir boxes. They do not only sell mushroom-growing kits but also food produced from mushrooms (e.g. fried mushroom chips). The company owns a store in Bandung, where their production facility is also located. Besides selling mushroom kits and processed mushroom products, Growbox is moving into another market by developing Mycotech, a building material based on a special type of mushroom. Growbox claims this material to be comparable to Styrofoam,2 yet Mycotech is based on biodegradable material, which is stronger and easier to shape. Growbox is active on Instagram and collaborates with opinion leaders or influencers3 on Instagram to promote their product. For example, they work together to create recipes with an influencer for their #menujupagi campaign. #menujupagi campaign is a series of posts created by several influencers while waiting for 2016 New Year’s Eve to end. The campaign posts are connected to each other because influencers tag, whom they collaborate with. By doing this, the tags could spread the message to an even larger audience than their current followers. Growbox regularly organizes similar campaigns on Instagram and has so far attracted up to 13,000 followers. When Gilang looked through Growbox’s Instagram account, he realized that MusHome’s social media account has the potential to be improved. MusHome could post more frequently to reiterate important information about the mushroom-growing kit. Compared to Growbox, MusHome currently only has about 1700 followers, which, according to Gilang, was too few. Perhaps, Gilang

2 Polystyrene cups, which are widely used for coffee cups, takeaway food packaging and drinks cooler. 3 Influencers are individuals that have influence over potential buyers and orient marketing activities around these influencers. Influencer content may be framed as testimonial advertising where they play the role of a potential buyer themselves (Adweek 2015).

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thought to himself, hiring an influencer could help to gain better reach for their product. Influencers could be found through searching on social media or influencers’ job platforms. Gilang could register the requirements for the types of influencer (e.g. age, gender and hobby) on the job platform; then the influencer could contact the employer for their prices and offer. Influencers’ offers could be in form of how many pictures about the product they could post and how much it would cost per picture. Depending on the social media platform, the offers could also be modified according to the employer’s needs. The prices of the influencers are determined by the amount of the followers and the quality of the followers, which information could be found through the job platform or contacts with the influencer. Reconsidering Indonesian food culture, Gilang thought of combining the information he currently had and finding the right influencer to attract more customers for MusHome in Indonesia.

The Role of Mushrooms in Indonesian Eating Habits The Republic of Indonesia consists of five large islands and thousands of smaller islands (about 6000 of which are inhabited), with a total area of 1,919,440 square kilometres (741,100 square miles). The country’s soil and climate support several agricultural crops, with rice being the largest food crop. Rice is Indonesia’s most important staple food and carbohydrate source. It normally accompanies every meal with vegetables and meat. Meanwhile, the protein source in Indonesian cuisine is almost equally shared between meat and vegetables. The most common meats are chicken, beef, lamb and fish. Typical vegetables are green vegetables (cabbage, spinach, water spinach, etc.), long beans, aubergine, beansprout, tofu and tempeh.4 Meat and vegetables are usually cooked with contrasting flavour to balance each other. The most common method for preparing food is frying, grilling, simmering, steaming and stewing (most often with coconut milk). Meat is usually marinated in homemade spice paste, which consists of various combinations of ground spices. A popular meal in the country is meat or vegetable with spicy sauce served over a bed of plain rice (Food in Every Country n.d.; SBS Food 2015). Daily meals consist of breakfast, lunch and dinner. The served food normally consists of a rice bowl with various vegetables and meat dishes, accompanied by coffee or tea. The authentic traditional Indonesian home cooking is freshly made and consumed daily with a minimal amount of preservatives and sodium. Most ingredients are bought fresh very early in the morning from local traditional markets, cooked around the late morning and consumed throughout the day (Taylor 2003; Amus 2011). 4 Tempeh is a traditional soy product originating from Indonesia. It is made by a natural culturing and controlled fermentation process that binds soybeans into a cake form.

148 Table 1 Annual world mushroom production (in tons)

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Year China Japan Indonesia Vietnam World

1994 1,089,991 74,300 25,500 10,500 2,678,588

2004 3,360,496 66,200 10,544 18,000 5,276,951

2014 7,634,959 65,811 37,410 22,000 10,378,163

Source: Adapted from FAOSTAT (2017)

Mushrooms, in general, contain potassium, selenium, riboflavin and vitamin D, which are considered beneficial for human health. Mushrooms are also low in calories, fat-free and cholesterol-free (Scelta Mushrooms 2018). Most current mushrooms produced and consumed are domesticated species, such as white button mushrooms, oyster mushroom and shiitake. Over the years, shiitake mushrooms have gained popularity due to their taste and nutritional value (Transparency Market Research 2015). There are three most consumed types of mushrooms in Indonesia: oyster mushrooms, black fungus and straw mushrooms. They are eaten as either snacks or side dishes with rice. Straw mushroom is also used as traditional hair medicine. Usually, mushrooms are steamed or stir fried together with vegetables. In some cases, mushrooms are also used as meat replacement due to their high protein percentage (6%, which is considerably good for a plant-based protein). Examples of Indonesian dishes with mushroom are pepes jamur (steamed vegetable/meat in banana leaves) and crispy fried mushroom chips. Looking at the current mushroom market and its consumption in Indonesia, Gilang was rather positive about MusHome’s opportunity to grow in the market, especially, if customers would be more aware of the good nutritional content of mushrooms, which could increase the demand for mushroom consumption.

Targeting MusHome for Everyone? Since the 1990s, the production of mushrooms in Indonesia has strongly fluctuated. Nevertheless, latest numbers indicate a 50% increase compared to 1994 and a triplication of production volume compared to 2004, indicating a growing demand for mushrooms in the market (Table 1). This indicates that for MusHome there is a promising opportunity to grow. The enormous growth of mushroom production in Indonesia means that it is more widely available for people to consume and likely to be more affordable to buy. This might be translated into higher consumption trends as well. MusHome must be able to exploit this trend to increase its sales at least proportionally to the market growth. Whereas their current sales mostly come from the generic mushroom products, MusHome-growing kit sales also need to be increased. This can be achieved either by focusing more on the existing sales segment (home-growing hobbyist) or by trying new ways to grab more consumers in different segments.

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While Agung was thinking where to make money, Gilang thought about the larger potential to communicate MusHome to students and families with children. Thereby, Gilang wanted to build a brand reputation, and by following MusHome’s vision, to create a consistent message in their marketing campaigns.

Marketing Activities for Reputation Building MusHome Online Marketing Activities Social media on the Internet, such as Facebook, Instagram, Blogger and Snapchat, has been an easy tool to use for start-ups to gain attention due to free registration and reach. Currently, Indonesia has 79 million active social media users out of its 250 million population. Up to 30% of the social media users regularly buy products/services online, and this number is expected to grow in the coming years. Indonesia has also been considered as one of the fastest-growing population of social media users (Balea 2016). Agung had registered MusHome on different social media accounts and developed a website for MusHome. MusHome products are available on sale through MusHome’s website, Facebook and Instagram. All the channels are accessible in English and Bahasa Indonesia, though most updates were in Bahasa Indonesia. The website (http://www.mushome.id/) contains an order form, recipes on how to cook the mushrooms and educational articles about mushrooms in general. Moreover, the company updates their frequently asked question page, especially on the questions concerning the safety and instructions of using the toolkit. MusHome is also an active participant of start-up events in big cities to promote its product. Agung travels to different cities at least once every month, such as, Surabaya in East Java and Jakarta, the capital city of Indonesia. Agung hoped Gilang would replace him in the events, so he could focus on the farm production and on research for developing new variants of mushrooms for MusHome. During the events, MusHome would set up a booth and decorate it with MusHome’s logo and a free booklet and showcase the products. Agung also actively communicated with potential customers about the product and how eating mushrooms would benefit the customers’ nutritional intake. If the potential customer was known to have children, Agung would communicate the product as an educational tool for children to increase their awareness towards the importance of eating vegetables from an early age. As mentioned before, Agung further mentioned the happiness and pride of growing one’s own meal when he was talking about MusHome. Moreover, Agung also took the opportunity to invite customers to take pictures with the product and post them to MusHome’s Instagram and Facebook pages to attract more customers.

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MusHome Distribution In Indonesia, the availability of e-commerce has also grown in recent years due to Internet access and the openness of the society to buy from online shops. There are special platforms that enable firms to sell its product only requiring free registration and payment only if the company sells their products (profit sharing). One of the platforms is called Tokopedia, and it is comparable to eBay in the United States and Europe. Currently, MusHome buyers can order their products from a contact form on the website, via Whatsapp or a Line (Taiwanese chat application) account. Agung and his partner directly answer and process the orders as soon as they receive the message from the customers. After confirmed payment, Agung ships the products to the customer by regular post service. The package normally arrives within 3–7 working days. Mushrooms are also sold in bulk to online resellers who are located in Medan (North Sumatra), Bandung (West Java), Jakarta (DKI Jakarta) and Solo (Central Java). However, Agung was concerned about shipping to long distances from the production facility, because of the short lifespan of the baglog. The product’s lifespan is about 4–6 weeks after production before the log quality is degraded and cannot be used to grow mushrooms. MusHome also dispatches to two organic product stores in Bandung. Selling to these stores is not as profitable due to the profit sharing system proposed by the shops. The profit sharing system works if MusHome products are sold in the store, in which the organic stores would take some of the profit as agreed by MusHome and the store. However, the unsold products are returned and wasted as compost for other plants in the farm. Though the profits are lower compared to online purchase, Agung considered these as an opportunity to promote MusHome to larger community. He thought that supplying to organic stores might aid in promoting to new customers through the store, especially due to the good reputation of the organic store in the area of Bandung. Gilang understood Agung’s decision to supply to the organic stores, though he did not quite agree with the idea. Besides the low profit margin, products which were not sold in organic stores are returned to MusHome. Since MusHome only lasts for 4–6 weeks, products in organic stores tend to be returned, instead of being sold. In the long term, it might be difficult to sustain supply to these stores; thus, perhaps it was better to stay with the idea of online store for the sake of production efficiency.

A New Home for MusHome? Gilang contemplates to himself, “If everything seems to be all over the place, how should we focus? We do not even know what trend might come up after this idea, even we do not know whether we will soon be copied by others. Should we just stay

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below the line or shall we keep up with the trend? If we keep up with the trend, will we stay in the market for more than a year?” Besides the increase in mushroom sales in general, MusHome has potential in the market as a new trendy item, knowing especially that Indonesian people were keen on buying trendy and hyped items. This idea had also been hastened by the influence of social media, in which the market was ever changing, seemingly at the speed of light. With the right channel and method to attract customers, MusHome could instantly boost its sales. Yet Gilang also had focus on finding a more sustainable source for MusHome’s sales. Perhaps this could be achieved by targeting and by sending consistent messages to prospective customers. Can MusHome sustain itself with its current strategy to attract customers? Should MusHome find a ‘new home’ to attract customers? Has the vision of MusHome as an educational tool the potential to become such a new home?

References Adweek. (2015). 10 reasons why influencer marketing is the next big thing. Retrieved October 17, 2018 from https://www.adweek.com/digital/10-reasons-why-influencer-marketing-is-thenext-big-thing/ Amus, B. (2011). Indonesian cuisine. Retrieved October 17, 2018 from http://www.epicurina.com/ component/content/article/2-reviews/eateries/10-indonesian-cuisine Balea, J. (2016). The latest stats in web and mobile in Indonesia (INFOGRAPHIC). Retrieved October 17, 2018 from https://www.techinasia.com/indonesia-web-mobile-statistics-we-aresocial Beetz, A., & Greer, L. (1999). Mushroom cultivation and marketing: Horticulture production guide. Retrieved October 17, 2018 from http://www.vb-tech.co.za/ebooks/eBook%20-%20Gar dening%20-%20Mushrooms.pdf CookingLight. (2013). 4 reasons why you should grow your own food. Retrieved October 17, 2018 from https://www.cookinglight.com/food/in-season/reasons-to-garden Crittenden, G. (2011). Environment and waste technology in the Netherlands. Retrieved October 17, 2018 from https://www.solidwastemag.com/feature/environment-and-waste-technology-inthe-netherlands/ Evans, A. E. V., Hanjra, M. A., Jiang, Y., Qadir, M., & Drechsel, P. (2012). Water pollution in Asia: The urgent need for prevention and monitoring. Retrieved October 17, 2018 from http://www. globalwaterforum.org/2012/06/09/water-pollution-in-asia-the-urgent-need-for-prevention-andmonitoring/ FAOSTAT. (2017). Food and Agriculture Organization. Retrieved June 13, 2017 from http://www. fao.org/faostat/en/#data Food and Agriculture Organization. (2006). School gardens. Retrieved October 17, 2018 from http://www.fao.org/schoolgarden/index_en.htm Food and Agriculture Organization. (2015). Improving child nutrition in Asia-Pacific through expansion of school and home gardens. Retrieved October 17, 2018 from http://www.fao.org/ asiapacific/news/detail-events/en/c/298345/ Food in Every Country. (n.d.). Indonesia. Retrieved October 17, 2018 from http://www. foodbycountry.com/Germany-to-Japan/Indonesia.html QS. (2017). Study in Indonesia. Retrieved October 17, 2018 from https://www.topuniversities.com/ where-to-study/asia/indonesia/guide

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SBS Food. (2015). About Indonesian food. Retrieved October 17, 2018 from https://www.sbs.com. au/food/article/2008/07/01/about-indonesian-food Scelta Mushrooms. (2018). Cultivation and harvesting of mushrooms. Retrieved October 17, 2018 from https://www.sceltamushrooms.com/en/themes/cultivation-harvesting-mushrooms/ Sonnenberg, A. S. M., Hendricks, P. M., & Sumiati, E. (2005). Genotyping and evaluation of pleurotus ostreatus (oyster mushroom) strains. Retrieved October 17, 2018 from https://library. wur.nl/WebQuery/wurpubs/fulltext/3565 Taylor, J. G. (2003). Indonesia: Peoples and histories. New Haven: Yale University Press. Transparency Market Research. (2015). Global mushroom market driven by rise in demand for organic products. Retrieved October 17, 2018 from https://globenewswire.com/news-release/ 2015/10/21/778377/10153498/en/Global-Mushroom-Market-Driven-by-Rise-in-Demand-forOrganic-Products-Transparency-Market-Research.html Astriani Dewanto attained a degree in Food Technology from the University of Applied Science Vanhall Larenstein in 2014. With her passion in entrepreneurship, she decided to pursue a Master’s degree in Marketing at Tias Business School and graduated in 2017. Her professional experience includes projects with giants in the food industry, including Heineken and Jacobs Douwe Egberts. On her way to being a young entrepreneur, Astriani is busy with curating her experience through large established businesses. Astriani is eager to work with small businesses and to individually focus on what they want to achieve in their businesses; it could be sales, scaling up businesses or simply the goal of helping the community around the business. If you are interested to work with her, reach her through [email protected]

Pizza Hut Vietnam: Adapting a Global Code of Conduct Marie-Therese Claes

Case Synopsis Research Problem What happens when a Western style code of conduct is applied in a foreign country’s fast-food subsidiary, where the underlying cultural values seem to run counter to the application and respect of a code of conduct or ethics? The code of conduct does not contain all company policies or include all details regarding how to behave in specific circumstances. However, the code of conduct sets forth the fundamental legal and ethical principles for conducting all aspects of the company business. Local managers of Pizza Hut Vietnam are faced with the challenges involving the implementation of headquarters’ code of conduct and training their employees to respect the code, even though it clashes with their traditional and cultural concept of doing business. How can the international organization support the local manager and ensure that the code of conduct is implemented?

Case Summary Codes of conduct are written and implemented to last for decades, but applying the principles in developing countries such as Vietnam is really challenging. Many elements of a code of conduct are formulated by the headquarters of international or global companies where the culture and behaviors differ from those of emerging markets. At Pizza Hut Vietnam, people understand the role that the corporate code of conduct plays in shaping the company culture. However, due to the Vietnamese M.-T. Claes (*) Louvain School of Management and ICHEC Brussels Business School, Louvain-la-Neuve, Belgium # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_12

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culture and resulting mentality of the workforce, Pizza Hut management needs to spend time and effort to change its employees’ mind-set in order for them to adapt to the code of conduct and uphold the company’s values.

Learning Objectives Illustrate the importance of culture in the application of a Western style code of conduct and ethical behavior in a developing market such as Vietnam. Introduce the students to a debate about the meaning of Western styles of management and ethics in an emerging market with cultural values and traditions that seem to run counter to the values and policies championed by the Western company. Stimulate a discussion about the role of the company in helping local managers face the challenges in a different cultural background.

Themes and Tools Used • • • •

Code of conduct Ethical behavior in Vietnam Culture versus ethics Corruption

Target Audience The case can be used for graduate students, who have already been exposed to the essentials of ethics and corporate social responsibility (CSR). The case is equally suitable for courses in international management and cross-cultural management, especially with an Asian emerging market focus.

Questions • What are the values of Pizza Hut and how can they be applied in Vietnam? • What are the different issues Pizza Hut has to face in Vietnam with their code of conduct? • What are the implications for the development and expansion of Pizza Hut? • What solutions are proposed and are there alternatives? What would be your advice? • What is the headquarters role in helping the local manager to comply with the code of conduct?

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Introduction As he was driving home on his motorcycle, Thuc Thu’s mind was not on Ho Chi Minh’s rush hour traffic but more on the conversation he had just had with the Supply Chain Manager. For 4 years now, Thuc Thu had been the Development Manager for Pizza Hut Vietnam, working on store development in the whole of the country. His task was to identify market potentials, formulate the development strategy, and execute the plan of store expansion according to the strategy in order to maximize the company profit. But again and again, issues turned up that hindered smooth progress of the ambitious development plans. It was not just the communication with local authorities that took so much time and energy. For instance, bribing was expected but absolutely forbidden by the company, and there was a need for handling it. Issues such as the following incident with the Supply Chain Manager kept popping up, costing so much time and energy. Thuc Thu had noticed the expensive smartphone his construction manager was all of a sudden showing off. When questioned, the manager admitted he had received the phone when visiting and evaluating a supplier’s factory. This was a clear case of what was termed in the code of conduct as “disproportionate hospitality.” The supplier had not offered cash, but an expensive smartphone, and in the construction manager’s mind, accepting noncash gifts was normal and a cultural practice in Vietnam when doing business. However, the valuable gift had influenced him to be flexible and compromise on the quality of the building, clearly breaching the code of conduct of Pizza Hut. Thuc Thu acutely remembered the shock and the response by the press when a new five-floor Pizza Hut in Hanoi collapsed into rubble at 4 pm on March 31, mere hours before it was scheduled for inauguration on April 1 in 2011. Thuc Thu felt frustrated, realizing that whatever training and information sessions were organized, the employees seemed not to get the message. Or maybe they understood, but were unable to apply the training and information in their work, as very often they just wanted to speed up the process. In order to speed up the business, and in their eyes “help” the company, they tended to fall back on what they call the “usual Vietnamese ways of doing business.” He was wondering whether the mechanisms put in place to prevent breaches of the code of conduct were sufficiently adapted to the Vietnamese culture.

Background The History of Pizza Hut Vietnam Pizza Hut is an American restaurant chain and international franchise founded in 1958 by Dan and Frank Carney. The company is known for its Italian-American cuisine menu including pizza and pasta, as well as side dishes and desserts. Pizza Hut has over 16,000 locations worldwide and was listed at number 24 in the list of

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200 Most Influential Brands in the World (Richtopia 2017). Pizza Hut is a subsidiary of Yum! Brands, Inc., one of the world’s largest restaurant companies. During the first 5 years of its operations, the owner of Pizza Hut Vietnam was IFB Holdings who owned 75% of the company capital shares. In 2011, Pizza Hut Vietnam was established on a franchising contract between Jardine Matheson, an international corporation and one of the leading restaurant groups in Asia (with a 180-year history) and Yum! Brands (Jardine Matheson 2018). Yum! Brands, Inc., a spin-off from PepsiCo in 1997, based in Louisville Kentucky, has over 45,000 restaurants in more than 135 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America (2015). In 2018, Yum! Brands was recognized as part of the inaugural Bloomberg GenderEquality Index (2018). In 2017, Yum! Brands was named in the Dow Jones Sustainability North America Index and ranked among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine (CR Magazine 2017). CSR activities brought JRG international recognition, which in turn makes unethical behavior absolutely inadmissible. The company’s restaurant brands—KFC, Pizza Hut, and Taco Bell—are global leaders of the chicken, pizza, and Mexican-style food categories. Yum! Brands is the worldwide leader in emerging markets with over 17,000 restaurants, nearly twice as many as the nearest competition, McDonalds (Yum! Brands 2018a). Pizza Hut Vietnam opened its first store in 2006 and operates more than 60 stores nationwide with more than 2500 employees. Pizza Hut Vietnam has been building its own culture, which is a mix of clan culture from Yum! Brands (the franchisor) and a type of market culture from Jardine Matheson who owns 100% of Pizza Hut Vietnam (Cameron and Quinn 1999). According to Cameron and Quinn’s Competing Values Framework, four organizational cultures compete with one another. Clan culture is a family-like or tribe-like type of corporate environment that emphasizes consensus and commonality of goals and values. The three other common corporate culture models are hierarchical corporate cultures, which are characterized by control and a fairly rigid and fixed organizational structure; the market culture which is built upon the dynamics of competition and achieving concrete results; and the adhocracy culture, which is entrepreneurial and creative. Every organization has its own mix of these four types of organizational cultures. As a background of cooperation with all franchisees all over the world, Yum! Brands has worked hard to build its family culture to best support all franchisees: We’re extremely proud of our 1.5 million employees around the globe and the unique culture we’ve built, one that’s filled with energy, opportunity, and fun. We believe in our people, trust in their positive intentions, encourage ideas from everyone, and have actively developed a workforce that is diverse in style and background. (Yum.Com)

This family culture encourages people to be “customer maniacs,” believe in all people, develop them to perform at their maximum capabilities, share responsibilities with an accountable attitude, and always find a reason to recognize the best performance. In that context, Pizza Hut Vietnam is building a family

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working culture with a performance base, driving the success with clear goals for each individual as well as for the whole team. As such, one of the targets of all employees of Pizza Hut Vietnam is to adhere to the principles of Yum! Brands’ code of conduct to comply with international practices as well as local legislation and to achieve their goals.

Pizza Hut’s Code of Conduct During the first 5 years of its operations, the owner of Pizza Hut Vietnam (IFB Holdings who owned 75% of the company capital shares) issued the code of conduct, but the education provided to the workforce was limited. Implementation and control were weak so that many incidents took place. Since Jardine Matheson (who owned only 25% at the beginning) and Yum! Brands took over the business in 2011, the code of conduct was reinforced together with a proper system to prevent and correct unethical behavior. Unethical behavior was much reduced, and employees became aware of how they should respond in different situations in order to deal with people inside and outside of the company and how to be more responsible. Yum! Brands has a worldwide code of conduct in ten languages (not in Vietnamese however), stressing that the code “sets forth some of the policies and procedures regarding standards of conduct that are required of you as a Yum! Employee. They are intended to help you conform to high ethical standards and to protect Yum!’s and your reputations. If you are a manager, you are expected also to ensure that all individuals you supervise are aware of these policies and procedures, and to promote compliance with them” (Yum! Brands 2018b, p. 5). Yum! Brands adds a supplement about its international anti-corruption policy, designed not only to comply with the FCPA (US Foreign Corrupt Practices Act) and other anti-corruption laws but also to avoid even the appearance of improper conduct in connection with Yum! Brands’ operations. The policy describes prohibited payments, third-party payments, facilitating or expediting payments, books, and records but also reporting violations and training. However, “The US FCPA allows ‘facilitating or expediting payments’ when they are small payments to a government official necessary to expedite or secure performance of a routine governmental action, such as obtaining official documents, processing governmental papers, or providing postal or utility services” (Yum! Brands 2018b, p. 21). At Pizza Hut Vietnam, the focus on implementing the code of conduct has been shifting from a comprehensive code of conduct at the beginning for regulating conduct to leveraging a value-based code that inspires principled performance among the team. A majority of the code’s principles have been adhered to, creating a type of culture in which all employees integrated Pizza Hut’s core values into their daily work. However, not all principles were effectively delivered and executed in daily operations. Among these, illicit payments and gifts, favors, and entertainment are critical issues, as well as conflicts of interest. Given that corruption and corporate governance issues are still rife in Vietnam, as in other countries in South-East Asia

158 Table 1 Corruption index for Asian countries

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Country Singapore Hong Kong Malaysia China India Indonesia Thailand Vietnam Philippines Myanmar Laos Cambodia

Score/100 84 77 47 41 40 37 37 35 34 30 29 21

Ranking/180 6 13 62 77 81 96 96 107 111 130 135 161

A higher score means less corruption Source: Adapted from Transparency International (2017)

(see Transparency International 2018 and Table 1), effective implementation of these principles is a complex and challenging issue for Pizza Hut. Lack of a proper ethical work environment and no effective control system might lead to bribery, conflict of interest, and illicit payments. These violations will put the company at danger of financial loss, reputation damage, or even bankruptcy. Employees and managers at Pizza Hut Vietnam, whose jobs may involve matters relating to violations of these principles, may face serious employment consequences or even civil legal action. Bribery is the main obstruction to development and attraction of foreign investment for a country like Vietnam (GAN Business corruption portal; Checchi 2017).

Ethical Issues at Pizza Hut Vietnam Daily business operations of more than 60 shops requires a huge amount of business trading and services, such as ingredient purchases, equipment supply, insurance contracts, construction work, and so on.

Purchasing A purchasing board and bidding mechanisms were set up and run to maximize the efficiency of expenses and control the quality of work. A decision-making process was put in place to make sure the best decision on purchasing is selected so as to minimize the negative impact. However, no system is perfect. The company requires that employees adhere to the principle of non-conflict of interest at work in order to protect the company benefits, as well as employees, from the consequences of misconduct. For instance,

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the company is asking not to take advantage when working with suppliers to have money kickbacks, which would be seen as a severe violation of this principle. Commissions taken on building contracts by construction managers would take away large amounts of money from the company and affect the quality of the projects. However, accepting commissions or gifts delivered by contractors or suppliers is a normal practice in Vietnam, leading employees to many kinds and levels of breach of the code of conduct set by the corporation. In reality, although employees and managers have been advised and reminded many times, the influence of Vietnamese culture with respect to giving and receiving gifts, local practices, or employees’ greed for gaining financial interest leads employees to violate the code by partnering with their family members or friends to provide services or supply goods to the company. This creates an unfair competitive environment and has a negative impact on company profit.

Illicit Payments Given the Vietnamese culture and the conditions of Vietnam’s current economic development with its ambiguous guidance, non-compliance with illicit payment (including giving and accepting bribes) and illicit payment inducement often happen in daily operations. The management of Pizza Hut Vietnam faces many challenges in getting this principle of the code respected effectively. Thuc Thu repeatedly struggles with the business licenses application process for a new shop, tax registration, construction permit application, and operation processes. In case he is not willing to pay a “lobby fee” for the officers, the approval process will be slow, and he is required to rectify the document for a few rounds before it gets to the upper officers’ levels. Consequently, the development process gets slowed down and takes longer than planned, and Pizza Hut’s development will be lagging compared to the competitors in the Vietnam market. It is very clearly stated that employees are not allowed to get involved in illicit payment transactions: “‘Facilitating or expediting payments’ never include payments made to assist in obtaining or retaining business, and relate only to non-discretionary actions ordinarily and commonly performed by the official” (Yum! Brands 2018b, p. 21). Employees need to report immediately when being asked or receiving bribes or inducement from any party. When there is doubt about any transaction, employees are requested to seek advice from the management. This helps protect the company from any risk of penalties or business restriction or even withdrawal of the business licenses from the country if accused of non-compliance with local anti-corruption laws. This principle also helps keep employees away from serious consequences, including loss of career prospects, termination of employment, fines, or imprisonment. It is a fact that doing business in Vietnam, with the many informal practices related to illicit payments, potentially leads to breach of the code of conduct and local anti-bribery law. At Pizza Hut, applying for business licenses, construction permits, dealing with local authorities, and other administration work are good examples. However, in many cases, unintentional actions due to

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the pressure of getting their work done in time may lead to the practice of illicit payments, especially when working with local authorities in Vietnam. Employees may not be fully aware of the consequences, or take it lightly when solving issues, or intentionally connect with illicit payments for personal benefits. Facing the customs procedures when Pizza Hut imports raw material is a good example. If there is no “lobby fee,” the customs declaration process will be much slower than usual. As a result, the quality of the raw material will be affected, expired, or spoiled, and that may be seen by the manager as a waste and a financial loss for the company. However, allowing illicit payment in the group leads to damage of the brand reputation as well as an increase in cost, as bribing never stops once started. Pizza Hut managers just have to accept that things will take more time and that small losses can avoid larger damage in the future.

Giving or Accepting Gifts Giving or accepting gifts, favors, or entertainment from parties doing business with Pizza Hut Vietnam is another problem. Under Gifts and Entertainment (Yum! Brands 2018b, p. 10), the code specifies that “In appropriate circumstances, employees may provide existing or potential business partners with reasonable entertainment or gifts. However, the gift or entertainment must be permitted by law, the business partner’s own policies, and your business unit’s policies. Receiving gifts from current or potential business partners can create the perception that by receiving the gift or entertainment, there will be some associated influence. Gifts or entertainment may never be given or received in exchange for improper or undue influence, and you should avoid even the appearance that a gift or entertainment— whether given or received—relates to some improper or undue influence.” The company only allows employees to give or receive gifts or favors as long as they fall within the generally accepted standards of business conduct and the ordinary course of employees’ duties. These gifts and favors may not contravene anti-bribery law. Gifts are criminalized by law, the exception being special occasions such as Vietnamese Tet (New Year) festival for gifts with a value below VND 500,000 (below 25 USD). Facilitation payments are illegal. The code advises that no cash payment is accepted while gifts and favors must be small or of insignificant value and customary in nature (below 25 USD in value). Entertainment and hospitality must be limited to reasonable and proportionate hospitality or promotional expenditure, both of which seek to establish or maintain business relationships. Thuc Thu remembered the other case, where the construction manager accepted an entertainment trip abroad to visit the factory of a supplier combined with an expensive leisure trip sponsored by that same supplier. The issue came up when employees of the company tried to obtain money, gifts, favors or entertainment to offer the business or influence the bidding process to award suppliers or contractors. In daily operations, Pizza Hut Vietnam is working with dozens of suppliers and many contractors who deliver goods and services at very big transaction value, such as ingredient purchases, equipment supply, insurance contracts, construction work,

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and so on. The violations also happen when giving gifts, favors, or entertainment to local authorities. Giving unreasonable gifts or entertainment to local authorities in order to get the work done faster can cause legal compliance issues and lead to employment consequences or even civil legal actions for the employees concerned. Business in Vietnam currently has to face many difficulties to get the business done according to plan because of the bureaucracy of the government system and non-compliance practices. However, if the company is not strict in dealing with issues of valuable gifts for authorities or local business partners, employees of Pizza Hut and the company can be misled. Within the company, abusing the system or failure to report those cases beyond accepted standards, such as unreasonable hospitality, without prior approval may result in a misconduct action or employment termination.

Conflict of Interest Another problem of the code for employees and managers at Pizza Hut is conflict of interest. This principle requires employees to avoid putting themselves in a position where their personal interests could conflict with their duty assigned by the management. The type of situation which the employees should avoid, except when approved in advance by the management, includes, for example, giving Pizza Hut Vietnam business to a company owned by family or friends. Thuc Thu remembers the painful case when the administration manager favored a licensing officer by offering the stationary supply contract to the office supply company of her sister, in order to speed up the licensing process. Although the intention was to complete the license in time for the company, her action violated the code since it was against the bidding procedures and created unfair competition. Other cases involved employees having financial interests, except for quoted shares, in a supplier or customer, using company property for personal gain or doing business for company clients on their own behalf rather than doing that same business on behalf of the company. Murray (2018) identifies a conflict of interest as a situation in which an individual has competing interests or loyalties. A conflict of interest arises in the workplace when an employee has competing interests or loyalties that are, or potentially can be, at odds with each other. A conflict of interest causes an employee to experience a struggle between diverging interests, points of view, or allegiances. Conflicts of interest are forbidden in the company code of conduct. Thuc Thu knows about several cases at Pizza Hut Vietnam, such as the employee who was working at the HR Department and failed to disclose that he was related to a job candidate whom the company was considering for a position. They also had an employee working part time in another pizza chain that makes a product that competes with the products of Pizza Hut Vietnam and the Pizza Hut Vietnam HR Manager who decided to investigate a charge of sexual harassment, using internal resources she controlled, against a fellow corporate executive whom she had known and worked with professionally for years. Even a member of Pizza Hut Vietnam’s board of directors

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accepted fees from and provided advice to a company that is in direct competition with Pizza Hut Vietnam. Thuc Thu had done a lot of research about ways to prevent conflicts of interest in his company. He thinks that the most important measure is to thoroughly research potential clients, employees, and companies and to investigate any connection between existing and prospective clients. Maybe the code of conduct should specify that extraprofessional relationships within the office are not allowed? Such a code might also apply to contractors, suppliers, and other relationships of that nature. Yum! Brands has already established a Supplier Code of Conduct, which addresses working hours and conditions, non-discrimination, child labor, and forced or indentured labor. Violations lead to disciplinary action, including termination of the supplier relationship for repeated violations or non-compliance. But as he was turning his motorcycle into his street, Thuc Thu was thinking that the code of conduct might not be the problem, but the real issue was finding ways to implement it in everyday behavior and build mechanisms for regularly communicating and reinforcing the company’s values.

Ethical Issues and Vietnamese Culture Although there have been many laws, regulations, and anti-corruption programs in government and the public sector in general (Business Anti-Corruption Portal 2017) supported by non-governmental organizations such as Amcham (American Chamber of Commerce), Eurocham, World Bank, IMF, and others, corruption continues to be pervasive in Vietnam’s business environment, and enforcement of the anticorruption framework is lacking. According to the Report on Provincial Competitiveness Index, the number of enterprises that paid unofficial charges has increased over the years, from 50% in 2013 up to 64.5% in 2014 and 66% in 2015–2016 (Pham et al. 2017). In Vietnam, the practice of passing money under the table is so common that many insiders do not even consider it bribery, but an inevitable part of getting things done (Dien and Trang 2017). The corruption issue has been on the political agenda in Vietnam since December 2012, when the Political Bureau of the Vietnamese Communist Party indicated a stronger anti-corruption program requiring public officers to declare their income, assets, etc. In September 2017, former Ocean Bank general director and former chairman of giant state oil firm PetroVietnam, Nguyen Xuan Son was arrested (Jennings 2018), and the former chairman of state-run Vietnam Rubber Group and four other leaders of offshoot companies received prosecution orders for alleged crimes. According to Jennings (2018), corruption is threatening Vietnam’s economic miracle. Day-to-day corruption such as the bribes people have to pay for their children’s school admissions or for better hospital services exacts a heavy toll on most average people. Unless that day-to-day corruption is rooted out, any anti-graft movement would be seen as window dressing. Observers in Vietnam have linked the anti-graft crackdown to a struggle for power and legitimacy in the Communist-ruled

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nation (Reed 2017). The day-to-day corruption of low-level officials and police is still a factor of Vietnamese life. The gift-giving culture in both China and Vietnam has been linked to Confucian principles of conduct that are particularly important in regard to respect for authority within an organization (Lantz et al. 2005). Ritual occasions for giving gifts are also very important. The Vietnamese New Year celebration of Tet is similar to the Chinese New Year and is an important occasion for building and maintaining social ties. Tet Holiday includes a very wide range of gift-giving events, opportunities, and obligations. Giving business gifts in Vietnam is done to build and maintain harmonious relationships that may be seen as very similar to the Chinese concept of guanxi. Typically, guanxi is thought of in terms of relationship building with a particular sense of reciprocity and increasing commitment (Joy 2001). Giving gifts at certain occasions or events is common in Vietnam to build the business relationship. Many gifts such as vouchers, hampers, etc. are delivered to the company. For example, on Tet holidays, many suppliers and contractors provide gifts or other valuable items according to the cultural practice. In many cases, the gifts are addressed to managers or employees who are directly doing business with them. However, at Pizza Hut Vietnam, all gifts are collected and recorded by assigned employees, normally administration people, and the management decides how to deal with them in order to benefit the company and employees or donate them to a charity organization. In turn, the company normally delivers gifts to business partners or government agencies for special occasions. However, this will be carefully considered and decided by the group of senior managers to avoid nontransparency and accusations of bribery. Therefore, there should be a clear distinction between gift giving and bribery. It depends on the code of conduct for gifts, favors, and entertainment and on the bribery law of the country. One could argue that Asian gift-giving practices are not so different from Western practices. VTC Travel (2018), informing visitors about Vietnamese culture, explains that gift giving is important in Vietnam because of the significance of interpersonal relationships in Vietnamese culture. But the organization also warns visitors not to encourage corruption. The former Prime Minister of Singapore Lee Kuan Yew was of the firm belief that some of the things attributed to Asian culture are not necessary and only slow social and economic progress (Lee 2000). CSR activities brought JRG international recognition which in turn makes unethical behavior an absolute no go.

What Next? After dinner with his wife and children, Thuc Thu sat down at his desk and drafted a proposal for the next meeting. The aim of his proposal was to create a working environment where every team member can perform with respect for the code, in order to effectively contribute to the company and uphold the corporate values. He knew that the management at Pizza Hut Vietnam was completely aware of the

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importance of the code for long-term profitability and sustainability. But he needed concrete actions, so he thought of two courses of actions to be taken. The first action concerned education. How are we going to change the education of the workforce so that the delivery of the code of conduct is really effective? How can we turn the code of conduct into the right behavior and make employees realize that they are socially responsible for the development of the company but also for a positive impact on society? The second course of action would be to implement better enforcement mechanisms. He was wondering if a complaint-based system of whistle-blowing and audits could make everyone in the entire organization of Pizza Hut Vietnam aware of unethical behaviors. The complaint-based systems and audit-based system should be able to increase identification probability and reporting probability of unethical action. At the same time, employees should be warned of expected penalties for engaging in specific unethical actions, with clear information about what penalty is expected for what unethical behavior. This system would alert employees and discourage them from engaging in unethical actions. Should new enforcement provisions be put in place to improve the code effectiveness? Should the company consider increasing the size of the penalty or the probability that an employee engaging in an unethical action will bear that penalty? Is it true that a greater penalty makes unethical actions less attractive to employees and discourages them from engaging in those actions? What other actions could be undertaken? Should he make the cases public in the organization? Would that not be too severe in a society where face saving is such a fundamental value? Thuc Thu was wondering to what extent these actions would help everyone in the entire organization to be aware of the code and behave properly in many different situations. Of course, he expected his colleagues to point out the disadvantages to be considered when implementing these actions. The amount of time, money, and effort to educate the workforce and to put good systems in place needs to be considered. Setting up enforcement provisions is not easy at all. The company has to face significant constraints on the effective size of the penalty in provisions. In designing an enforcement mechanism, the company should recognize that the constraints of being subjected to the code may make voluntary and economic alternatives available to the employees. They may allow them to escape sanctions by changing jobs or withdrawing from the organization. The company must avoid losing a well-educated and well-trained workforce. Other constraints may be legal limitations on the penalty. Thuc Thu decided to spend another couple of hours working on the feasibility study of his proposals.

References Bloomberg. (2018). 104 companies included in first sector-neutral Bloomberg gender-equality index. Retrieved October 17, 2018 from https://www.bloomberg.com/company/ announcements/104-companies-included-first-sector-neutral-bloomberg-gender-equalityindex/.

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Business Anti-Corruption Portal. (2017). Vietnam. Retrieved October 17, 2018 from https://www. business-anti-corruption.com/country-profiles/vietnam/. Cameron, K. S., & Quinn, R. E. (1999). Diagnosing and changing organisational culture: Based on the competing values framework. Reading: Addison-Wesley. Checchi, F. (2017). Corruption is holding ASEAN back. Retrieved October 17, 2018 from https:// thediplomat.com/2017/01/corruption-is-holding-asean-back/. CR Magazine. (2017). CR’s 100 best corporate citizens. Retrieved October 17, 2018 from http:// www.3blassociation.com/files/UA064S/CR_100Bestpages_digitalR.pdf. Dien, L., & Trang, B. (2017). In Vietnam, corruption can mean death. But so what? Retrieved October 17, 2018 from https://e.vnexpress.net/news/news/in-vietnam-corruption-can-meandeath-but-so-what-3649340.html. Hewitt, A. (2015). Aon Hewitt top companies for leaders: Research highlights. Retrieved October 17, 2018 from http://www.aon.com/germany/downloads/aonhewitt/aon_hewitt_top_ companies_for_leaders_highlights_report.pdf. Jennings, R. (2018). China and Vietnam both want foreign investment, but is there enough capital to go around? Retrieved October 17, 2018 from https://www.forbes.com/sites/ralphjennings/ 2018/03/11/how-vietnam-will-hold-its-edge-as-china-competes-on-foreign-investment/ #624ab6041f08. Joy, A. (2001). Gift giving in Hong Kong and the continuum of social ties. Journal of Consumer Research, 28, 239–256. https://doi.org/10.1086/322900. Lantz, G., Loeb, S. G., & Le, L. T. M. (2005). Business gift giving in Vietnam within and between organizations. Asia Pacific Advances in Consumer Research, 6, 286–290. Lee, K. Y. (2000). From Third World to first: The Singapore story, 1965–2000. New York: HarperCollins. Matheson, J. (2018). Jardine Pacific. Retrieved October 17, 2018 from https://www.jardines.com/ en/companies/pacific.html. Murray, J. (2018). What is a conflict of interest?: Give me some examples. Retrieved October 17, 2018 from https://www.thebalancesmb.com/what-is-a-conflict-of-interest-give-me-someexamples-398192. Pham, T. T., Vu, H. Y., & Hoang, T. L. (2017). Legal framework on anti-corruption responsibility of businesses in Vietnam. Retrieved October 17, 2018 from http://vietnamlawmagazine.vn/ legal-framework-on-anti-corruption-responsibility-of-businesses-in-vietnam-5876.html. Reed, J. (2017). Vietnam seeks to purge ‘corrupt’ Communist leaders. Retrieved October 17, 2018 from https://www.ft.com/content/0a9d49ae-f37e-11e7-8715-e94187b3017e. Richtopia. (2017). Brand Top 200: From Amazon to Google, these are the most influential brands in the world. Transparency International. (2017). People and corruption: Asia Pacific. Retrieved October 17, 2018 from http://files.transparency.org/content/download/2118/13484/file/2017_GCB_ AsiaPacific_EN.pdf. Transparency International. (2018). FAQs on corruption. Retrieved October 17, 2018 from https:// www.transparency.org/whoweare/organisation/faqs_on_corruption/2. vtctravel.net. (2018). VTC travel: Connecting culture. Retrieved October 17, 2018 from http:// www.vtctravel.net/. Yum! Brands. (2018a). Company. Retrieved October 17, 2018 from http://www.yum.com/com pany/. Yum! Brands. (2018b). Global code of conduct. Retrieved October 17, 2018 from http://investors. yum.com/Cache/1001239218.PDF?O¼PDF&T¼&Y¼&D¼&FID¼1001239218& iid¼4025819.

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Marie-Therese Claes, Professor of International Management at Louvain School of Management (LSM, University of Louvain) and ICHEC Brussels Business School. In addition, she holds guest professorships at several other universities in Europe, Asia, and the United States and was Dean of the Faculty of Business at the Asian University Thailand and Director of the Executive MBA at LSM. She is also a consultant and coach for relocation, diversity management, and global leadership. She has worked as a consultant to various companies and is a former President of the Society for Intercultural Education, Training and Research (SIETAR Europa) and the European Women’s Management Development International Network (EWMD). She is also a Fellow of the Royal Society of Arts and a Fulbright and a Japan Foundation alumna.

A Breath of Fresh Air: Creating Shared Value in the Philippines Austin Chia and Prakash Singh

Case Synopsis Case Summary GlaxoSmithKline (GSK), a multinational pharmaceutical company, has, for many years, produced a medicine for acute management of asthma and chronic obstructive pulmonary disease (COPD). It is predominantly marketed in a multidose inhaler canister that is generally unaffordable for most people living in poor countries. With the goal of concurrently generating economic returns and delivering positive social outcomes, GSK recently re-launched an affordable single-unit dose presentation of this medicine for asthma and COPD sufferer in low socioeconomic communities. The product takes the form of a salbutamol capsule dispensed through a low-cost inhaler device (the product is henceforth referred to as a “single-dose inhaler”). In developing this product, the company has sought to generate social outcomes (in terms of improved healthcare outcomes for poor people) while making profit on the sales of the product. GSK’s single-dose inhaler product illustrates how the company has (1) developed and adapted products and its supply chain to produce a small-dose, affordable presentation of a major product for distribution to poor communities in the Philippines and (2) localized its emerging market strategy to maximize access to medicines with consideration of existing political, economic, and structural challenges within the Filipino context. This case provides a detailed account of the executive motivations and tactical challenges of pursuing a shared value strategy in the Philippines.

A. Chia (*) · P. Singh University of Melbourne, Parkville, VIC, Australia e-mail: [email protected]; [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_13

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Learning Objectives This case provides students with an understanding of the macro context of operating in emerging markets and offers managerial insight and the strategic rationale of creating shared value (CSV). The case does not explicitly advocate the shared value approach (nor the validity of the concept), but instead seeks to solicit critical engagement of students with GSK’s anecdotal accounts and the seminal literature on the topic. The learning objectives of this case are to: • Develop an understanding of the complexities of balancing social and business goals in decision-making. • Understand the strategic rationale of CSV and why organizations pursue CSV as strategic initiatives. • Understand the role and importance of innovation in CSV initiatives. • Develop an appreciation of the pharmaceutical industry in emerging markets and the various factors that impact on access to medicines. • Develop an appreciation of the strategic and tactical challenges and success factors of operating in emerging markets.

Themes and Tools Used • • • •

Creating shared value Product access, pricing, and distribution Emerging markets Social responsibility

Target Audience This case provides a gentle and interesting introduction to the concept of CSV and may be used in undergraduate- or graduate-level courses in general management, international business, strategic management, and business ethics. It is recommended that students read the following articles prior to analyzing the case: • Bertini, M., and Gourville, J. T. (2012). Pricing to create shared value. Harvard Business Review, 90(6), 96–104. • Pfitzer, M., Bockstette, V., and Stamp, M. (2013). Innovating for shared value. Harvard Business Review, 91(9), 100–107. • Porter, M. E., and Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62–77.

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Questions • Was GSK’s decision to enter the Philippines’ market an economic or social one? What was the opportunity at hand? • How has GSK innovated for shared value in the Philippines? • Based on your understanding of creating shared value and your reading of the case, discuss whether you agree with the following statement: “Pricing is the single biggest barrier for access-to-medicines in the Philippines.” • Does GSK’s experience in the Philippines suggest that the company should launch the single-dose inhaler product in other developing countries? • What do you think are some of the challenges GSK will face in relation to the product in the future?

Introduction For the pharmaceutical industry, thinking differently is not just the right thing to do; it is essential for sustained business success. Sir Andrew Witty (2011), GSK’s CEO

It was 4:28 pm, 1 October 2015, at GSK’s Asia Pacific and Emerging Markets headquarters in Singapore, and GSK had just been announced as holding the number one spot on the global Access to Medicine Index. Jo LeCouilliard, Senior Vice President and General Manager Asia Pacific for GSK Pharmaceuticals, reflected on the year to date; it had been a period marked by some lows, but many remarkable highs. For LeCouilliard, among the many milestones her team had achieved in the past 12 months, she had been particularly proud of the work the company had done with improving access to medicines for disadvantaged patients in developing countries, such as the Philippines, Laos, Cambodia, and Indonesia. She believed that the company’s initiative and investments in improving access to medicines were not only good for the company’s shareholders but also critical to progressing global efforts to enshrine quality universal healthcare as a basic human right. Since the ratification of the United Nations’ Millennium Declaration, there has been increasing pressure on players in the pharmaceutical industry to do more to address global injustices in relation to health, diseases, and access to medicines. However, pharmaceutical firms, like other companies in other industries, must consider shareholder value alongside considerations to get quality healthcare to more patients. Conventional business models within the pharmaceutical sector have focused on the development, distribution, and sale of high-margin products to middle- to high-income earners. However, over the past decade, there has been growing agreement within the corporate community that traditional approaches to business are no longer a sustainable option. Companies are expected, and many intrinsically aspire, to conduct business that not only results in strong financial performance but also produces social dividends in the communities in which they operate. Corporate leaders within

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the pharmaceutical sector recognize that, while the social problems in developing countries may present numerous operational challenges, they also present significant potential for profitable growth. This shift in management thinking is embodied in the concept of creating shared value (CSV), which suggests that business value can be derived when companies seek to address social problems as part of their business objectives, which, in turn, provides tremendous opportunities for innovation and growth (Porter and Kramer 2011). GlaxoSmithKline (GSK) was among the first multinational pharmaceutical companies to invest aggressively in expanding their operations in emerging markets. The company’s efforts have been recognized in the global access to medicine index where they have held the number one position for four consecutive years (Access to Medicine Foundation 2014). One of GSK’s most promising initiatives has been their work in the re-launch of a delivery format of their medicine for acute management of asthma and chronic obstructive pulmonary disease (COPD). In many developing countries, sufferers of respiratory conditions who are at the bottom or middle of the income pyramid cannot afford sophisticated multidose inhalers (MDIs). In response to this issue, GSK has re-launched a single-dose version of this medicine in salbutamol capsule in an inhaler device (the product is henceforth referred to as a “single-dose inhaler”). The product is widely distributed in the Philippines and Indonesia. For senior executives at GSK, the question that arises is: Can the company achieve the twin goals of meeting their desire to increase access to medicines for appropriate patients, in concurrence with building their business as a profitable enterprise in developing countries?

Background Contextualizing the Social Need In the year 2000, world leaders from 189 nation states gathered in New York City to attend the Millennium Summit of the United Nations (UN) to discuss and articulate the vision of the UN for the twenty-first century. It was at this summit that all member states of the UN acknowledged the plight of citizens in developing countries who seek to achieve a better quality of life and the need to distribute the benefits and prosperity of globalization more equitably. The commitment of world leaders to alleviate global poverty by the year 2015 was formally ratified in the following vision statement in the Millennium Declaration of the United Nations: We will spare no effort to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty. (United Nations 2000)

The Millennium Declaration was conceived, in part, from the staggering statistics showing that over two billion people currently lack access to medicines (World Health Organization 2009). Within developing countries there continues to be unacceptable levels of avoidable deaths from treatable conditions, such as

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hypertension, pneumonia, diarrhea, and asthma, due to the inaccessibility of basic essential medicines. The inequities and disparities that exist in access to medicines across countries are a multidimensional and complex system-level problem that encompasses various interdependent factors, such as having reliable health and supply systems, affordable pricing, and efficient distribution of safe and effective products. As such, improving universal access to medicines for the world’s most marginalized and vulnerable people requires strong partnership and coordination efforts among civil society and various societal actors, including governments, patients, pharmaceutical companies, and health professionals. It was clear at the time of ratifying the Millennium Declaration that the vision to halve global poverty within 10 years was going to require more than just the efforts of governments and international agencies. The supporting framework for progress that underpinned the Millennium Declaration was the Millennium Development Goals (MDGs). The MGDs provided time-bound and quantitative targets that spanned various socioeconomic domains, such as gender equality, environmental sustainability, disease, social exclusions, and education. The importance of public-private collaborations to alleviate poverty was embodied in Goal 8 of the MDGs (i.e., “Develop a Global Partnership for Development”). Specifically, target 8.E of the MDGs shines the spotlight on the critical role of big pharma corporations in improving the availability and affordability of medicines for citizens in the world’s poorest countries: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. (United Nations n.d.)

The Millennium Declaration and the MDGs reflected and codified changing societal expectations. It was within this global context that multinational pharmaceutical companies were beginning to face escalating pressure to improve access to medicines in the developing world. Non-governmental organizations and activists worldwide protested and publicly voiced opposition to big pharma companies that, they claimed, prioritized profits over people amidst high-profile cases of pharma companies aggressively enforcing their intellectual property rights. Players within the industry stood accused of preventing the world’s poorest people from gaining access to life-saving treatments, due to their predatory pricing strategies. For multinational pharmaceutical companies—who are largely based in Western developed countries—the distribution of their products presents a notable financial dilemma. The conventional logic is that markets in developed economies are more profitable than equivalent markets in developing countries. Pharmaceutical companies have traditionally generated the lion’s share of their profits from selling drugs to those higher up on the wealth pyramid, at higher prices and larger profit margins. Over the last 10 years, a handful of global players, such as GlaxoSmithKline, Pfizer, Novartis, Merck, and Sanofi-Aventis, have adopted new business models and have repositioned their products to improve access to medicines in developing countries (World Health Organization 2009).

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Company Profile GlaxoSmithKline (GSK or “the company”) is a leading global pharmaceutical company, with a geographically diverse footprint spanning over 150 countries and employing almost 100,000 people. Headquartered in London, GSK’s core business activities are in the development, discovery, creation, and manufacture of pharmaceutical and consumer healthcare products. The company has a network of 87 manufacturing sites and key research and development centers in the UK, USA, Spain, Belgium, and China. GSK’s products can be divided into three major categories: • Pharmaceuticals: Developing and making medicines to treat a range of conditions, including respiratory diseases, bacterial and viral infections such as HIV, cancer, heart disease, epilepsy, and skin conditions like psoriasis • Vaccines: Researching and making vaccines for children and adults that protect against infectious diseases, including influenza, rotavirus, cervical cancer, measles, mumps, rubella, hepatitis, polio, tetanus, and meningitis • Consumer healthcare: Making consumer products in four categories of “total wellness,” skin health, oral care, and nutrition

“Facing the Challenge” at GlaxoSmithKline As a leading international research based pharmaceutical company, GlaxoSmithKline can make a real difference to healthcare in the developing world. We believe this is both an ethical imperative and key to business success. ‘Facing the Challenge’ is a signal of our intention and commitment to making access to medicines a continued priority of our company. . . We are extending our preferential pricing offers to more products, to more countries and to more customer groups, in an effort to secure greater access for patients to treatment that is both appropriate and sustainable. Jean-Pierre Garnier, GSK’s Former CEO (as cited in Hunt 2009)

With a large R&D portfolio for diseases prevalent in developing countries, GSK was one of the first multinational pharma companies to pledge a public commitment to advancing the progress of the MDGs. In 2001, the company’s CEO, Dr. JeanPierre Garnier, launched their corporate policy document entitled “Facing the Challenge,” which identified three key areas in which the company could make significant and valuable contributions: (1) research and development for diseases in poor countries, (2) sustainable preferential pricing, and (3) community investment. With a research team of over 15,000 people, GSK proactively invests in the research of vaccines and medicines for the World Health Organization’s (WHO) 3 priority diseases: HIV/AIDS, tuberculosis, and malaria (GlaxoSmithKline 2018). “Facing the Challenge” signaled a significantly important chapter in GSK’s corporate history and triggered a gradual and progressive evolution of the company’s business model. Shortly after Sir Andrew Witty was appointed as CEO in 2009, Witty reaffirmed the company’s commitment to increasing their presence in

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emerging markets and announced an ambitious plan to help tackle the healthcare crises in developing countries by lowering drug prices and sharing of patents for a selection of their drugs. A commitment was made to set up an open innovation platform for voluntary patent pooling, dedicated to researching and developing medicines for neglected diseases, and to reduce prices for patented medicines in the world’s least developed countries, which include most of Western and Central Africa, as well as several countries in Southeast Asia. Over the past decade, the pharmaceutical sectors in industrial economies have seen dramatic structural changes in their operating environment stemming from rapid advancements in technology, trade liberalization, difficult market conditions, and tighter regulations. Big pharma players have historically been shielded from threats of market competition, but as patent protection of their products expire, many companies are struggling to get drug approvals quickly enough to balance out these losses. The product profitability declines of big pharma companies in developed economies coincide with projections that emerging economies will experience rapid and significant growth in demand over the next decade.

Emerging Opportunities in Emerging Markets Under the leadership of Andrew Witty, GSK has been increasing its focus on the growth potential of emerging markets and the Asia Pacific (APAC) region. GSK has operated in countries within the APAC region for many years, but their products have traditionally been targeted at the top end of the wealth pyramid, whereby only middle- to high-income citizens could afford their products (see Fig. 1). In the last several years, the company has invested heavily in new product innovations and patient access initiatives to make their products affordable for those in the lower end of the wealth pyramid. This reorientation has been premised on the trend of increasing demand as the populations and economies of emerging markets become more prosperous. To accomplish this, the company has developed a tailored business model so that their products are distributed to countries at all levels of income and development. Aside from the top-down mandate from GSK’s senior leaders, the transition in focus toward the lower end of the wealth pyramid has also been a function of the natural evolution of the market. Over the last few years, the market dynamics in the APAC region have seen the generic medicine manufacturers grow more aggressively, which is a testament to the demand for more affordable medicines by the public. Although capitalizing on the untapped opportunities in emerging markets makes good business sense, the expansion of the company’s operations and presence in all levels of the income pyramid reflects a commitment to the company’s mission to “help people do more, feel better and live longer” (GSK 2018). As Jo LeCouilliard explains, responsible business is embedded in the company’s strategy, culture, and decision-making, where the way in which the company achieves success is just as important as what they achieve: “The GSK mindset and philosophy is very much

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Fig. 1 Income pyramid of emerging markets. Source: Adapted from GSK

around the desire to deliver healthcare to the populations that we’re trying to support. In some of the least developed countries that we’re in like Laos and Cambodia, we’ve set ourselves objectives around patients reached rather than profits made and where we do make profits in those countries we reinvest some of it back into the infrastructure of the country itself. There is a quite deeply ingrained culture of responsible business and it starts from Andrew Witty all the way down through the organization. Our performance is not just about the profits that you make, it’s also about the patients that you can reach.”

The Philippines For GSK, the Philippines (and emerging markets more generally) present great market potential and are commercially attractive in terms of financial returns and the company’s ability to make a meaningful social impact. According to Concep Dancel, GSK Senior Business Intelligence Manager, since 2010 the Philippines’ economy has been growing quite fast—around 6 or 7%—which is unprecedented for the country: “the country’s population is entering a demographic window where at least fifty percent would be in the working productive years, which make the Philippines a very promising economy in general.” This socioeconomic shift in the population would see an increasing number of people move up from the bottom of the income pyramid to the middle-income segment.

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For the most part, private health providers carry the healthcare burden in the Philippines, and, thus, it is through the private, out-of-pocket market where the majority of GSK’s medicines have been sold. According to the World Bank (2018), approximately one quarter of the Filipino population lives in poverty which is roughly equivalent to 80 million people. Individuals living in poverty rely on funds provided by the government through cash transfer programs to buy life’s bare necessities, such as food, clothing, and medication. Historically, national programs to improve access to medicines have been rolled out by governments, without much collaboration with pharmaceutical manufacturers when, in fact, collaborative efforts are critical in ensuring pharmaceutical products are affordable, of good quality, and in adequate supply.

GSK’s Single-Dose Inhaler Device Since 1968, GSK has been producing and marketing a medicine for acute management of asthma and COPD, which has been used for over 45 years in clinical practice. The active ingredient in this drug is salbutamol sulfate, which is a white odorless powder, and it is predominantly marketed by GSK in a metered-dose inhaler (MDI) form with 200 doses per inhaler canister. While MDIs have been widely used in developed countries and the inhaled treatment has been shown to be the gold standard treatment option for asthma, the product has generally been unaffordable for the majority of poorer people living in developing countries such as the Philippines, Indonesia, China, and India. Asthma patients in developing countries typically opt for the cheaper oral therapies (i.e., salbutamol tablets and syrup). After several years of research, GSK re-launched an asthma relief product, using single-dose inhaler device, in the Philippines and Indonesia in 2013. The product is comprised of two components: 1. Salbutamol capsules: Produced in Australia, the salbutamol capsules are small hard capsules that contain the active medication (i.e., salbutamol sulfate) in very fine dry powder form. 2. Dry powder inhaler device: Produced in the UK, the dry powder inhaler device is used to deliver the active medication into the lungs. The two components are used together, with the dry powder inhaler device breaking the salbutamol capsules into halves, which are rotated and agitated to release the drug powder when the patient inhales. The product and market vision for the products are to be a leading relief medication for asthma patients in lower socioeconomic groups, and, since launching the product in the Philippines, GSK has successfully grown, and the brand is currently the largest market for single-dose inhalers globally. The company’s internal market research has found that, while the incidence of asthma is projected to increase over the next decade to around 17%, the actual number will be much higher given the

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substantial number of undiagnosed cases arising from lack of awareness and medical access among Filipinos. The epidemiological trajectory of the Philippines suggests that there is a clear opportunity for GSK to be a leader in improving the health of asthma patients.

The Shared Value Journey Over the last year we have witnessed and achieved some great milestones already but what I would equally recognize is that it takes time. Succeeding in this market is a gradual process and we are working with a relatively new business model in unfamiliar markets. We are still learning the ropes and we need to be mindful of the stumbling blocks along the way and how we can address, respond and learn from them. Concep Dancel, GSK’s Senior Business Intelligence Manger

While the win-win proposition of a shared value strategy bears intuitive and moral appeal, many companies have struggled to translate the theory into practice. GSK’s pursuit of the social and financial objectives for single-dose inhaler (and their broader product portfolio) has been a highly reflexive and iterative learning process underpinned by strong support from senior leaders within the company. When Lizzie Champion was appointed to her role as Head of Mass Marketing for Emerging Markets, one of her first tasks was to gain strategic and tactical insight into the operating environment to inform the planning process for the launch of the singledose inhaler product. Based on extensive field-based market research, Lizzie believed there was one major internal barrier that would impede GSK from succeeding in emerging markets: simply, that the company was not resourced to drive awareness with the healthcare professionals that these patients consult or to drive availability in the channels through which these patients get their medicines. The company could not succeed in driving access to middle- and lower-income patients in emerging markets simply by replicating and imposing their existing business model. As Lizzie puts it, “it’s not about GSK evolving our model to reach these patients, it’s about the company starting from scratch and saying ‘what do these patients want and what do they need?’” To gain any sort of traction in the market, GSK needed to rethink its business model to ensure that they had the right product portfolios with the right pricing structures. GSK needed a business model that could balance the efficiency of the whole product delivery system with the needs of the patient.

Investing in the Foundations for Market Success When setting up the new business unit we said that we didn’t want to lose lots of money, obviously we are a business and not a charity. We believed that in the long run we could make some money, perhaps not a lot, but we absolutely believed that we could make a difference in terms of patients’ lives. We were committed to looking at this piece of the business in a different way and reinforce it. Jo LeCouilliard, SVP & GM for Asia Pacific, GSK Pharmaceuticals

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Following Lizzie Champion’s review, a clear case for the establishment of a separate standalone business unit was put to senior management and was endorsed. Internal company funds were invested in the development of a patient access model that was substantively different to the rest of the organization. The new business model was designed to deliver high volumes of lower-cost and lower-margin products that could reach further down the wealth pyramid in emerging markets. The newly minted patient access teams were comprised of sales representatives with the primary responsibility of driving a portfolio of products, including the singledose inhaler, through various healthcare channels to help ensure that GSK products were accessible by all patients along the socioeconomic spectrum. For each focus country, the company set up a dedicated business unit with a Market Access Manager and around 20 sales representatives. When the single-dose inhaler was launched, the teams were tasked with the challenge of improving access for poor patients who were traditionally unable to access the MDI form of the medicine for acute management of asthma and COPD. However, unlike other business units within the company, these patient access teams operated on different performance metrics, whereby performance was measured by product volumes and patient reach, not by profit. The structure, focus, and objectives of this team were fundamentally different from the rest of the business, as Jo LeCouilliard explains: “We have around twenty sales reps in each country. We track them based on how many new customers they bring in. To date we’ve been able to reach around two thousand five hundred health care professionals and many more distribution outlets where patients can go and access our products.” The redefinition of job descriptions for patient access sales representatives meant that there were no incentives to focus on higher profile doctors, who had larger client bases of wealthier patients, in order to make more money. Instead, sales representatives often found themselves working in very rural areas to engage with health workers and doctors in order to educate them about the efficacy and safety profile of the single-dose inhalers and to position the product as attractive alternatives to traditional oral treatments. Ultimately, the performance evaluation of the patient access teams hinged on how many in-need patients could start using the products.

Building on What GSK Does Best If we can’t make it work in the areas we have strength, we’re not going to be able to make it work anywhere else. Jo LeCouilliard, SVP & GM for Asia Pacific, GSK Pharmaceuticals

When deciding on which medicines they could make and distribute affordably in the Philippines, the company decided to focus on their sweet spot, in terms of where they had real strength and capability. GSK’s medicine for acute management of asthma and COPD has been in the company’s respiratory portfolio for 45+ years and has been widely recognized as a market-leading brand. This drug was selected as the

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first product to be introduced because it is a well-known brand and was perceived by GSK to be a commercially viable option. It presented a unique opportunity for the company to leverage its market position and brand for strategic product introduction. Although not much pharmacological innovation was required to launch the single-dose inhaler, considerable efforts were required for product redesign and marketing in order to overcome the many significant challenges GSK was faced with in making the products available to the target end users. In terms of product design for the salbutamol capsules, the major change involved changing from bulk packs to packs that can be easily split into smaller quantities. For the dry powder inhaler device, the change was in the redesign of packaging, from a tube canister to a carry case, and a change of color in order to reduce cost and increase the acceptability of product.

Flexible Pricing and Smaller SKUs GSK has a flexible pricing strategy in place to improve the affordability of their pharmaceutical and vaccine products and to increase access for patients with lowerincome levels while remaining profitable. The pricing of medicines and vaccines at GSK uses a tiered approach, which refers to the practice of having differential prices in different markets, whereby product pricing is dependent on a country’s wealth and consumers’ ability to pay. By doing so, the company is able to remain flexible in their pricing to build their business in emerging markets and increase the volume of products they sell. The single-dose inhaler is an example of the flexibility and creativity that is required to enable a flexible pricing strategy. The healthcare system within the Philippines is primarily privately funded, whereby citizens, regardless of their level of income, are required to bear the out-of-pocket costs for accessing medicines and healthcare services. Thus, when it comes to asthma medicines, patients are very price sensitive and are usually unable to afford large dosage units such as MDIs. It was within this context that the idea of smaller stock keeping units (SKUs) (i.e., salbutamol capsules) and a low-cost device (i.e., dry powder inhaler device) for GSK’s medicine for acute management of asthma and COPD were conceived. A critical success factor of these products in the Philippines is remaining price competitive in order for the company to grow its share of the market. As such, production efficiencies to drive down the cost of goods will be a key priority for success in the future, as Lizzie Champion explains: “One of the challenges we faced was to make sure that the cost of goods of [the single-dose inhaler] was low enough to enable us to broadly compete with the currently available medicine which is generic salbutamol tablets. What we always set out to do with this product was to bring a product to market that was not the same price as generics, because that would be impossible, but within the range of what patients are currently paying and is therefore affordable.”

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It’s Not All About Price We have very clear insights as to what is driving the lack of access to medicines. Initially we had the impression that it was all about pricing and affordability. . . From our experience and research activities, we have learned that it is so important to address all five ‘A’s of access to reduce the barriers for those belonging to the lower socio-economic class. Concep Dancel, GSK’s Senior Business Intelligence Manger

Although product pricing is an important factor in ensuring that medicines are affordable for patients in the lower end of the wealth pyramid, there are a myriad of other factors that influence patient access to medicines. At GSK, access is about ensuring that patients can reach and obtain GSK medication in situations of need. In order to understand how the single-dose inhaler would effectively penetrate the market, GSK studied the patient journey from initial awareness through to buying the medicine. Their findings revealed that, while various supply factors such as pricing, product portfolio mix, and volumes are within GSK’s control, there are also a vast range of other uncontrollable factors that exist as a function of the complex operating environment in emerging markets. Based on the extensive market research conducted by GSK, the “Five As to Access” framework was developed to reflect the complex nature of patient access and to provide a set of holistic principles in guiding the company’s pursuit of its social and financial aspirations within emerging markets. Each of the five As in the framework represents a critical success factor for improving patient access, and they include Awareness, Acceptability, Availability, Affordability, and Adherence (see Fig. 2).

Cultural Nuances in Consumer Behavior Although the Filipino economy has been growing over the last several years, the household spending behavior on healthcare hasn’t kept pace with economic growth. Regardless of whether a household belongs to the upper or lower ends of the wealth pyramid, the typical Filipino household spends less than 5% on pharmaceutical goods. A majority of private funds are spent on basics, such as food, clothing, and housing, and the balance is expended on big ticket items like gadgets, travel, and luxury products. As Concep Dancel explains, a key challenge facing pharmaceutical companies operating in the Philippines is the cultural differences between the east and the west: “We recognize that medicines are not a happy purchase but if Filipinos can put off buying medicines, they’ll put it off. There is an attitude of, ‘I’m OK, I feel fine. I’ve been coughing for a few days now, but I’ve been drinking water’. Such predisposition or mindset could be one of the reasons why the pharmaceutical industry generally lags behind the Philippine economy in terms of growth.” A facet of cultural differences that has proved problematic for GSK has been the commonly held attitudes in the Philippines in relation to disease, treatments, and medicines. Alternative eastern treatments, such as herbal medicines, still persist

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Fig. 2 GSK’s 5 As framework. Source: Authors’ own work, based on material from GSK

within parts of the country and are sometimes encouraged by doctors and pharmacists. Asthma patients often fail to see their doctors regularly for reassessment and consequently Filipinos are often diagnosed when they’re young and they stick with prescribed oral therapies over their entire lifespan. The consequence of this can span generations because parents who were asthma patients often make their own children, who are also suffering from asthma, use the medicines they grew up with. Asthma patients in the lower end of the wealth pyramid are often reluctant to seek out medical assistance from doctors, due to professional out-of-pocket costs. Instead, it would be common practice for patients to speak to their friends, neighbors, or family to seek advice in order to save money. It explains why patients will often stick to the same oral therapies for their whole life because they rarely engage with doctors to learn about new treatments. Equally problematic are the patient-pharmacist relationships, which are characterized as being purely transactional, whereby pharmacists see their role as dispensers of medications rather than having any responsibility to inform their patients about treatment alternatives. For GSK, it is evident that pricing is only one small piece of the puzzle and efforts in market penetration need to be focused toward the education of parties involved in all touch points of the patient journey.

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Breaking the Stigma and Public Misconceptions Within the Philippines, asthma is not considered a priority for the government, as is evident in the large proportion of the health budget being designated for communicable diseases such as tuberculosis and pneumonia. As such, there are no government-funded public health campaigns within the Philippines for asthma, resulting in a country population that is largely uninformed about the triggers, symptoms, and treatment options for the disease. This lack of awareness leads to primitive interventions that significantly affect asthma patients’ quality of life, as described by Francis Del Val, VP and General Manager for GSK Philippines: “It’s hard to comprehend that in this day and age in the Philippines, when a child is diagnosed with asthma the parents start creating a cocoon around the child. They cannot play, they cannot get tired, they cannot stay out in the sun, they cannot bathe thinking that asthma limits the activities of their child.” Evidently, public awareness of what asthma is, and how to manage it, is integral in empowering patients with hope that they can breathe better and live highly productive lives. Recognizing the importance of building patient awareness of asthma, GSK partnered with medical societies and the Philippine Department of Health to develop TV and media commercials to educate the public on asthma and to encourage people to seek out a doctor if showing symptoms of the disease. The partnership initiative with medical societies and the Department of Health forms part of the company’s “Win Against Asthma” campaign, which seeks to build public awareness through digital channels, to reach more patients, and to promote their respiratory brands. The digital approach stems from the company’s market research, which found that many people in low socioeconomic segments had access to the Internet and digital mediums, such as radio, television, and mobile phones. Accordingly, the company launched various marketing programs, such as their highly successful Facebook campaign, which has attracted over 100,000 Likes. While there are underlying commercial reasons for the public campaign, the financing of the campaign is largely motivated by the company’s social aims, as Francis Del Val attests: “GSK has a critical role to play, to provide not only information on available and appropriate treatment options for patients but also to educate patients and parents that being diagnosed with asthma is not the end of your productive life. It is an indication that you need to adapt.”

Treatment Awareness and Acceptance Among Doctors and Pharmacists In developed countries, when an asthma patient presents to a doctor, it is widely understood that there are no other real choices for relief treatments, apart from inhaler medicine. However, in the rural parts of the Philippines, many patients are receiving treatments that don’t even vaguely resemble the basic and standard treatment protocols in the western world. GSK medical representatives found that many doctors didn’t believe that inhaled medicines were appropriate treatments for

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their asthma patients. The doctors were unaware of or skeptical about the pharmacological benefits of inhalers and believed that the prescriptions of oral medications were just as effective and more convenient than inhalers when treating for asthma. Educating doctors and pharmacists on the efficacy and safety profile of the singledose inhaler and how to use the product have been a critical focus for GSK because they are the key access and dispensary points for patients. The establishment of a dedicated patient access team for the Philippines has enabled the company to gain significant traction with pharmacists and doctors who have been outside GSK’s traditional reach in territorial and rural clinics. The patient access medical representatives engage directly with doctors and pharmacists, equipped with clinical trial results, to educate them on the advantages to patients of inhaled therapy versus oral medications. The medical representatives would demonstrate how to use the device and check on the understanding of doctors or pharmacists by getting them to demonstrate their use. For GSK, such efforts are not only important in building product awareness but also in ensuring that patients are using the medicines correctly. However, despite the best efforts of GSK’s patient access teams, the task of educating doctors and pharmacists in such a large country remains an ongoing challenge. As Lizzie Champion recounts: “I’ve visited pharmacies in the Philippines and asked what is available for asthma. Sometimes [the salbutamol capsules are] one of the products. However, on one occasion, when I asked how to use it, I had the response ‘Oh you just swallow it’.” Jo LeCouilliard also recalled similar instances where pharmacies didn’t have the right stock, where pharmacists and sale assistants would stock the salbutamol capsules but not the dry powder inhaler device or vice versa: “I would go to one pharmacy and they would say, ‘no, we don’t have any dry powder inhaler device but we’ve got the salbutamol capsules, which of course is useless. So even though you think you’ve done all the right things to educate the pharmacies, there are some that are better than others’.” Such incidents have highlighted the need for an ongoing investment of time and effort to reinforce product knowledge among key stakeholders. GSK offers ongoing education for doctors and pharmacists through professional round-table discussion forums. The company also partners with the different pharmacy chains, such as Mercury Drugstore Corporation, which has many branches in the Philippines, to conduct ongoing pharmacy education for their staff.

Charting a Path to Market Success? In my experience, the leadership of the organization has always been hugely supportive which is one of the reasons why we have such a focus in the Philippines and Indonesia. . . The leadership at the country level tends to be very supportive both because they are motivated to help patients in their country and they recognize that reaching a new patient group will support delivery of future growth. Lizzie Champion, GSK’s Head of Mass Marketing for Emerging Markets

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Among the multinational pharmaceutical companies, GSK has been a true market leader in their efforts to improve access to medicines for some of the world’s poorest people. Their innovative products and their socially minded approach to competitive strategy have seen GSK heralded in Fortune magazine as one of the top ten worldchanging companies (Fortune 2018). The GSK journey with the medicine for acute management of asthma and COPD in the Philippines has, thus far, seen many milestones, such as the establishment of dedicated patient access teams, the formation of new partnerships, and the setting of new heights in their outreach efforts with patients and health professionals. Today, GSK Philippines is the single most successful market for the single-dose inhalers, demonstrating that it is possible for a company’s assets to be managed to work for the poorest of the poor while remaining commercially and financially viable. While there is growing demand for these products line, it has been forecast that they will generate financial losses for the company over the short- to medium-term. When reflecting on this tension between financial and social outcomes, Francis Del Val suggests that such performance indicators need to be contextualized in terms of the bigger picture of what GSK is trying to achieve: “Our gain in this market is going to be incremental but we need to think about those gains within the bigger scheme of things. It is increasing access to people for other treatment and/or asthma management options. We have to look at this venture as a market development opportunity where the learning we get from this whole effort is not going to be unique to the Philippines but it could in fact travel geographies. If we invest in [the single-dose inhaler], the payback may not always be [solely] in [the same product], it could be on the GSK brand altogether. So, you have to take a look at it as a strategic play.” As Lizzie Champion suggests, GSK’s journey to shared value is only just beginning: “I feel like we are at the start of the journey and there is still a huge amount to learn and get right; my hope is that GSK doesn’t lose the ambition to make this work.” Critical to GSK’s success in emerging markets will be their conviction and ongoing dedication to the shared value vision, recognizing that any achievement within the emerging markets, however large or small, delivers meaningful impact for the world’s most vulnerable while setting the foundations for strategic value and financial return for the company. For the single-dose inhaler, gaining market traction within the Philippines and other emerging economies will be a slow burn, but GSK’s senior management are confident that such efforts will yield significant payoffs at the product, portfolio, and company levels in the future. The long-term financial viability is volume dependent and, while the company has not yet been able to generate a positive financial return on investment in the short- to medium-term, it is evident that the population size, wealth disparity, and poverty rates in emerging countries present unique business and social propositions for the company. If the company is able to build brand and product awareness among doctors, pharmacists, patients, and governments in emerging markets, the singledose inhaler has a potential to generate very large volumes. While the company has only been able to attract about a hundred thousand new patients to date, GSK senior management believes that this is just the tip of the iceberg. For industry commentators and observers, while GSK’s journey has been inspiring and been

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marked by many incremental successes, a niggling curiosity about the future of the program remains: As a commercial organization, if the program is unprofitable in the long-term, will the company continue the program? Acknowledgments All employee names and quotations used in this case were provided and approved for released by GSK. An earlier version of this case (Ref no. 316-0180-1) and teaching note (Ref no. 316-0180-8) entitled “Navigating the Unchartered Path to Shared Value at GlaxoSmithKline (GSK) in the Philippines” was published with the Case Centre in June 2016 and republished by the Case Folio journal in March 2017.

References Access to Medicine Foundation. (2014). The access to medicine index 2014. Resource document. Access to Medicine Foundation. Retrieved October 17, 2018 from http://apps.who.int/ medicinedocs/documents/s21637en/s21637en.pdf. Fortune. (2018). Change the world. Retrieved October 17, 2018 from http://fortune.com/changethe-world/. GlaxoSmithKline. (2018). About us. Retrieved October 17, 2018 from https://www.gsk.com/en-gb/ about-us/. Hunt, P. (2009). Promotion and protection of all human rights, civil, political, economic, social and cultural rights, including the right to development. Retrieved October 17, 2018 from https:// www.business-humanrights.org/sites/default/files/reports-and-materials/Paul-Hunt-report-onGSK-5-May-2009.pdf. Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62–77. The World Bank. (2018). Philippines. Retrieved October 17, 2018 from https://data.worldbank.org/ country/philippines. United Nations. (2000). United Nations millennium declaration. Retrieved October 17, 2018 from http://www.un.org/millennium/declaration/ares552e.htm. United Nations. (n.d.). Goal 8: Develop a global partnership for development. Retrieved October 17, 2018 from http://www.un.org/millenniumgoals/global.shtml. Witty, A. (2011). New strategies for innovation in global health: A pharmaceutical industry perspective. Health Affairs, 30, 118–126. https://doi.org/10.1377/hlthaff.2010.0933. World Health Organization. (2009). Continuity and change: Implementing the third WHO medicines strategy; 2008–2013. Retrieved October 17, 2018 from http://apps.who.int/ medicinedocs/pdf/s16821e/s16821e_lo.pdf?ua¼1.

Austin Chia holds research and teaching posts as a Lecturer (in Higher Education) and Adjunct Lecturer (in Management) with the University’s Faculty of Business and Economics. For over 10 years, Austin has straddled the domains of industry practice, academic research, and higher education teaching. He has had a diverse career in management consulting, has worked with crosssector clients locally in Australia and internationally, and has served as an Executive Director on various not-for-profit boards. Austin is an award-winning teacher and has taught extensively across a range of undergraduate and postgraduate the areas of general management, operations management, and organizational behavior. His research interests are in the psychological microfoundations of corporate social responsibility and the cross-disciplinary application of positive psychology in understanding the generative roles of business in society and the optimal functioning of people in work contexts.

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Prakash Singh is Professor of Operations Management and Head of Department of Management and Marketing at the University of Melbourne in Australia. Prakash obtained his PhD from the University of Melbourne. His expertise is in operations, supply chain, and project management fields. In recent years, he has also focused his research on sustainability and innovation management. As an empirical researcher, his studies have been based in a range of industry sectors including transport and logistics, healthcare, manufacturing, professional services, government, as well as the not-for-profit and voluntary organizations. His research has been funded by large grants from a wide range of sources including Australian Research Council Discovery, Linkage, and Industrial Transformation Training Centre schemes. His research is published in many leading journals including Journal of Operations Management, Journal of Business Ethics, and International Journal of Operations and Production Management. Prakash is an experienced lecturer, having taught many courses in undergraduate, postgraduate, research training, executive, and custom programs. He has also been a consultant to many organizations in Australia and other parts of the world.

Schneider Electric India Private Limited: The CSR Dilemma Amandeep Dhaliwal and Arunaditya Sahay

Case Synopsis Case Summary This case discusses the issue of the sustainability of corporate social responsibility (CSR) in Schneider Electric India Private Limited (SEIPL). Schneider Electric, the parent company, is a European multinational engaged in the business of energy management solutions. The case presents the diverse CSR initiatives and activities that have been undertaken since 2008 by SEIPL in various parts of India as its commitment toward the society. SEIPL has been doing CSR in areas of rural electrification, entrepreneurship, education, and employment. The initiatives were well knit with the business strategy, and, thus, the objectives of both the company and the beneficiary were being successfully met. But from the year 2010 onward, the impact of CSR activities was continuously declining. The existing CSR model of the company was not delivering the desired results and was neither able to absorb the trained manpower nor place people elsewhere. The employment rate was constantly falling. Further, the trained electricians were not interested in becoming entrepreneurs. The adopters of solar energy products were switching back to biofuels for energy requirements. Sudhir Johri, Director, CSR, had to evaluate the situation and find ways and means to improve the impact of present CSR activities or work out a new CSR strategy.

A. Dhaliwal (*) Manav Rachna International Institute of Research and Studies, Faridabad, Haryana, India e-mail: [email protected] A. Sahay Birla Institute of Management Technology, Greater Noida, Uttar Pradesh, India e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_14

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Learning Objectives This case study largely focuses on strategic CSR and its sustainability. It helps students learn about the differences between operational CSR and strategic CSR. It makes them understand the intricacies of the CSR management process and how it needs to be molded as per the local country-specific needs. The case is set in the context of CSR initiatives undertaken in India; therefore, some of the challenges and issues are specific to the Indian context which, in general, are applicable to other emerging markets as well. Further, students comprehend the role played by external agencies in carrying out organizational CSR activities.

Themes and Tools Used • • • •

Corporate social responsibility (CSR) analysis Impact of durability and sustainability on performance Support to entrepreneurship and collaborations for development Scenario analysis to understand the environmental complexities at rural level in India

Target Audience The case has been designed for use in one or two sessions of courses on CSR/strategic CSR. The case can be used by students or organizations. At the end of the exercise, students should have a clearer understanding of the following: • The context and relevance of CSR • The role of stakeholders in CSR implementation • The need for continuous assessment and modification of CSR programs

Questions • • • •

What is CSR and how is it relevant to the company and the community? Who are the stakeholders of CSR? What should be the role of stakeholders in the implementation of CSR programs? Discuss the role of external agencies and partners in conducting the CSR by a business organization. • Why are the existing CSR activities of SEIPL becoming ineffective? • What should be done to make the CSR strategy of SEIPL a success? Suggest some concrete steps that can be undertaken to enhance the CSR activities of SIEPL.

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Introduction September 1, 2014, like any other day, was a very busy day for Sudhir Johri, Director (CSR), Schneider Electric India Private Ltd. (SEIPL). It was 7 pm when he had just finished the last of the meetings of the day. He got up from his big Victorian desk, loosened his tie, walked toward the windows, and opened the blinds. The view transformed from a cold formal office to warm beautiful far-stretched out sea. He paused at the huge windows for some moments and then went on to relax on the plush sofa lying in the corner of his office. Now was his time to unwind and sip his favorite Earl Grey tea. While having a first sip, his sight got fixed on the beautiful trophy of “The Responsible Business Award” lying on the glass shelf in the left corner of his office. Schneider Electric India Private Limited (SEIPL) not only took corporate social responsibility (CSR) initiatives very seriously but was appreciated for its delivery and outcome. SEIPL, as a part of their commitment to the society, had been carrying out CSR activities all over India since 2008. The activities were in the field of rural electrification, entrepreneurship, education, and employment. The initial model of CSR was working beautifully. It met the objectives of both the company and the beneficiary. SEIPL had, however, started facing some difficulties from 2010 onward in attaining various goals of the CSR program. The company was now at crossroads as far as its CSR activities were concerned. Sudhir had a challenge to make either the present CSR model sustainable or else develop a new CSR strategy.

Evolution of Corporate Social Responsibility CSR in Asia Culture has a very crucial impact on how societies approach CSR. The concept of obligation and responsibility is quite significant in the Asian context, but, at the same time, different from that in the West. In China, CSR is seen as the return of the danwei (the work unit within the Communist Party framework) which is responsible for not only economic production but also for services such as education, placements, housing, health, and child care (Sharma 2013). In Indonesia, it is viewed as the revival of gotong-royong (communal work), according to which a community’s betterment is the social responsibility of all stakeholders including business organizations. In the Philippines, values of bayanihan (cooperative spirit or the spirit of volunteerism) take precedence in business fraternities (Calica 2012). In Thailand, the dominant religion of Buddhism has had a deep influence on the business conduct and giving patterns. The monarchy, through its royal foundations, influences businesses’ CSR directed at socioeconomic community development with activities such as building schools, hospitals, and cultural institutions (Kusalasaya 2013). In the postcolonial era in Asia, the businesses and corporations soon realized the limited capacity of the State to provide a very conducive economic environment and a physical infrastructure for industry. Therefore, they took up the responsibility of

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contributing to nation-building. They contributed by not only providing housing, healthcare, and education to workforce but also by developing the physical infrastructure in the vicinity of their operations with facilities such as power, water, roads, etc. Nevertheless, in present times this communitarian outlook of CSR, where the community in the immediate vicinity of operations was developed, is changing. Asia, too, is adopting the formalized approach of the Western corporate and family foundations. Asian corporations, as well as their CSR initiatives, have moved away from arbitrary personal grants to the setting up of benevolent foundations. In April 2011, SymAsia, an umbrella charitable foundation, was initiated in Singapore. It facilitates Asia’s affluent and wealthy people to contribute to worthy causes without the need of setting up their own individual foundations (Han 2015). In countries such as Japan, India, Thailand, and Malaysia, both the State and the corporate sector have worked together closely to bring about the present economic development.

CSR in India The concept of social responsibility is not new to India. The country has the world’s richest tradition in philanthropy (Planet 2015). Religious scriptures of ancient times, such as Vedas, specify the responsibilities and duties of the various social classes. Even in the Vedic times, the kings and the wealthy merchants contributed to the development of community and society by activities such as building educational institutions, places of worship, and night shelters. The Nalanda and Takshila Universities, established by the rulers, are examples of it. Alms and charity were given to the poor, needy, and disabled. During times of any natural calamity, such as drought or famine, free food grains were given to the people by the rulers. Philanthropy diminished during the colonial rule. However, during the later part of the British rule, industrial houses like Tatas and Birla’s took upon themselves the responsibility of serving the society. Not only did they make profit for their business but also set up educational and healthcare facilities and developed other social amenities like parks, playgrounds, and cultural centers. Such activities were reinforced with the thoughts of Mahatma Gandhi, who pressed upon these industrialists to share their wealth, especially to advance the educational scenario of India by setting up trusts for colleges, and research and training institutes. He believed that this would be the foundation of rural development and women empowerment. Post-Independence, India decided to follow the policy of mixed economy in which both the public and private sector together played a critical role in nationbuilding. The first national workshop on CSR was held in 1965, where stress was laid on social accountability and transparency. Gradually, the companies started taking CSR more seriously, which later became a vital part of their business strategy. The post-Liberalization era witnessed fast-paced economic and industrial growth that provided an opportunity to the companies to invest even more in CSR initiatives. Organizations realized that the government alone could not uplift the

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society. With the rapidly changing corporate environment and more functional autonomy, many industrial organizations set up separate CSR wings for sustainable growth. With a view to provide a framework for companies, both private and public, to implement need-based CSR activities, the Government of India (GOI) made provisions for CSR in the Companies Act, 2013. Clause 135 of the Act aims at motivating companies to spend 2% of their average net profits of the last 3 financial years toward CSR. Though spending 2% of the profit after tax (PAT) is not mandatory, the law casts a duty on the Board to specify reasons for not spending the specified amount on CSR. Companies with a turnover of INR 10 billion/PAT of INR 50 million or net worth of INR 5 billion are covered under Schedule VII Clause 135 of the Companies Act 2013 (PWC Report 2013). Corporate social responsibility has come a long way in India from philanthropy to responsive and sustainable business initiatives. Some corporate entities have clearly exhibited their ability to make a significant difference to the society and improve the overall quality of life.

Schneider Electric Schneider Electric is a France-based multinational corporation that specializes in electricity distribution and automation management and produces installation components for energy management. It is headquartered in Rueil-Malmaison, France. It was started in 1836 by two brothers named Adolphe and Eugène Schneider. At the turn of the nineteenth century, the company invested in mining, electricity, and steel in many countries. After World War I, the company progressed further expanding into electricity, steel, and cement for civilian needs. Three firms that are now Schneider master brands were also founded during these years—Merlin Gerin, Telemecanique, and Square D. It began expanding in Germany and Europe through its partnership with Skoda. From 1940 to 1944, the German occupation under the Nazi forces put Schneider in a very difficult position. The company just endured through these years. In 1944, Charles Schneider took over the baton of the company. He gave a new direction to the business by expanding, modernizing, and rationalizing all the business segments from construction and steel to electricity and nuclear power. He created Schneider’s strategy for acquisitions and exports, which met with great success. Schneider became a leader in its national economy. Gradually, the company was transformed into a world-class manufacturer of equipment for electricity distribution, automation, and control. To emphasize its expertise in electricity, the company changed its name to Schneider Electric in May 1999 (Schneider Electric 2015). Schneider Electric entered the Indian Market in 1963 with a joint venture of its subsidiary, Merlin Gerin, with Tata Sons and Voltas (Schneider Electric Private India Limited India 2010). The joint venture was named Schneider Electric India Private Ltd. (SEIPL). A factory was set up in Baroda in 2003 and then in Hyderabad in 2006. Since then, it has acquired many electrical component companies such as

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Clipsal, Conzerv, Meher Capacitors, Uniflair, AREVA T&D, Zicom, Luminous, Digilink, etc. It has introduced many new products to the market such as TAC, VDI, APV, and Pelco. Further, capabilities for projects and services for turnkey solutions have been developed.

CSR at Schneider Electric India Pvt. Ltd. Schneider Electric realized that India was a vast and diverse country where great disparity existed among people of different classes. Among a population of 1.2 billion, 500 million people had no access to electricity. This limited access or no access to energy was the root cause of poverty, illiteracy, poor health, and lack of economic development. The rural population suffered the scarcity the most. They were lagging in progress as compared to urban centers. This hindered the overall advancement and progress of India’s youth. Schneider, thus, very clearly understood the mammoth need for societal welfare. It, therefore, knitted the social responsibility into its business strategy. Pursuing this, SEIPL adopted a CSR model which gave an impetus to socially responsible business, which in turn contributed to inclusive growth. Mr. Sudhir Johri was heading the CSR vertical of Schneider for India. He himself was very passionate about the upliftment and the development that could be brought about by the technologies of Schneider. Johri explained: We are socially responsible corporate citizen. It has always been our endeavour to give back to the society from where we are earning profit. It is the philosophy of the company.

SEIPL set up Schneider Electric India Foundation (SEIF) in March 2008 in Bangalore to undertake the social and environmental issues. This foundation was funded by Schneider Electric Corporate Foundation, SEIPL, and the employees of Schneider Electric India. The mission of the foundation is: “To help people change their lives through ‘Access to Energy’.” The key focus areas for CSR initiatives, as chartered in the mission statement of foundation (Schneider Electric India Foundation 2008), are (Fig. 1): • • • •

Education Employment Entrepreneurship Rural electrification

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Conserve My Planet Program Entrepreneurs Development Program Scholarships Entrepreneurs Shortlist

Installation in Villages

Renting Model

Retail Model

Entrepreneurs Follow up

Education Rural Electrification Program

Electrical Training Program 4 months

Employment

Employment Opportunities

Schneider Electric & its Panel Builders & contractors

Other Private entities - Panel builders, Contractors, Hotels, Malls, Companies, and Residential apartments

Fig. 1 Diagrammatic representation of the CSR model and focus areas. Source: Developed by the authors

Focus Areas Education Schneider Electric India undertook a holistic approach to education. The main aspects under this initiative were (A) Electrician Training Program, (B) Scholarships, and (C) Conserve My Planet.

(A) Electrician Training Program SEIPL developed a sustainable program to bring safe and clean electricity to the people who needed it most. It realized that skilled labor is an absolute prerequisite for providing access to electricity. But India lacked suitably trained electricians. To achieve this objective, SEIPL sponsored the education and training of young people from the bottom of the pyramid, in electrical skills. Amitabh Rath, Manager CSR, explains: It is our firm belief that investment in education is an investment for future generation. Therefore this sector has been specifically chosen bus for CSR focus area.

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In early 2009, SEIPL launched the Electrician’s Training Program (ETP) with the objective of developing skilled manpower. Its main aim was to promote safe and reliable electrical installations, develop entrepreneurs in electrical field, and to provide technical training in electricity. This program was in sync with the Schneider’s Business, Innovation, and People at the Base of the Pyramid (BipBop) program. The goal of the ETP was to: • Train 25,000 electricians by 2014. • Promote safe and reliable electric installation. Under this program, 169 training centers were established in 21 Indian states (Tamil Nadu, Karnataka, Orissa, Bihar, Andhra Pradesh, Delhi, Maharashtra, and Meghalaya to name a few), where vocational training in electricity for domestic and commercial buildings was provided to underprivileged young people. The youth, who were industrial training institutes (ITI) qualified, graduates, or 8th to 10, +2 passed, or drop outs, were trained for becoming technicians, entrepreneurs, or electricians, respectively. They were trained for 4 months, which included 3-month theory and practical training and 1-month on-the-job training. They were trained on the latest curriculum and market trends in electrical field such as basics of house wiring, building wiring, electrical safety, handling of tools and instruments, trouble shooting, and monitoring of electrical installations. They were also trained on solar energy solutions, as well as computer and soft skills like customer interaction and English communication. SEIPL was supported in this mission by some partner organizations such as GMR Varalakshmi Foundation, Don Bosco Tech, Aide et Action, and ITI–MC Society of Government Tamil Nadu (Dget 2014). Certification was provided by SEIF and its partners that helped the candidates gain easy recognition. After the completion of the 4-month training, the trainees were assisted by SEIPL to get employed. Some of them were absorbed in Schneider itself, while others were employed in other partner organizations like their dealers and associated panel builders. Further, from this pool of trained electricians, some people were selected and trained to be entrepreneurs in their villages. SEIPL helped them to set up their own businesses. The Entrepreneurial Training Program was offered to unemployed women to empower them as well. SEIPL launched the first all-woman Electrician Training Program in Chennai in partnership with the ITI–IMC Society of Government (Women), the Training and Employment Department of Chennai, Tamil Nadu, women’s self-help groups (SHGs), and several other agencies. SEIPL provided the financial support for this program. The funds were provided to the training centers for the equipment and tools required for the electricians’ training. The trainees enrolled in this program were also provided free monthly bus passes and lunch. It also contributed to the salaries of the technical trainers. By the end of 2014, 163 electrician training centers were opened across 21 states in India, out of which 1 was an exclusive women training center in Chennai. These

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centers have trained more than 23,600 unemployed youth so far. The Electrician Training Program made an impact on the lives of numerous unemployed youth. It provided them not only a regular source of income but also made them responsible members of the society. According to R. Sasikala, a 20-year-old beneficiary of the first batch of the women electrician training at Chennai and placed at SE Chennai Plant, Ambattur: My dream. . . is to establish my own Electrical shop! I am eager to spread this awareness among all underprivileged youth.

(B) Scholarships In 2009, SEIPL launched a novel initiative of providing scholarships to the underprivileged but deserving engineering students. The aim of this initiative was “To help students shape their dreams by providing scholarships to deserving candidates in the field of Engineering.” The second year engineering students were provided with this scholarship for the remaining 3 years of their study. The applications were invited from engineering students who came from financially weak family background and were studying in any of the 16 colleges shortlisted for scholarships by SEIPL. Out of these 16 candidates, 1 student was then selected from each college; 4 applicants were shortlisted and called for personal interview. Out of these four, one deserving applicant was then selected for the scholarship. This scholarship allowed them to concentrate solely on their studies, especially toward their career in the engineering field. So far around INR 27 lakh was distributed as scholarships to 55 students. Hareshwar Unde, VJTI College, Mumbai (India) shares his feelings: This scholarship program has helped me to pursue my higher studies. I received this scholarship for consecutive 3 years. I feel honored for being a part of a World Fortune company like Schneider Electric India.

(C) Conserve My Planet Program SEIPL, as a part of its social charter, deployed a participative educational program called Conserve My Planet for children across India in 2008. This program trained children in the age-group of 10–12 years about making the most of energy by reducing the carbon footprint, controlling greenhouse gas emission, and adopting energy efficiency solutions. It aimed to sensitize them about energy consumption and optimization of resources. The Conserve My Planet Project has been recognized as the “Best Practice” in the year 2009 at the Power Asia-Pacific level for its contribution to Schneider One’s priority of Planet and Society. This program, at the end of 2014, had 264 registered schools across India which had participated in the Conserve My Planet program. In all, 528 Green Teachers had been inducted as

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“Change Makers,” and 17,435 students as “Green Ambassadors” had been enrolled in school campuses.

Employment SEIPL believed in making a difference to the communities around it (Schneider Electric Private Limited 2014). One of the objectives was to contribute fully to building the career of underprivileged youth in rural areas. For nurturing this professional advancement, the SEIPL Foundation engaged in the area of training and employment. The underprivileged rural youth were provided with free opportunity to be trained in electrical curriculum at the Electrician Training Centers being run by SEIPL. After the completion of 4 months of training, these youth were supported in wage employment and self-employment opportunities.

Wage Employment Under this plan the trainees were employed with SEIPL’s manufacturing plants or with their associated panel builders and contractors. Beyond this, they were helped to be employed with other private panel builders, contractors, hotels, and malls, as well as for electrical maintenance in companies and residential apartments.

Self-Employment In this plan, some of the selected trainees were further supported to become entrepreneurs and set up their own businesses in the electrical sector that is they could become local electricians in their own village and run a small electrical shop. Some entrepreneurs were supported by SEIPL to start a business which initially was to rent out and later sell solar products to the villagers. By 2014, more than 11,000 trained electricians got employed.

Entrepreneurship India was facing energy poverty especially in rural areas. For rural residents, energy sources were polluting and expensive. To overcome this, SEIPL wanted to involve local communities and local actors in creating and developing access to reliable, affordable, and clean energy. Therefore, a need for generating local entrepreneurs who could carry forward this mission was felt. According to Sudhir Johri, Most progressive economies lay emphasis on creation of entrepreneurs as they create employment opportunities. India is in dire need of such entrepreneurs therefore we facilitate and harness the entrepreneurial skills of trained youth.

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SEIPL trained candidates were found to be suitable for being the local entrepreneurs. The entrepreneurs were shortlisted and selected from the pool of trained electricians under the Electrician Training Program on the basis of performance and willingness to be self-employed. Such entrepreneurs were supported and followed up by the company at different levels. Other than the basic 4-month training, these entrepreneurs were provided basic training in sales, promotion, after-sales repair services, and accounting and specific trainings on system maintenance, to manage their operations. The Foundation helped in setting up the business initially by providing complementary starting kits to local entrepreneurs free of cost. Entrepreneur’s house/shop was lit up with In-Diya for free (Schneider Electric 2010). To support them further, field sales representatives were appointed for demand creation activities.

Entrepreneur: Battery Charging Station Model In this model, the entrepreneur managed a battery charging station developed by SEIPL. This station was made of two 75 W solar panels, 1 transformer, 10 lamps with LED technology, 20 batteries, and 5 mobile phone adapter. This kit enabled the entrepreneur to rent a lamp and a battery with 10 customers (rentals model). Batteries were rented at INR10 a day, which were delivered by him/her to his/her household and business customers. The business consisted of exchange of discharged batteries, with the charged ones at a predetermined price. The entrepreneurs could increase their income and the number of customers by investing in another full kit which would cost him/her INR 60,000. They also had the opportunity to buy lighting solutions such as lamps, batteries, lanterns, and solar home systems from distributors, which they could sell in their villages and increase their income. Local SEIPL teams maintained a close relationship with entrepreneurs through weekly visits and phone calls. This ensured that everything ran smoothly. Further, the arrangement enabled to solve any technical and commercial issues. By the year 2014 more than 291 trained entrepreneurs were developed. Sandeep K. Sahu, 19 years old, from Bairi Mangtaiya, Lucknow, who trained at DB Tech Lucknow in the Electrician’s Training Program, shares that earlier his family was making INR 3000 a month from the farm produce, but with him being an entrepreneur, they now make approximately INR 4200 per month, of which INR 1200 came from renting of In-Diya LED Lamps and batteries to village customers. Mr. Sahu explains: Now I am seen as someone from the village that got education and has brought impact to the villagers with lights. Now people fondly call me Light aur Battery waala (Light and Battery Man).

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Rural Electrification In India, more than 80 million household do not have access to electricity. People who were connected to a grid often faced scheduled and unscheduled power cuts. This picture was even grimmer in rural areas or remote areas where electric power was either not available or was available only for a few hours in a day (Hande 2010). People who did not have regular access to electricity, therefore, used other methods for lighting. Such households were found to be using other nonrenewable off-grid alternatives including kerosene, candles, biofuels like wood, animal dung, and crop waste for lighting. These traditional lighting alternatives were typically expensive and environmentally harmful. About 39% of households in rural India still use kerosene to meet their lighting requirements. Kerosene lamps generally provide poor quality light; produce greenhouse gas emissions and most importantly, have significant health and safety hazards associated with them. Thus the need for an alternative solution for rural lighting arises. In India around 95,000 villages are still not connected to the power grid. Out of these, approximately 18,000 villages are unlikely to ever have access to the national grid due to their remote location. Around 62 million rural households depend upon kerosene to meet their day-to-day lighting needs. (Economic Times 2011)

Considering this scenario in India, the initiative of rural electrification became one of the focus areas of SEIPL. The objective of rural electrification was to help the poor to have a clean source of light at affordable price and facilitate access to electricity at very remote areas without a grid supply. This electrification strategy, built upon a profitable and responsible vision, led SEIPL to develop In-Diya, a specially designed highly energy-efficient LED-based lighting system that provided lighting to people living with no or unreliable access to electricity. Research and development (R&D) for developing the In-Diya system was done in India only. In-Diya lightening system was officially launched on February 3, 2010, in the Indian markets. It provided a backup ranging from 8 to 5 h for indoor applications. The In-Diya LED-based lighting system was available in nine different variants. The basic model with 45 LEDs was available for INR 550. It was powered by an external chargeable battery, which could be rented from a battery charging station managed by a local entrepreneur. The high-end variant was a 90-LED Solar Home Lighting System which was compatible with the electrical grid and was priced at INR 4500. In-Diya offered multiple benefits—the lamp provided 50,000 h of lighting. People, therefore, no longer needed candles or kerosene lamps and were free from darkness caused by power cuts. It consumed 50% less power than 11 W CFL and 90% less power than two 60 W incandescent lamps for the same lumens. Lamps were wall-mounted and one could illuminate a room of 120 x 120 for all normal activities. Even its high-end version’s costs were less than any CFL-based solar home lighting system. To carry out rural electrification, SEIPL first identified the local partners such as corporations already having rural distribution networks, non-governmental organizations (NGOs) (like Ramakrishna Mission or Gram Vikas), and specially

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trained entrepreneurs for collaboration. The next step was to identify and short list the remote unelectrified villages which were to be electrified. The last step was to provide access to energy to these villages through various Solar Home Lighting Systems. This initiative supported many socioeconomic activities at the village level such as education of school- and college-going children who could now read and write during the night. It also supported income-generating activities like handicrafts, weaving, and selling in the market during late evenings. It improved the quality of life by providing the opportunity of lighting up during festivals, marriages, and late evening/night functions. By the end of 2014, this initiative had installed more than 1168 In-Diya Solar Home Lighting Systems in more than 1909 households in 33 remote villages, having almost 9545 beneficiaries. It illuminated one village public library, a residential Adivasi School, and a crèche in Nasik. One of the beneficiaries of this program, Nisha, the Sarpanch of Badnoli, shares: The village that used to be in total darkness is bright now for the first time our side of the village is lighted. We are no longer scared of going out at night. We are greatly benefitted from the newly and installed solar Lights. Now our children can study during nights.

In 2015 . . . According to Jean-Pascal Tricoire, Chairman and CEO, Schneider Electric, “As the global specialist in energy management, Schneider Electric has a 178-year legacy of innovation, international presence, and corporate responsibility. It is our responsibility and our ambition to save, connect, and share energy and resources more effectively starting today, for a world that generates more growth and jobs, in a much more efficient and sustainable way.” Carrying forward this legacy, the CSR model had been successful so far in India. SEIPL has become an illustrious name and has been awarded many prestigious awards in this field, but presently the sustainability of the model has become questionable. This is what that was worrying Mr. Sudhir Johri. He was facing numerous problems cropping up on various fronts. His concern is how to deal with each of them and maintain the sustainability of CSR initiatives of Schneider. The first problem is of the declining employment rate of the trained electricians. Even though the number of training centers and the trained electricians has been increasing every year, the employment rate of these trained youth has decreased from 93% in 2010 to 68% in 2014. This declining trend is begging for an answer. Second, very few trained electricians want to become entrepreneurs. Most of them want to find jobs in cities instead of settling in their villages. It is observed that many of the entrepreneurs do not invest in a second or a third kit, thus limiting their entrepreneurial drive. This challenge is twofold: firstly, how to encourage more entrepreneurs to participate in this CSR initiative for village welfare and secondly, how to make the entrepreneurship program more attractive and viable. What can be done to support them in the financial aspects is food for thought. Yet another matter

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of concern is that many of the households which had easy accessibility, and had experienced successful usage of LEDs as well, have gone back to using kerosene or firewood burning for household chores. So, the challenge is to make solar In-Diya viable and popular when kerosene is available at subsidized rate in the market and firewood is freely available in nearby jungles. Johri had spent the last 14 years of his professional life at SEIPL. He had held many important and key managerial positions in his stint with the company. But nothing had been closer to his heart than his latest assignment as Director, CSR. He has been most passionate about giving back to the society. He had been earlier successful with the entire CSR program, but is now standing at crossroads. He has no time to waste; he has to decide the way forward. Should he innovate the old CSR model to present conditions or create an entirely new dynamic CSR model, which is sustainable?

References Calica, B. (2012, March 12). Bayanihan the spirit of CSR in the Philippines. CSS Wire. Retrieved March 12, 2018, from http://www.csrwire.com/blog/posts Dget. (2014, June 9). imcs-for-itis. Government of India. Retrieved from March 12, 2018, from http://dget.nic.in/content/innerpage/imcs-for-itis.php Economic Times. (2011, September 14). Renewable energy light output light source. The Economic TImes India. Retrieved February 20, 2015, from www.articles.economictimes.indiatimes.com/ 2011-09-14/news/30154262_1_renewable-energy-light-output-light-source Han, W. W. (2015, July 15). More wealthy Asians turn to philanthropy but on the quiet. The Straits Times. Retrieved July 15, 2017, from http://www.straitstimes.com/business/more-wealthyasians-turn-to-philanthropy-but-on-the-quiet Hande, H. (2010). Can solar bring power to India’s rural poor? Retrieved April 20, 2014, from http://qn.som.yale.edu/content/can-solar-bring-power-india%E2%80%99s-rural-poor Kusalasaya, K. (2013, November 30). Buddhism in Thailand: Its past and its present. Access to Insight. Retrieved March 1, 2014, from http://www.accesstoinsight.org/lib/authors/kusalasaya/ wheel085.html Planet, C. (2015, January 2). Evolution of CSR in India. CSR-Planet. Retrieved December 2, 2016, from http://www.csrplanet.in/blog/evolution-of-csr-in-india-bid-3 PWC Report. (2013). Handbook on corporate social responsibility in India. Retrieved February 20, 2014, from https://www.pwc.in/assets/pdfs/publications/2013/handbook-on-corporate-socialresponsibility-in-india.pdf Schneider Electric. (2010, February 10). Schneider Electric launches In-Diya. Retrieved January 15, 2018, from https://www.schneider-electric.com.eg/en/about-us/press/schneider-electriclaunches-in-diya-a-highly-energy-efficient-led-based-lighting-system.jsp Schneider Electric (2015). History. Retrieved January 1, 2015, from http://www2.schneider-elec tric.com/sites/corporate/en/group/profile/history/schneider-electric-history.pag Schneider Electric India Foundation. (2008). About us. Retrieved April 20, 2009, from www. seifoundation.schneider-electric.com//about-us/vision Schneider Electric Private India Limited India. (2010). About us. Retrieved April 5, 2014, from www.schneider-electric.co.in Schneider Electric Private Limited. (2014). Access to energy for communities. Retrieved January 20, 2018, from http://www.east-med.SchneiderElectric-electric.com Sharma, B. (2013). Contextualising CSR in Asia: Corporate social responsibility in Asian economies. Singapore: Lien Centre for Social Innovation.

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Amandeep Dhaliwal is a Senior Professor at Faculty of Management Studies, Manav Rachna International University, India. Her research interest areas include entrepreneurship, marketing, and IT. She completed her Master’s in Business Administration (MBA) from the Guru Nanak Dev University, India. Currently she is pursuing her doctoral research in the area of women entrepreneurship from BIMTECH, G. Noida. She has been in academics for almost a decade taking up courses related to areas of marketing, IT, and entrepreneurship for management students. Prior to academics, she was working for numerous years with agro-food industry and IT sector specializing in marketing domain. She has published many research papers in national and international journals. Her special interest lies in case study writing, and her case was published at International Case Centre (formerly ECCH). She has won Young Scholars Award for the same. Arunaditya Sahay Professor of Strategic Management and Dean (Research) at Birla Institute of Management Technology, is a voracious reader and writer. Late in his career, switching from industry to academia, he has already published 113 papers including teaching and research cases. He earned his doctoral degree from Technical University Brno (Czechoslovakia). He pursued his Management Studies in PSG College of Technology (University of Madras) and Senior Management program at Henley—the Management College UK and had formal study in legal systems, sustainability, and CSR. He is a visiting faculty in leading management institutions both India and abroad and is presently serving on the boards of industrial organizations as well as academic institutions.

Materialise: Teaching Along the Silk Road Pascal Wolff and Johannes Kern

Case Synopsis Case Summary Lanzhou, Western China, in summer 2016: Tom Yan provides a 3D printing lecture to local children. He is a sales manager at Materialise, a fast-growing Belgian company that is active in the field of additive manufacturing, also known as 3D printing. Materialise already conducted several corporate social responsibility (CSR) projects around the world, but there has been no project in China so far. Inspired by the company’s successful charity history, Tom initiated the Silk Road project, the company’s first CSR initiative in China. The project aims to boost innovation and to support the development in China’s rural Western areas. This objective should be realized by introducing 3D printing technology to children from different elementary schools in China’s underdeveloped countryside. The lectures are given by volunteers from Materialise in the so-called Dream Bus, a truck equipped to serve as a mobile classroom. Against the backdrop of history and future market potential of additive manufacturing, the planning and preparation phase of the Silk Road project is outlined. Special emphasis is put on idea generation as well as the main challenges Tom was facing during the realization of his CSR project. Furthermore, the case sketches substantial questions fast-growing for-profit companies like Materialise must address in order to further improve the management of their CSR activities. P. Wolff Tongji University School of Economics and Management, Shanghai, China e-mail: [email protected] J. Kern (*) Technische Universitaet Darmstadt, Darmstadt, Germany e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_15

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Learning Objectives Introduce the students to a debate if and how organizations should conduct CSR projects. Show the need to reflect advantages and disadvantages of collaborating with external organizations in CSR projects. Stimulate a discussion on what a CSR management process in a global organization could look like. Illustrate the history and future market potential of additive manufacturing.

Themes and Tools Used • • • •

Additive manufacturing Corporate social responsibility in China Project management Informal networks

Target Audience The case is suitable for graduate students, who have already been exposed to the essentials of corporate social responsibility. It is recommended that the students have already been taught the basics of project management as well as the essentials of international management and marketing.

Questions • For which reasons should a company conduct CSR projects? • Should CSR initiatives be conducted alone or with partners? What are the pros and cons? • How should Materialise select future CSR projects out of the growing pool of suggestions? • What are the KPIs to measure the success of CSR projects? • Define a CSR management process for Materialise including the steps for planning, doing, and controlling. Who should be responsible for each step? Who should approve, support, be informed, and be consulted? • Should Materialise set up a centralized team in the headquarters close to the CEO? Why? Why not?

Introduction Lanzhou, Western China, in summer 2016: Almost 50 pupils of the local elementary school listened intently as Tom described the foundations of 3D printing technology—something completely new to them. Then the practical part started. The

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14-year-old children enthusiastically took the prepared tablet computers to start designing their own 3D models. “I am always impressed by how creative these kids are. Think about it, we are here in a small city in Gansu province, over 1000 km away from the Tier 1 cities Shanghai or Beijing, with limited Internet access where the pupils probably have never heard of countries like Belgium. With our project, we really help them to open their eyes. It is their first time to design something,” explained Tom Yan, sales manager of Materialise in China and the initiator of the Silk Road project. It was in 2015 when Tom started to develop the idea for the Silk Road initiative. He wanted to boost innovation and to support the regional development in China’s underdeveloped Western part with a CSR project. With the so-called Dream Bus, a bus fully equipped with desks, chairs, projectors, and desktop 3D printers, volunteer teachers visited almost 20 cities to give lectures on 3D printing and other subjects to local children. Seeing the results of the hard work on that day put a big smile on Tom’s face. After only 15 min, newly constructed models of flying Transformers, houses with artistic roofs, and knights with powerful swords were ready to be 3D printed. Nevertheless, he would not forget his efforts and the challenges he had to tackle to see the sparkling in these children’s eyes.

Background Additive Manufacturing Picture this situation. Your cousin’s wedding is tomorrow, and you select the outfit for that day. You select your most elegant dress shirt from the cabinet, which you only use for such special occasions just to realize that a button is missing. Or you choose the earrings from your old family jewelry and see that the backing is lost. What does one do in such an irritating situation? Change your stellar outfit? And buying replacements is time-consuming, troublesome, and sometimes even impossible. Now picture the same situation, but this time you possess a technology with which you can create a matching button or backing on your own. Easy, fast, and at low costs. Indeed, this technology is already available, additive manufacturing, also referred to as 3D printing, a technology with the potential to become the most disruptive one in the twenty-first century. Although it sounds like a very recent invention, its history already dates back to 1984 when Charles Hull developed a process for printing tangible 3D objects from digital data. This technology was originally designated purely for prototyping and made it possible to test a design before investing in a larger manufacturing program (Deloitte 2014). Today additive manufacturing can be applied for many more purposes, not least because a vast number of materials like different types of plastics, glass, metals, ceramics, paper, wood, and even living cells are now available for printing. Prototyping is still one of its main applications, but the technology has been increasingly used for other purposes such as healthcare and tooling and small series production in many

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different industries ranging from automobiles to aerospace and consumer goods (Bromberger and Kelly 2017). The trend is toward using additive manufacturing also for final products, e.g., 3D printed glasses. Companies like Mykita and Protos Eyewear use the technology to create custom-made eyewear frames. By using 3D printing, they can produce frames with nearly unlimited design possibilities, perfectly fitting an individual’s head shape. And there are many more 3D printed products like shoes, jewelry, or pens already available. The technology has even proven to be applicable in the healthcare sector, for example, to 3D print skin for burn victims (Hendricks 2016). No wonder that with such a wide spectrum of application possibilities the additive manufacturing sector is predicted to grow much further in the future. Besides cost reductions to access the technology, the mentioned increased number of 3D printing applications has been one of the main drivers of the 3D printing industry’s rapid growth in the past years. According to a 2017 report by Wohlers Associates, the worldwide 3D printing market grew to a total of US$6 billion in 2016 (Wong 2017). With a CAGR of more than 20% over the last three decades, the development of the worldwide 3D printing industry looks extremely promising. Even though all industry experts agree that the 3D printing market will continue to grow strongly in the future, there is no consensus regarding the actual growth potential. As the technology is still developing, the search for new applications is still ongoing, and it is not clear when the technology will penetrate different sectors; estimates for the future value vary widely. While, e.g., Lux Research forecasts the market volume in 2025 at US$12 billion, McKinsey estimates it at US$180–490 billion (Keeney 2016). China’s role in the industry is another important factor, which will heavily impact the 3D printing industry’s future development. Although China was a slow adopter of 3D printing technology, it caught up rapidly, not least as it is currently moving from a model of “made in China” to one of “innovated in China.” The Chinese 3D printing market has doubled every year since 2011 and was expected to reach US$1.5 billion in 2016 (Grunewald 2015). With the growing interest of the Chinese government in 3D printing technology, this development will most likely continue. China’s Premier, Li Keqiang, highlighted the importance of 3D printing for the country’s future development in a speech to the State Council in 2015. He considered it as a crucial part to further modernize the Chinese economy (Chen 2015). And indeed, China has put lots of funding and effort to further push the development of the technology. For instance, Chinese state authorities kicked off a project worth US$300 million focused on the development of 3D printers, equipment, and new 3D printing applications in 2015 (Kira 2015). But China’s effort is not only focused on further developing the technology but also on educating the next-generation workforce in 3D printing.

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Materialise Wilfried “Fried” Vancraen already recognized the huge potential of additive manufacturing when the technology was still in its infancy. It was in 1989, when he visited a research facility in Bremen, Germany, and saw one of the first 3D printers set up and running in Europe. At that time, Wilfried was working as a research engineer and consultant at the Research Institute of the Belgian Metalworking Industry. For the entire drive back to his home in Leuven, Belgium, his mind was racing with the applications that could one day be made possible with what this new approach for manufacturing had to offer. A process adding material in layers, totally different from the commonly used subtractive process cutting material away from a solid block. Although he saw the potential, it was difficult to find suitable partners to exploit it commercially. The research institute he was working for decided not to invest in a for-profit venture. So Wilfried approached other potential partners, such as Alcatel, Agfa, Philips, or Samsonite. But none of them was interested in investing into 3D printing technology. Hence, Wilfried decided to start his own company, Materialise, specialized in additive manufacturing (Weverbergh 2013). Materialise opened its doors in July 1990, and Wilfried cleaned out his savings to buy the first 3D printer in Benelux: “Every last penny went into it. The day we deposited the money, my wife literally couldn’t buy bread. Immediately, we borrowed 250,000 EUR from a bank to buy a machine” (Weverbergh 2013). Still Materialise could not just start printing 3D objects right away. First, it needed to develop (better) software to be able to effectively feed and run the 3D printer. Second, it had to develop meaningful applications for 3D printing to keep the machine printing. So, the company worked continuously in both areas over the years. Gradually, Materialise released different software solutions with increased functionality for a professional 3D printing process and started making components in collaboration with manufacturers from the healthcare, automotive, aerospace, and consumer goods industry. Nowadays, Materialise is known for its breakthroughs in medical and industrial applications of additive manufacturing for more than 25 years, and Wilfried received various awards including the 2011 SME Industry Achievement Award (Society of Manufacturing Engineers 2018). By the end of 2016, Materialise employed roughly 1.43k associates worldwide, owned 150 3D printers, and generated sales of 114.5 million euros. Materialise’s operations can be divided into three business segments: software, medical, and manufacturing (Materialise 2018a). Figure 1 gives the revenue per business segment from 2012 to 2016. Materialise has been present in China since 2005, when it started with a small office in Shanghai. Through its close cooperation with the Chinese government and businesses, it supported and shaped the development of China’s 3D printing industry. When the initial setup did not meet the requirements for office space and legal structure anymore, in 2014, Materialise registered a limited company in China and opened a new office. Since its opening, the China office has developed faster than the company average—a success in the competitive and specific market, where the rate of unlicensed software is still as high as 70% (BSA 2016).

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41.4 20.5

27.2

25.1

28.0

11.2

13.4

2012

2013 Software

46.4

33.2 30.0 18.1 2014 Medical

34.9

37.9

25.8

30.1

2015

2016

Manufacturing

Fig. 1 Materialise revenue (in million euros). Source: Adapted from Materialise (2018a)

All throughout the journey to develop Materialise into a major player in the 3D printing industry, it has always been a key concern of Wilfried to create a better world driven by innovation. “Our mission is to innovate product development that results in a better and healthier world, through our software and hardware infrastructure, and an in-depth knowledge of Additive Manufacturing” (Materialise NV 2017). Until today, this mission statement has remained the same, and Materialise has strived to change people’s life for the better through innovations (Materialise 2018a). Materialise in general and Wilfried in particular consistently demonstrated social commitment by initiating various CSR projects. African Drive, which he started together with a group of Belgium entrepreneurs in 2013, is one example. This initiative aims to improve the substandard infrastructure in Benin, Africa, by providing a secure and low-cost transportation service between different cities. The Benin Summer School is another example. The idea of this program together with the Hubi & Vinciane Foundation is to provide access to higher education to excellent students in Benin. Initiated in 2012, selected students who proved themselves during a month-long summer school program receive scholarships that enable them to pursue further education.

Silk Road Project: A Long Way to Turn a Vision into Reality Tom wanted to build on the history of Materialise’s successful CSR projects in other countries by also implementing something in China. Especially the big discrepancy between the development in the Western and Eastern regions in China was a concern for him. Over the past 30 years, China developed rapidly from one of the poorest countries to the second largest economy in the world (Yueh 2015). Yet, the economic growth was mainly concentrated in the megacities along the Eastern coastline like Shanghai, Beijing, or Guangzhou where a vast number of domestic and international companies settled down. As a result, a big wealth gap between China’s rich urban East and the poor rural West developed. While people in the East enjoyed high living standards and great conveniences, including good housing conditions and access to well-paid jobs as well as high-quality education and healthcare, people in

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the West often lagged behind. This has led to over 270 million migrant workers from rural provinces that moved to the East in the hope for a better life. The Chinese household registration system (“hukou”) ensures that only registered residents of an area can access public services such as city schools or hospitals. As a result, around 60 million Chinese children are left behind by their migrant parents. Thirty-two million children grow up with a single parent, 27 million children live with their grandparents or other relatives, and 2 million children live alone. Seventy-five percent of these home-staying children see their parents only once a year, and many of them grow up in poverty without access to good education (McKenzie and Dong 2016). However, the role of education in poverty eradication is crucial. Educating the children and developing their minds can dramatically improve their chances for a brighter future. Tom knew the importance of education and wanted to contribute. His CSR initiative should encourage children in China’s rural areas to express their ideas and equip them with an innovative spirit. 3D printing seemed to be the ideal tool for that. There was a time where the living conditions in Western China were drastically different. Back during the time of the flourishing ancient Silk Road, an immense land and sea network used for trading silk and other goods between China and the rest of Eurasia, China’s West was hallmarked by economic vitality and a rich culture (UNESCO, n.d.). The ancient Silk Road which dates to the second century BC is regarded as the origin of commercial relations between China and the Western world. Starting in Xi’an, Shaanxi province, it connected China with the Middle East and even the Roman Empire for centuries. Due to the fragmentation of the Mongol Empire in the thirteenth century, the overland trade between China and Europe diminished, and the silk route decayed (PwC Growth Markets Centre 2017). With the Belt and Road Initiative, a development strategy proposed by the Chinese government in 2013, new media attention is shed on the ancient Silk Road again. Also known as the One Belt One Road Initiative, the Chinese government plans to invest a vast amount of money to rebuild both the One Belt, a land network connecting Europe and China via Central Asia, and the One Road, a sea network connecting China with Southeast Asia, South Asia, the Middle East, and Eastern Africa (PwC Growth Markets Centre 2017). Tom was also inspired by this initiative for his project. “The Chinese government is promoting the Belt and Road Initiative, that includes the under-developed Western part of China. Everybody is talking about the program. Including the old Silk Road into the CSR project just felt right and even provided a name for our initiative: Silk Road project,” he remembered. And so, the idea to tour along the ancient Silk Road to teach local children in 3D printing was developed. A bus equipped with all necessities to serve as a mobile classroom should be used for the long road trip. There, local children from different elementary schools could be taught about 3D printing and be supported in designing and printing own 3D models. The itinerary included stops in 16 cities in 6 provinces and started, just like the ancient Silk Road, in Xi’an (Fig. 2). Tom created a project proposal together with a resource plan. Amounting to more than 0.5 million euros, the biggest share was required for the bus and 3D printers

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Fig. 2 Route of the Silk Road project. Source: Materialise (2018b)

together with printing material. Costs for teaching staff and their travel expenses were not yet included. These budget requirements were already a challenge; however, more critical was that Materialise did not have any contacts to schools in Western China. Whom should it teach 3D printing to? Tom was stuck for an answer and highlighted it as a key challenge. Upon completion, the proposal was presented to Materialise’s top management in China and Belgium. They liked the idea and were enthusiastic about Tom’s dedication. Kim François, General Manager at Materialise, China, explained that it fits very well into the company’s global philosophy and especially in China Materialise’s dream is to broaden the perspective of the future for children in remote areas through technology and innovation (Francois 2016). Everybody was convinced that young children in China’s rural areas would really benefit from the project, and Tom knew that he could count on their support. However, the top management also expressed concerns about the missing contacts to schools and the lack of competence and experience in education—risk factors which could endanger the project success. So how could they be ensured that this important yet costly CSR activity would make the desired impact? After several failed attempts to find a solution inside Materialise, Tom started to realize that the CSR project could not be executed without suitable external partners that could provide contacts to schools, experience in education, and support financing. The top management encouraged these thoughts, not least because they resonated with Materialise’s core values “partnership” and “collaboration.” Without organizations which could support the project, Tom was afraid that the CSR initiative would not be implemented at all. His time, energy, and thoughts spent so far would have been of no earthly use. Thus, he started to deal with his biggest concern—not having any contacts to schools. Tom remembered that one of his private contacts was a volunteer at Adream Foundation, an organization specialized in education. The Adream Foundation, a nonprofit organization founded in 2008, supports more than three million students and teachers in over 2000 schools. It

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focuses on educating children in both urban and rural areas and equipping them with innovative and independent thinking. For this purpose, it makes use of pioneering and interactive teaching methods, which it develops on its own. Aside from a special curriculum which integrates into schools’ own curricula, Adream also offers classrooms designed to facilitate children’s education, training programs to help teachers develop their skills, and an online support platform for teachers (Adream Charitable Foundation Limited 2016). Due to their experience and network in education, Adream seemed to be a suitable partner for the Silk Road project. Tom contacted the Adream Foundation and pitched his project idea in a face-to-face meeting. It turned out to be a lucky strike. Not only that their vision and objectives matched perfectly. Adream did not hesitate to support the Silk Road project with the required school contacts. Moreover, it offered to chip in additional lectures and its expertise. The best news was that the foundation already owned a specially equipped bus that has been used as a mobile classroom in prior initiatives. That was much more than Tom could have ever dreamed of. With this partner on board, he had overcome the biggest challenge. Yet, he still faced two more obstacles, getting desktop 3D printer and teachers for the planned 3D printing classes, an area Adream had no experience with. As the 3D printers Materialise used in their daily operation were industrial grade machines, too heavy, too expensive, and too complex for educational purposes, different printers would be needed for the Silk Road project. Due to the limited resources, external support was needed once again, a partner, which could provide adequate 3D printers without straining the budget. Tom was confident to find a suitable partner for the project—like he already did once before. TEACH, one of Materialise’s Chinese customers focusing on the usage of 3D printers for educational purposes, instantly came to his mind. It is an “Innovation Academy” which was jointly established in 2015 by the Innovation Center of Zhejiang University and Hangzhou Mingzhan Network Technology. Its focus lies on creative education about 3D printing in China, where it has educated young talents through a complete 3D printing innovation education ecosystem. TEACH combines its training curriculum together with a special training software and an integrated hardware system, including 3D printers and 3D scanners. The students can interact with each other on an online platform called I love 3D where they exchange ideas or teaching materials and share their project work. Teachers can also use the platform to offer online training courses or correct coursework (TEACH 2017). TEACH seemed to be an ideal technical partner for the project. Thanks to the excellent business relationship between both organizations, Tom only needed a few calls to get the commitment from TEACH. They were gladly supporting his project and would organize the required 3D desktop printers to equip the bus. Tom managed to acquire the external partners that supported the Silk Road project mainly due to his comprehensive number of personal and business contacts. Imagine how time-consuming the identification of potential partners would have been without these ties! Especially in China, personal informal networks are the building blocks of business networks. Hardly any business deal is made without the help of both personal informal connections and the ubiquitous business networks

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(Hendrischke 2007). No wonder an old Chinese saying goes “Who you know is more important than what you know” (Yeung and Tung 1996). Tom’s last major challenge was to organize teachers that would give the 3D printing classes. He counted on the support from his colleagues at Materialise and hoped to convince them to volunteer as teachers. The headquarters backed the idea to involve associates who could join the road trip at single stops and give lectures to the local children. It was in accordance with Materialise’s settled conviction that such CSR initiatives need employee involvement and support. However, one requirement was that in order to demonstrate their sincere interest in the project, volunteers had to take at least 50% of the teaching time as holiday, while the other 50% and the travelling time would be fully accounted as working time. The headquarters also supported by providing the travel budget and funding for the volunteer’s clothing. However, as Tom’s colleagues were very busy, he initially struggled to convince them to volunteer as teachers. On the other side, he also understood them: “people need to take their holiday to go to a small city in the middle of nowhere and teach children atop of their normal work. That doesn’t sound very attractive in the first place.” Therefore, in the beginning he was almost the only volunteer and had to join the tour for several stops. But when he started sharing his stories about the successful 3D printing classes and what amazing impressions he got, more and more helpers joined. After a while, there were more volunteers than needed, and the selection who could go to one of Silk Road stops had to be made by lottery. His colleagues’ strong involvement was a base to ensure that the project could be further carried out. As there was no dedicated project manager, Tom took over this task next to his busy schedule as sales manager for the whole of China. During the peak phase of the project, he did not know anymore how to balance his time. It became a big challenge not only for him but also for his family. As all internal and external stakeholders had their own focus and own views, intense communication with all involved parties was required to align them at best.

CSR Management at Materialise: Big Challenges Ahead After 2 busy days teaching along the Silk Road, Tom sat in a taxi on the way to the Lanzhou Zhongchuan Airport, his head full of new impressions. The children had followed Tom’s 3D printing lectures with keen interest, and seeing their bright smiles after they finished their 3D designs was a priceless experience! No matter how big the effort had been to plan and manage the project, it was time well spent. For him the project was a great success and he felt a little bit proud. Nevertheless, he also asked himself what would come next. Just a few days ago, Materialise’s top management announced a Silk Road project remake for 2017, and Tom was reflecting on his role in the project. Should he offer to lead it again? He struggled with the decision. Preparing and executing the remake would take a lot of time and strength again. Time, he could spend with his family, which got the short end of the stick lately. However, what would happen if he decided to back out of the project? Which Materialise colleague could manage it instead? And how would Adream and

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TEACH, which trusted into the relationship with Tom, react? The taxi stopped at the airport, and an exhausted Tom walked to the trunk to get his luggage, sighing. It was time for him to fly back to Shanghai, back to his normal life, and back to a calendar packed with crucial customer meetings. While Tom was on his way to the check-in counter at the other end of the world, the Materialise top management just started a meeting at the headquarters in Belgium, halfway around the globe, to discuss how to manage and coordinate Materialise’s future CSR activities. So far, it had been a rather informal approach. Associates from offices around the world could raise ideas, and the top management in Belgium decided which ones to execute. This approach worked quite well in the past. But due to the vast growth of the company and an increasing number of CSR activities as well as new suggestions from all over the globe, the top management had to rethink the way of managing them. Perhaps it was time to establish a more formal process for planning, executing, and controlling the activities to make the most out of the limited CSR budget. Yet, what could such a management process look like? How could a decision be made in favor of one CSR activity compared to another? And how should the selected activities be managed and coordinated afterward? Who should be in charge and involved in the idea generation, development of project proposals, and selection and realization of CSR projects? Should Materialise set up a centralized team to bundle know-how and align the activities closely with the company’s strategy, or would that reduce chances to develop innovative, locally tailored projects and find most suitable cooperation partners in the regions? Open questions and issues the company must address in the future.

References Adream Charitable Foundation Limited. (2016). About us. Accessed October 18, 2018, http://www. adream.org/en/about-us Bromberger, J., & Kelly, R. (2017). Additive manufacturing: A long-term game changer for manufacturers. Accessed October 18, 2018, from https://www.mckinsey.com/businessfunctions/operations/our-insights/additive-manufacturing-a-long-term-game-changer-formanufacturers BSA. (2016). BSA global software survey 2016: Seizing opportunity through license compliance. Accessed October 18, 2018, from https://www.bsa.org/~/media/Files/StudiesDownload/BSA_ GSS_US.pdf Chen, T. (2015). 3D printing can help modernise China’s economy: Premier Li Keqiang. Accessed October 18, 2018, from https://www.scmp.com/tech/innovation/article/1852059/3d-printingcan-help-modernise-chinas-economy-premier-li-keqiang Deloitte. (2014). Disruptive manufacturing: The effects of 3D printing. Accessed October 18, 2018, from https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/insights-and-issues/ca-eninsights-issues-disruptive-manufacturing.pdf Francois, K. (2016). The Dream Bus visits Huangzhong: A personal account. Accessed October 18, 2018, https://www.materialise.com/en/blog/dream-bus-visits-huangzhong-a-personal-account Grunewald, S. J. (2015). Will 3D printing be the future of China? Accessed October 18, 2018, from https://3dprint.com/109668/3d-printing-future-of-china/ Hendricks, D. (2016). 3D printing is already changing health care. Accessed October 18, 2018, from https://hbr.org/2016/03/3d-printing-is-already-changing-health-care

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Hendrischke, H. J. (2007). Networks as business networks. In B. Krug & H. J. Hendrischke (Eds.), The Chinese economy in the 21st century: Enterprise and business behaviour (pp. 202–222). Cheltenham: Elgar. Keeney, T. (2016). 3D printing market: Analysts Are underestimating the future. Accessed November 2, 2018, from https://ark-invest.com/research/3d-printing-market Kira. (2015). China to invest $313 million in 3D Printing R&D. Accessed October 18, 2018, from https://www.3ders.org/articles/20151118-china-to-invest-300-million-in-3d-printing-rd.html Materialise. (2018a). Mission. Accessed October 18, 2018, from https://www.materialise.com/en/ about-materialise/mission Materialise. (2018b). Social responsibility. Accessed October 18, 2018, from https://www.material ise.com/en/about-materialise/social-responsibility Materialise NV. (2017). Events & presentations. Accessed October 25, 2017, from http://investors. materialise.com/phoenix.zhtml?c¼253045&p¼irol-calendar McKenzie, D., & Dong, S. (2016). China to migrant workers: Take your kids with you. Accessed 18 October 2018, from https://edition.cnn.com/2016/02/16/asia/china-migrant-children/index. html PwC Growth Markets Centre. (2017). Repaving the ancient Silk Routes. Accessed October 18, 2018, from https://www.pwc.com/gx/en/growth-markets-centre/assets/pdf/pwc-gmc-repavingthe-ancient-silk-routes-web-full.pdf Society of Manufacturing Engineers (SME). (2018). Industry achievement award winners. Accessed October 18, 2018, from http://www.sme.org/industry-recipients/ TEACH. (2017). About the school of innovation. Accessed October 25, 2017, from http://www.xteach.com/static/lp/about.html UNESCO. (n.d.). About the Silk Road. Accessed October 18, 2018, from https://en.unesco.org/ silkroad/about-silk-road Weverbergh, R. (2013). How was it to start a 3D printing startup in 1989 (!)? This entrepreneur did that. Accessed October 18, 2018, from http://www.whiteboardmag.com/3d-printing-entrepre neur-materialise/ Wong, K. (2017). Wohlers 2017 report on 3D printing industry points to softened growth. Accessed October 18, 2018, from http://old.rapidreadytech.com/2017/04/wohlers-2017-report-on-3dprinting-industry-points-to-softened-growth/ Yeung, I. Y.M., & Tung, R. L. (1996). Achieving business success in Confucian societies: The importance of guanxi (connections). Organizational Dynamics, 25, 54–65. https://doi.org/10. 1016/S0090-2616(96)90025-X Yueh, L. (2015). China’s growth: A brief history. Accessed October 18, 2018, from https://hbr.org/ 2015/12/chinas-growth-a-brief-history Pascal Wolff is a Research Associate at the Bosch-Chair of Global Supply Chain Management at Tongji University, China. He is a double-degree PhD candidate in Management Science and Engineering at the Department of Law and Economics of Technische Universität Darmstadt, Germany, and at the School of Economics and Management of Tongji University. Pascal’s research interests encompass various topics in the fields of supply chain management and international management. Current focal points include the investigation of psychological aspects in supply chain risk management, the development of decision support models and methods for supply chain operations, and internationalization strategies of multinational enterprises (MNEs). He teaches MBA and Master students from around the world in Supply Chain Management and Strategic Sourcing. Pascal holds a MSc in Business Management and Engineering from Technische Universität Kaiserslautern, Germany.

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Johannes Kern is a Senior Research Associate at the Bosch-Chair of Global Supply Chain Management at Tongji University, China. He is a PhD candidate at TU Darmstadt, Germany, where his research focuses on Purchasing and Supply Chain Management, particularly on buyersupplier relationships. Johannes teaches MBA and Master students from around the world in Strategic Purchasing, Logistics Systems, and International Management. Previously he worked in various functions in Purchasing and Logistics at the Bosch Group in Asia Pacific. Here he led teams in China and Korea and conducted strategic projects in China, Korea, Thailand, Malaysia, Japan, and India. Johannes holds a MSc in European Management from Ludwig Maximilian University of Munich, Germany; a MSc in Management (Programme Grande Ecole) from emlyon business school, France; and a MSc in International Business from Aston University, UK.

Part V Coaching in Asia

Guidance vs. Facilitation: A Critical Juncture for Coaching Services Ralph Kattenbach and Mila Dorosh

Case Synopsis Research Problem The coaching concept relies on the idea to help coachees defining their challenges and finding their own answers and solutions to them. However, many company representatives and coachees who are not familiar with the concept do expect something different.

Case Summary Kelly, a business coach from Hong Kong, struggles to find the right approach for her new assignment. While her coaching philosophy emphasizes a facilitating style of appreciative inquiry to help coachees find their own solutions, her new client insists upon asking for her advice and opinion. This is more appropriate for consulting or mentoring and involves different inputs from the coach than she normally provides. Should she stick to her coaching philosophy at the risk of losing the whole assignment or give in to this request, abandoning her coaching beliefs? More importantly, another coaching principle states that coaching should be tailored to the individual needs to meet the people where they are. Caught in this dilemma, Kelly discusses the matter with friends and colleagues in review. R. Kattenbach (*) School of Economics and Management, Tongji University, Shanghai, China e-mail: [email protected] M. Dorosh BLV Coaching, Shanghai, China e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_16

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Learning Objectives The reader gets a deep understanding of a constituting characteristic of business coaching. Coaching as a tool for personal development is clearly distinguished from other training and consulting formats by its facilitating nature. Nevertheless, the degree of facilitation and the acceptance of a guiding style have become a subject of discussion. Thus, the reader not only gets a grip on the coaching concept but also obtains a differentiated view on how to implement it in practice.

Themes and Tools Used • • • •

Business coaching Coaching beliefs and expectations Facilitation versus guidance Cultural impact on coaching style

Target Audience The case is suitable for graduate students who are interested in special tools of human resource development. Basic understanding and knowledge of adult education is recommended. The case can also be used to stimulate discussions among coaches in training.

Questions • • • •

How much guidance is acceptable for a coaching assignment? Which criteria may influence the degree of guidance in a coaching assignment? What impact does culture have on the “right” coaching style? Is there an Asian approach to the coaching concept? And what is public perception like?

Introduction Kelly Chan, a professional coach based in Hong Kong, was on her way back from the initial coaching session of a new assignment. This assignment was of great importance to her as multiple follow-up coaching assignments within the same company were pending on feedback and evaluation from this first meeting between her and the client company. Her coachee, David, was a senior manager of an Australian company in the finance sector. He was born and raised in Hong Kong and had an international business degree and vast experience in the financial sector in Asia. Nevertheless, he was struggling with developing a successor for his position.

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David’s CEO and HR VP strongly recommended he try coaching when they realized that David, who was highly regarded in the company for his expertise, was having a hard time developing his team talent to the level necessary for his eventual replacement. David had never tried coaching before as he could not imagine what value “just talking” could possibly have.

The Coaching Concept In the public mind, there is much confusion surrounding the term and content of coaching. In essence, coaching is “the art of facilitating the performance, learning and development” (Downey 2003, p. 21). Coaching aims to help the coachees find their own answers and solutions. Therefore, the coach should exercise restraint and hold back his or her own opinions. The coach is not hired to provide content-related expertise and guidance but to act as a “sounding board” and to facilitate goal development as well as suitable approaches to meet the said goals. Despite this significant difference, the coaching concept is often mixed up with training or mentoring services which are built on the service provider’s expertise and guidance. Coaching is a customized process that focuses on the coachee’s individual needs. Creating a trusting and safe environment for the coachee represents one of the core characteristics of coaching. The coachees should feel safe and encouraged to reflect on personal matters they deem important. Moreover, coaches have to keep the coachee’s personality in mind. While extroverts often have to be led to a more intense introspection and reflection, introverts may need an extra nudge to reveal their ideas. Coaching is about respect and acknowledgment; the good coach focuses on the coachee’s development and shows genuine motivation. Successful coaches are capable of building trusting relationships. They have command of strong communication skills like powerful questioning, deep listening, reflecting, and intuiting. Typical communication techniques include visualization, role-play, and the identification of so-called action points to engage the coachee in implementing and practicing new cognitions or behavior patterns.

Coaching Industry in Asia The coaching industry in Asia is relatively new. Coaching assignments in the 1990s and 2000s were mostly executed through MNCs and their coach networks based in other regions, with a few coaches and coaching firms establishing themselves in Asia. The industry is experiencing tremendous growth, and the word “coach” has become very fashionable, making it difficult to define the exact number of professional coaches that are based in Asia at the moment. The International Coaching Federation (ICF), “the main accrediting and credentialing body for both training programs and coaches” (Tugend 2015), estimates around 3700 coach practitioners in Asia (compared to 17,500 in North America and 18,800 in Western Europe) with

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total revenue from coaching in Asia comprising still less than 5% from the global share (International Coach Federation 2016). Yet the Asian market has an evergrowing share. Another coaching study, the Asian Coaching Benchmark Survey (Arora et al. 2017) shows a trend for localization. Although international organizations remain the number one type of client for external coaches in Hong Kong, 49% of coaches in Hong Kong are working with local coachees. Major coaching topics are leadership and personal development closely followed by career/transition, communication skills, and performance.

Guidance vs. Facilitation In the rapidly growing coaching market without standardized principles, professional training, or protected occupational titles, the certification by an international accreditation body had become a reliable quality criterion for many companies. According to the Asian Coaching Benchmark Survey (Arora et al. 2017), the majority of hiring companies uses accreditation and credential level as selection criteria. Another finding from the same coaching report reveals that companies buying coaching services have expectations that are contradictory to what coaching actually is according to the international accreditation bodies. A closer look at the report will clarify this phenomenon. The report, conducted in China, Hong Kong, and India, included a survey of coaching beliefs and expectations among the 554 participating coaches and company representatives. More specifically, they indicated if they agreed with various statements about the nature of coaching (Fig. 1). Some of the statements were related to coaching as facilitation (e.g., focus on facilitating selfhelp or challenging the coachee through learning goals), and others referred to coaching as guidance (e.g., acting as a role model or providing expertise, diagnosis, Participants who agree with the statements about coaching beliefs (in %) focus on facilitating self-help emphasis on assessment of coaching needs

Facilitation challenging through numerous learning goals facilitating resources for goal achievements acting as a role model focus on setbacks & reasons

Guidance

providing expertise, diagnosis & recommendations providing advice & guidance

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Fig. 1 Coaching beliefs and expectations. Source: Own illustration

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and recommendations). The responses support the assumption of two underlying factors, facilitation and guidance. While most of the people (86%) agreed on the facilitating nature of coaching, there was a surprisingly high amount of respondents, who also see a guiding role for coaches. For example, more than 30% of all respondents agreed that coaches should provide expertise and recommendations. What exactly does this mean? Although coaching as a facilitating process seems to be well understood, for a considerable group of participants, coaching should include elements of guidance as well. This does not mean that guidance diminishes the facilitating nature of coaching; both characteristics can occur independently from each other. However, for the “purists” of coaching, elements of guidance negatively affect the nature and outcomes of the whole process. Taking advice from another person, for instance, implies recognition of her competence and expertise, which in turn may increase her status toward the coachee. For the facilitation process, on the contrary, interaction as equals is preferred. Apart from the implications within the coaching process, a situation where two different approaches to coaching coexist in the market leads to a perception gap of what coaching is, or, to be more precise, what it is not. Most striking is the fact that the perception gap runs along occupational groups. Company representatives tend to expect guidance in coaching, while professional coaches do not. That draws the conclusion that market expectation from coaching is different from what coaches are trained to offer by Western certification coaching associations like ICF. The second finding refers to the impact of certifying bodies. Coaches without any credentials showed significantly stronger beliefs in the guiding nature of coaching than coaches with credentials. Furthermore, ICF accreditation is directly linked with a purely facilitative approach. ICF-certified coaches show a strong rejection of any guidance within coaching in comparison to those with other credentials. It is interesting to compare that tendency with the growing importance of credentials for companies within their coaching selection process (Fig. 2). Credentials turned out to be the second most important criterion for the companies when choosing a coach, surpassed only by coaching experience. It seems that the companies might not differentiate between guidance and facilitation in coaching, but they hire coaches who do! The Australian company also hired Kelly based on her experienced credential level. Certified by the ICF and with more than 1000 h of coaching experience, she was among the most experienced coaches in HK. However, being affiliated with the ICF means a strong commitment to a pure facilitating coaching style and to avoid any form of guidance and teaching in the coaching assignments. Now after her first coaching session with David, Kelly realized that it was not coaching that her coachee expected from her. The session started with David asking Kelly to share successful cases of her coaching, focusing on what her coachees gained from the sessions, and asking for more details about coachees in the financial sector. Kelly briefly shared a few general examples and then masterfully switched the focus onto David’s goal and what he wanted to achieve. He mentioned the CEO’s request to develop a successor and expressed his concern on the topic since he did

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Coaching experience Certification / Credential Coaching style Seniority Business related experience Personality Cultural origin Gender

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Average importance from 1 "not all" to 5 "very much"

Fig. 2 Selection criteria for hiring external coaches. Source: Own illustration

not see anyone in his team who could possibly be adequate for that role. After reminiscing about market competitiveness and that he had lost his best people to a rival firm, he asked for Kelly’s advice on what the best practice was to solve that issue in other companies she had worked with. When she mirrored his own question to facilitate his ideas on the problem, David said that he had tried everything possible and was looking to her for new suggestions and expertise on personnel development. By the end of the session, Kelly could see that a pattern was forming: David would briefly respond to a question that Kelly posed and then continue with an additional question or a request for advice, opinion, or expertise. Kelly indicated several times that her expertise should not be relevant for the coaching sessions and that they would instead focus on developing the coachee’s capability. Although David verbally agreed, he seemed reluctant to this idea. They finished the session with a small action plan that they developed together which had potential to expose David to new ideas, but Kelly did not feel satisfied with the outcome of the session overall. She doubted whether she could reach a transformation on a deeper level with this coaching assignment. Even though she skillfully navigated all of David’s questions and requests in order to facilitate his own thinking on the topic, she was afraid that David was still expecting guidance from her and would eventually feel disappointed by the lack of new information and ideas from her side. Kelly mulled over David’s and the company’s diverging coaching expectations and the question of how to respond to it. Coaching was explained at the initial agreement meeting with David and his company’s HR representative as a thoughtprovoking and creative process that inspires the coachee to maximize personal and professional potential. Even though Kelly specified that her role was different from a consultant’s role and that she was not there to give advice, the coachee still seemed to be constantly asking for her opinion and point of view. One reason for that difference in expectations was the fact that the concept of coaching was relatively new to both the HR representative and the coachee himself. They had a hard time

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grasping what the process would look like if a coach would not engage in guiding behavior. Kelly also knew that it was common in the market for the term coaching to be used by consultants and advisors to describe themselves, furthermore confusing the end-consumer of the services. The argument was that as long as it helps and the customer is happy, there is no need to fuss about the subtle differences in the delivery process. Kelly was feeling the pressure of making a decision of what approach to use with David and how to proceed further with their coaching sessions. On the one hand, she believed that pure facilitation would lead to sustainable improvements. However, the coachee’s commitment to this approach is a vital prerequisite for a successful assignment. So, how could she win his trust and confidence to engage in a self-reflecting coaching process, which would take him out of his comfort zone? On the other hand, would it be wrong to serve the client’s and the coachee’s needs? Why should she force the coachee into a concept that he refuses? There were many so-called coaches out there offering several concepts and ideas under the name of coaching. It would seem reasonable that the company would hire someone more in line with their expectations. So, why not switch to an individual training and consulting concept? Even without specific experience in the finance sector, she felt capable of providing advice and expertise as requested, and she knew that some of her colleagues even did so. Recently, at a professional meeting, Kelly heard a recommendation from Axel Kuhlmann, a German colleague in Mainland China and President of the Shanghai Coaching Circle, who shared how he deals with perception gaps with his clients. In his experience, for clients (often) as well as for coachees (even more often), quick fixes were of higher importance than long-term results. In a VUCA world that is all about efficiency, guidance and advising would provide faster results and quick fixes. Yet, if one strives for results that would last, a facilitating coaching approach would help the coachees develop themselves and the skills they need. However, the latter approach requires (sometimes a lot) more time to take effect. Kelly still had his words in mind. “If the clients tend to guidance/advisory as a quick fix, I make them aware that this is not coaching but mentoring and make them choose consciously.” Axel proposed to communicate the shift of roles clearly to the stakeholders and, if necessary, to change the contract to reflect the new subject as well. Was there a third option for Kelly and her situation? She thought about adding just a bit more guidance to her coaching style, providing some consulting and implementing some coaching methods within the same session. Would this help get the coachee to commit? And how would this affect the outcomes of the assignment? Would it make a difference whether she just implemented this sort of mixed session instead of communicating her style and concept transparently to the coachee? Kelly was wondering whether the perception gap was imminent in coaching in Asia. Maybe it was due to different public perception of coaching in Asia. However, it was also possible that an Asian Way of Coaching was evolving. Coaching history in Asia is still quite young. The concept originates from the USA, with its vastly different cultural backgrounds, and up until now, client companies have almost

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exclusively been from abroad. She also knew that the perception gap was a recurring topic not only in her own experience. Back in 2010, when she participated in the annual conference of the Asian Pacific Alliance of Coaches in Singapore, the topic was already subject to heated debates. At that time, the coaching scene in Asia was still dominated by Western coaches. Meanwhile, more and more local coachees were participating in her assignments, and there was an ongoing trend among local companies and governmental organizations to hire coaches for their staff. At the same time, more and more local coaches from Hong Kong appeared, but the topic has remained controversial. Almost all of her colleagues had reported differences in beliefs and expectations and the necessity of differentiating between coaching and mentoring. To what extent coaches should offer guidance in the facilitating coaching process had become the hottest topic in her coaching community. She had heard opinions and recommendations from many sides. Linda Kiester, HR director at 3M and friend, underlined once how important it was to educate the coachee about the coaching process. If a coachee sees coaching as a sign that something is wrong and needs fixing, it will be harder to ensure his commitment to the coaching, and without the coachee’s willingness, the facilitation process would be hard. That is the time when the coaches would often hear “I came to get your advice” in return to their questions. Therefore, it takes two to get the coachee prepared. The company should introduce coaching to their employees in a way so that it is not perceived as remedial or as an exit strategy tool. The coach should thoroughly explain the coaching process in the very beginning of an assignment. Kelly was more and more aware of the importance of clarification. But was it her job to tell the company what they had ordered? Moreover, how could the company adjust the perceptions of coaching among the staff? Thinking about the companies’ role in providing the right image of coaching solutions, Kelly has thought about the potential impact of coaching associations. Could they help to spread the word in public? During last year’s Asia-Pacific Coaching Conference in Bangkok, Joseph Chan, CEO of Keystone group and honorary VP of ICF Shanghai Chapter, talked about a trusting relationship and how being patient with the coachee helps to foster a safe environment. Once trust is built, even the coachees that were looking for guidance and advice tend to “give in” and open up to the new learning experience based on facilitation. Kelly wondered whether she should use guidance just in the very beginning of the coaching journey, guiding him toward the facilitating nature of coaching. Depending on how their trust developed, the degree of guidance could be reduced session by session. Finally, the pure facilitation process could start. This perspective meets the needs of those coachees who feel insecure, are reserved, or are fearful in the coaching situation. Kelly began to get the impression that behind David’ reluctance to being coached there were underlying fears and insecurities that might correlate to why he was not able to develop his successor. While the trust level between them was not sufficient enough for David to open up about it, what could she do to advance the coaching process? Guidance could become something akin to an auxiliary tool to prepare for the real facilitating process of coaching. Still, should she be straight and clear to the client and/or the coachee about her coaching style and process?

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While preparing for her online meeting with her coaching supervisor based in Kuala Lumpur, Kelly was summarizing the key questions she still had to find answers for. First was how she could serve David in the best way and how open and straightforward she should be with the client about the underlying process. Second was how to address the client company on the issue of the expectation gap in coaching and the role of the company in forming the image of coaching in their employees’ eyes. Third, and on a broader level, she wondered whether the coaching concept should be seen as one tool among others to help people, as a basic concept adaptable to fit specific situations, or as a gold standard to adhere to. Fourth, what could she personally do to promote the public’s understanding of coaching? Was there a way to integrate coaching into education systems like universities or HR development departments of companies? What could she offer to contribute educating about coaching on a larger scale? Kelly felt that the decision about how to proceed with this particular assignment would have a major impact on her selfconcept as a coach as well as on her future activities

References Arora, U., Assegid, Y., Chan, C., Dolly, A., Dorosh, M., Kattenbach, R., et al. (2017). 4th coaching survey: An Asia coaching benchmark. Accessed October 2, 2018, from http://www. coachingsurveys.com/pdf-files/4th-coaching-survey-china-hong-kong-india-30-june-2017-en. pdf Downey, M. (2003). Effective coaching: Lessons from the coaches’ coach (2nd ed.). New York: Texere. International Coach Federation (ICF). (2016). ICF global coaching study 2016: Executive summary. Accessed October 19, 2018, from https://coachfederation.org/app/uploads/2017/12/ 2016ICFGlobalCoachingStudy_ExecutiveSummary-2.pdf Tugend, A. (2015, March 7). Before starting as a coach, it helps to go into training. The New York Times, B4. Ralph Kattenbach holds the VW/SAIC VW Chair in Human Resource Management at Tongji University in Shanghai, China and is affiliated to the International School of Management in Hamburg, Germany. He is a member of the AgileVentureLab, a global think tank focused on researching and applying agile principles to management and leadership and helping companies and individuals to cope better with ambiguity and unpredictability. Ralph holds a Master in Organizational Psychology from Utrecht University, The Netherlands. He earned his PhD degree at the Centre for Personnel Research at Hamburg University, Germany. With 15 years of expertise in organizational research, survey conception, and analyses, he is consulting and accompanying companies on HR and OB issues. His behavior-oriented research aims to unravel the interplay of structural determinants, psychological antecedents, and specific job conditions in predicting job engagement, performance, and organizational outcomes. As such, the impact of professional coaching in the organizational context is a recurring topic.

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Mila Dorosh an empowering, confidence building, and inspiring coach, combines her coaching talent with international experience, hands-on team leadership, and business expertise in China to offer a very special coaching and training service in the fast-changing and dynamic Asian market and for businesses working with China and beyond. She is an ICF-certified (ACC) and WABCcertified coach, specializing in individual and team coaching for team leaders and high-potential performers. Mila is not however just a dedicated coach professional; she has been using coaching in real life throughout her career to open the minds of her team members and build efficient and effective businesses. Mila has also been a guest speaker for American, British, and European Chambers of Commerce and Tongji University School of Economics and Management and is currently serving on leadership teams of the Shanghai Coaching Circle and Motivate Shanghai community organizations. Mila has been a part of the research team of the 4th Coaching Survey: Asia Coaching Benchmark done in China, Hong Kong, and India in 2016–2017. More about Mila and her company at blvcoaching.com.

Coach! The Challenge of Leadership Coaching and Mentoring in the Context of Intercultural Work Environments Alex Couley and Julia Milner

Case Synopsis Research Problem As organizations are increasingly operating on a global scale, success in the modern workplace often requires leaders to demonstrate a high level of cultural competence. Alongside this trend sits the growing demand for leaders to coach and mentor their direct reports. Most leaders being taught to coach or mentor are exposed to a generic framework that does not take into account cultural nuances or the nuances of the coaching/mentoring role from a leadership perspective.

Case Summary This case study sheds light on how a leader may need to utilize both sophisticated coaching and mentoring skills to assist an employee adjust to a senior role, a new organization, as well as a new culture. The case study is set against the background of migration from China to Australia but is applicable to any major cross-cultural movement.

A. Couley (*) Institute of Coaching, Belmont, MA, USA J. Milner EDHEC Business School, Nice, France e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_17

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Learning Objectives To recognize that coaching and mentoring in the workplace are not mutually exclusive and that indeed these two skill sets can complement one another but to demonstrate that leaders need to be aware which one is appropriate at which point in time.

Themes and Tools Used • • • • •

Intercultural work environments Cultural sensitivity Leadership styles Coaching Mentoring

Target Audience This case study is a suitable resource for students studying the use of coaching and mentoring as a leadership process. It would also be appropriate where students are considering the implications of intercultural teams and their impact upon workplace leadership.

Questions • How would you evaluate the instruction of the company that “Coaching is mandatory”? What are advantages and disadvantages of such an approach? • How important is alignment between leadership and team and organizational culture to you? • How would you differentiate between coaching and mentoring? When would you suggest a leader to use which style? • What role can the cultural background play when introducing a new leadership style?

Background Caroline was on her way back from one of her supervisory coaching sessions. She saw things clearly for the first time since she worked together with Robert, one of her team members. She had tried to coach Robert for a while now with less than great results. She still could not believe that coaching others as a leader could be that complex and that she oversaw some simple yet profound things. The supervisory coaching sessions provided clarity, and she was now starting to put the puzzle together.

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Caroline had been a senior member of her organization, a large health-care provider offering a variety of health-care specialties based in Australia, for a long time. The organization operates from different sites across Australia with less than 1000 employees. The annual revenue is in the region of $50 million. She is an Australian national and HR practitioner and has been in the health-care sector for in excess of 20 years of which she worked the largest part for her current company. She manages a team of HR workers and has been in this particular role for 5 years. In terms of the hierarchal structure, Caroline sits one tier below the C-suite. She rose through the ranks very rapidly and is described by her executive colleagues as a high performer, with additionally very high potential. Robert is a team member in Caroline’s team, and as such, he was one of her coachees, receiving coaching from Caroline. He also comes from a health-care background and is a Chinese national. In China, he had built a significant reputation in his chosen field of health care. His experience spans between practice and academia, giving him a unique profile. This international reputation opened doors for Robert. Looking for new challenges in life, he migrated from China to Australia. Robert worked in his role of internal evaluations, from all reports he flourished in this position. In recruiting for her HR department, Caroline engaged the services of an external recruitment agency. Putting the position out into the marketplace, she came across Robert. He was again beginning to look for new opportunities so the timing was perfect. His professional expertise was clearly an exceptional fit for Caroline’s requirements. He was interviewed and recruited into a leadership position and appeared to be a natural fit. He soon became a key member of Caroline’s team, reporting directly to Caroline. He himself was responsible for a team of four people. Robert’s English language skills were excellent, but he had not had any previous experience in giving or receiving coaching.

The Australian Way of Leadership In order to fully understand Caroline’s situation and the challenges she experience, we need to have a look at the context she is operating in—the Australian way of leadership. Due to the history of the development of the Commonwealth of Australia, the country has evolved a distinct leadership ethos. It is sometimes assumed that there is a Western versus an Eastern style to leadership. While there may be some truth to that proposition, the reality is that, certainly within both the “Western” and “Eastern” approaches, there is significant variance. Even though there are some considerable similarities between the histories of, for example, the English speaking nations, not all have evolved the same leadership bias (Rymer 2008). The uniqueness of the Australian leadership culture was first noted as far back as 1964 (Horne 1964) and is supported by recent findings that suggest the style has not deviated much in the intervening years (Lowe 2016). Australian leadership varies from countries that stress the charismatic leader. The integration of the “tall poppy syndrome” (Peeters 2004), a mindset that does not necessarily celebrate individual

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success, into the nation’s psyche has driven a more egalitarian view of both the workplace and society in general (Peeters 2004; Meng et al. 2003). Thus in Australia a working environment that is less formal than in some other countries has emerged. A simple example being the use of first name to address your line manager is common in Australia but could be seen as disrespectful in other cultures. One final note on this subject is that this egalitarian approach affects what leaders in Australia expect of their direct reports (Rymer 2008). They anticipate questions and a more robust discussion during decision-making. Most workplace cultures are supported by a shared set of values, in this case egalitarian. These values are generally unspoken and form a layer of tacit knowledge within the organization. Unfortunately, this may mean they are not immediately apparent to an outsider or newcomer. Given this relaxed approach to a hierarchal structure, it is therefore easy to argue that there is a natural fit with a coaching approach in the Australian environment. At its heart, workplace coaching emphasizes the development of a collaborative relationship, and this may have contributed to Caroline developing a strong affinity for coaching.

The Call for Coaching in Caroline’s Organization The CEO of Caroline’s and Robert’s organization had become aware of the increasing evidence in regard to the benefits of amalgamating coaching into a leadership tool kit and the drive across the globe for leaders to be trained to utilize coaching. Indeed research demonstrated that introducing such coaching skills can ultimately assist in the achievement of organizational goals (Wheeler 2011). Thus, not just the coachee but also the team, department, and the overall organization are benefitting. In response to that global drive, 2 years ago the organization committed to a comprehensive package of training. In addition, the health-care sector in Australia is still going through a patch of major disruption. Policy change has now made the marketplace way more competitive, and the CEO wanted to invest in his highperforming staff—coaching was seen as a logical investment. The training was to introduce coaching skills as a key component of all leaders’ KPIs. It was expected that all leaders from the C-suite, down through the organizational structure, to frontline managers would utilize coaching skills. The language used at this point was “coaching for all employees is mandatory.” The CEO decided in consultation with his executive team on a model specifically designed to take into account this challenging dynamic and to meet the need of leaders acting as coaches, the LEADER model (see Table 1). For the CEO it was important to implement one coaching framework for all the leaders during the training to ensure consistency. The CEO saw that most generic coaching models, while being very useful, do not respond well to the unique challenge of managerial coaching, as they do not take into account the complexities of the preexisting relationship between the leader and employee; hence, he chose LEADER, a model specific to the context of leaders as coaches. The model consists of six phases. Starting with “listening” in order to make a decision if coaching is the right approach, then “examining” both parties expectations, and

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Table 1 The LEADER model Phase Listen Examine Align Discuss Evolve Reflect

Task Listen to make a decision Examine expectations Align coachee’s goal with individual, team, and organization (strengths, values, and strategy) Discuss direction Evolve goals Reflect upon the coaching, support, and supervision possibilities

Source: Milner and Couley (2014, 2015)

“aligning” individual, team, and organizational priorities. In the “discuss” phase, the direction forward is the focus, and in the “evolve” phase, mutually negotiated goals are established before, and in the “reflect” phase, time is dedicated to reviewing the coaching process. More detail can be found in Table 1. When introducing such a change in leadership style, a challenge can be maintaining business flow and at the same time teaching people the new skill set. In an attempt to avoid taking too many leaders offline at one time, the training was rolled out 20 personnel at a time, starting with the most senior first. Due to her position in the business, Caroline was one of the first to be exposed to this new skill set.

The Initial, Successful Coaching Implementation Phase Like many leaders when they are first exposed to a coaching methodology, Caroline was somewhat skeptical at first, but due to the “mandatory” nature of this process, she implemented it with her team. Caroline soon started to see the benefits to her direct reports. One direct report, who had been seen as introverted and non-contributing, started to play a more active role in team meetings. Another, who had struggled for years with having “direct” conversations with others, became much more confident. A third whose deadline skills had been poor, whose reports were always late, made a complete transformation. She very rapidly became passionate about coaching, integrating it into her way of interacting with those around her. One of the perceived major barriers to adopting a new approach like coaching is time poverty. Leaders will often report being too busy to find the time to coach. The answer appears to be using “coachable moments,” as described by Turner and McCarthy (2015). Without any plan to do so, Caroline found herself doing exactly this. In introducing coaching to her team, Caroline had been very lucky. Unlike some of her peers, Caroline’s direct reports had all very eagerly participated in the coaching process and were highly committed. One risk of making anything mandatory is that you generate a form of resistance. This happened in other teams but not in Caroline’s which can be explained with a unique team culture.

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Below the broader workplace culture in Australia, organizations also have their own distinct culture, and below that, departments, offices, and teams can create a subculture. The culture of Caroline’s team had become very strongly aligned to a coaching framework, and she was very proud of this. The team was enthusiastically booking coaching times with Caroline, but more importantly than that, they were engaging in coaching conversations with each other. Where possible and appropriate, questions and challenges were met with coaching responses by all. One possible reason for the positive response of her direct reports could be Caroline role modeling what was expected. During the time in which she was implementing coaching, Caroline had also committed to her development as a coach by being coached herself on a monthly basis by an external coach. The relationship between Caroline and her external coach was a significant factor in the progress of this case study.

The Rise of the First Coaching Challenges After an initial settling period, Caroline began to coach Robert. Both parties reported that the early sessions went well. The first few sessions were focused upon establishing rapport, and both coach and coachee appeared comfortable. From there Caroline adhered faithfully to the spirit of coaching, trying to ensure it was nondirective in nature. Caroline did not need to consider if coaching was the right option or not, after all it was “mandatory.” Over a few months, Caroline began to notice a pattern emerge that she had not encountered before. She thought the first phases of the LEADER model worked well with “listening,” “examining,” and “aligning.” In the “evolve” stage of LEADER, Robert would commit to a clearly defined action. He would seem to be genuinely enthusiastic. Indeed, during the “reflect” phase of the LEADER model, Robert would report how useful the sessions had been, but beyond the sessions themselves, he would not even attempt the actions he had agreed to. This was in stark contrast to Caroline’s experience with her other direct reports. Believing it may be an implementation issue, she repeatedly tried to explore any potential barriers with Robert, but none were apparent. To complicate matters despite his exemplary start with the organization, Robert’s performance as a leader in his own right was deteriorating. As he was being coached, his overall work standards dropped so far that he was seen as “underperforming.” Never having experienced coaching someone during a period of performance management, Caroline utilized her own coaching sessions to explore this more deeply. In coaching, she came to the realization that the most effective pathway was to suspend Robert’s coaching during this period, the argument being that during this time the employee needs to focus clearly upon rectifying issues and coaching can resume at a later date. Something very unexpected occurred. During the period of performance management, Robert’s abilities soared. Not only did he return to his early good results, he exceeded everything that he had achieved before. Within a very short period, Robert

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was being viewed as a potential candidate for promotion. Due to these very good results, the performance management ended earlier than had been anticipated, and the coaching resumed. However as he moved from the formalized structure of performance management back to the looser framework of coaching, almost as quickly his overall results within the workplace began to drop off again. Caroline attempted to discuss this dynamic with Robert, but he could not explain what was happening. Confused Caroline again decided to utilize the time with her own coach to explore this in depth. One possibility was that despite Robert’s excellent skills in speaking English, there may be a comprehension issue. Coaching is a very future-orientated process. English and Chinese languages use very different metaphors to describe time (Boroditsky 2001). After a number of conversations in which Caroline explored the above with Robert, it was clear that neither language nor comprehension was playing an issue. So what was going on? Again, Caroline unpacked this with her own coach. Looking at his responses to the performance management phase and his struggle with a coaching style, it became clearer to Caroline that Robert struggled with a leadership style that was less directive and more collaborative. In an attempt to test this theory out, she decided to introduce a mentoring style to replace the coaching approach. But much as we have said for coaching frameworks, not all mentoring models take into account the unique dynamics of mentoring within an organizational context. An easy route would have been for Caroline to adjust her style and call it “mentoring.” In seeking out a model of mentoring that made sense in her context as a leader, Caroline decided on the MENTOR model (see Table 2) due to its shared value base with LEADER, and she received further training. Before we explore the mentoring process further, a brief word is presented about the difference between coaching and mentoring. Table 2 The MENTOR model Phase Mindset Examine Narrate Translate Obstacles Reflect Source: Authors

Task Get in the right mindset to mentor; assist the mentee to be ready for mentoring Examine expectations Facilitate the mentee narrating their story Translate story into tangible options and practical goals Explore potential barriers to moving forward Reflect upon the mentoring support and supervision possibilities

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Coaching and Mentoring, the Differences, and When to Use Them As you have heard, Caroline had come to strongly identify with coaching as a leadership process and had to now adapt to another skill set with mentoring. To make this transition easier, Caroline’s own coach explored with her the differences and similarities between coaching and mentoring. At first glance, the two skill sets of coaching and mentoring look very similar, and indeed, they are, supporting both methodologies are fundamental processes such as active listening, open questioning, goal orientation, etc. A quick glance at both LEADER (Table 1) and MENTOR (Table 2) will demonstrate these shared core processes. Where the deviation occurs is in how much of your own experience you share. A mentor is generally a person who is more experienced in their particular field than the mentee (European Mentoring & Coaching Council 2018, p. 4). They assist the mentee from the perspective of someone who has done it before. A quick way to remember this is that mentors offer wisdom to support decision-making. Coaches are not necessarily an expert in the coachee’s field. They are proficient at assisting in personnel growth and development in any setting. In a pure coaching session, the coaches would not share their own experiences. In summary, coaches help the coachee to explore their own beliefs and experiences to reach a level of awareness and a resulting solution. It is not unusual for a leader to prefer to either coach or mentor their direct reports. Depending upon their own personal preference, training they have been exposed to, etc., they will adopt one of these two styles and make it a key tool in their leadership suite. We would argue that the more sophisticated a leader becomes, the more they realize that both interventions have value and can be interchangeable. It is simply about deciding when each is appropriate. Now back to the MENTOR model, it consists of six distinct phases: beginning with an examination of the mentor and mentees’ “mindset” moving on to “examining” both parties’ expectations. Phase 3 is an opportunity for the mentor to facilitate the mentees’ “narrating” of their story. We then move on to “translating” this story into tangible goals, exploring possible “obstacles” and finally “reflecting” upon learnings. More detail can be found in Appendix 2.

Mentoring or Coaching Robert? In introducing the MENTOR model, Caroline initially struggled. What she saw as her natural style was now being challenged. Caroline explained to Robert the shift in approach. She asked him to bear with her as she herself was adjusting to a new methodology. With the introduction of the more directive nature of mentoring versus coaching, Robert again began to flourish within the workplace. Caroline continued to wrestle with why this was occurring. One thing became obvious. Due to his previous experiences, Robert saw a very strict hierarchal chain of command that was not in Caroline’s mind. She imagined the egalitarian workplace described in the introduction. He however was clearly struggling with being asked by his line manager what his opinion was and thought there was a right answer he was meant

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to find and share. He would try to present her with the answer he believed she was looking for. The more Caroline persisted without validating Robert’s responses, the more this increased his stress levels. These heightened levels of stress lead to underperformance in every area. While the benefits of workplace coaching are clear, it is imperative that leaders using a coaching style know the limitations of such an approach. One limitation is demonstrated by Robert’s struggle. He was asked in his coaching sessions to respond outside his frame of reference, his frame of reference being that your leader gives you a clear instruction and you follow this through. Until this point in his career, Robert had never been exposed to a less directive model and could not make sense of what was occurring. To assist Robert to adjust to his new organizational culture, a mentoring approach was the least stressful methodology. Caroline mentored Robert for 1 year. Part of the mentoring intervention was to assist him to become aware of the tacit values in his new organization. Having used a mentoring approach to establish a new frame of reference, it was then possible to reintroduce coaching successfully. Since then Robert himself has gone on to utilize coaching very effectively with his own direct reports. As Caroline explored her learnings in her own coaching sessions, she came to realize that she had failed to recognize the major differences in the cultural experience of a working environment. She had overestimated the ease in which a leader can transition from one culture to another. This has been a significant learning for both her and her organization. Caroline has come to accept that a skillful leader will be able to use a sophisticated blend of coaching and mentoring to respond to the needs of their direct reports. Her personal passion for and early positive results with coaching had caused her to make this her one go-to tool. In introducing a mentoring methodology to her tool kit, she can now be a more flexible leader. Upon reflection, Caroline did realize however a couple of questions she will keep at the forefront for future coaching and mentoring engagements: Am I really listening, or am I just trying to hear and see what is right in front of me? What is being said, and what is not being said? How can I put myself in the “shoes” of others? What role might a different cultural context play? How can I better explore the expectations of others? And how can I continually reflect upon my own role, values, and expectations within the coaching and mentoring process?

References Boroditsky, L. (2001). Does language shape thought? Mandarin and English speakers’ conceptions of time. Cognitive Psychology, 43, 1–22. https://doi.org/10.1006/cogp.2001.0748 European Mentoring & Coaching Council (EMCC). (2018). EMCC competence framework glossary V2. Accessed October 19, 2018, from http://emccpoland.org/wp-content/uploads/2018/02/ EMCC-quality-glossary-v2.pdf Horne, D. (1964). The lucky country. Victoria: Penguin Books. Lowe, I. (2016). The lucky country? Reinventing Australia. St Lucia: University of Queensland Press.

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Meng, Y. K., Ashkanasy, N. M., & Härtel, C. E. J. (2003). The effects of Australian tall poppy attitudes on American value based leadership theory. International Journal of Value-Based Management, 16, 53–65. https://doi.org/10.1023/A:1021984005070 Milner, J., & Couley, A. (2014). Coaching how to lead: How managers can use coaching skills effectively in the workplace. Calwell: Inspiring Publishers. Milner, J., & Couley, A. (2015). Manager as coach: The challenge. In C. van Nieuwerburgh (Ed.), Coaching in professional contexts (pp. 29–40). London: Sage. Peeters, B. (2004). Thou shalt not be a tall poppy: Describing an Australian communicative (and behavioral) norm. Intercultural Pragmatics, 1, 71–92. https://doi.org/10.1515/iprg.2004.008 Rymer, C. S. (2008). Leadership in Australia: How different are we? DBA thesis. Southern Cross University, Lismore. Accessed October 19, 2018, from https://epubs.scu.edu.au/cgi/viewcontent. cgi?article¼1117&context¼theses Turner, C. F., & McCarthy, G. (2015). Coachable moments: Identifying the factors that influence managers to take advantage of them in day-to-day management. International Journal of Evidence Based Coaching and Mentoring, 13(1), 1–13. Wheeler, L. (2011). How does the adoption of coaching behaviours by line managers contribute to the achievement of organizational goals? International Journal of Evidence Based Coaching and Mentoring, 9(1), 1–15. Alex Couley is recognized as an international figure in leadership development, leadership/ business coaching, organizational well-being, and positive psychology. He is in great demand for his coaching expertise and coaches leaders in many sectors across the globe. Alex has experience in working on leadership practices with managers/leaders from numerous countries and cultures. He has trained hundreds of managers/leaders in the practical implementation of managerial coaching and how to embed a coaching culture. Julia Milner is a Professor in Leadership and the Academic Director of the Global MBA program at EDHEC Business School in France and an Honorary Professorial Fellow with the Sydney Business School (UoW) in Australia. She has recently been selected as one of the World’s Top 40 under 40 Business Professors by Poets and Quants. In addition, she has extensive experience as a leadership development consultant, training thousands of managers in leadership and coaching skills and collaborating with international organizations. Julia has a PhD and 3 Master degrees, having studied with 11 universities and working with 14 universities across 6 disciplines and in 7 cultures. Her research interests are in the area of coaching, technology use and education, leadership, and organizational cultures.

Female Career Coaching for a Multinational Company in China Bettina Al-Sadik-Lowinski and Ralph Kattenbach

Case Synopsis Case Summary China has one of the highest proportions of women in senior management roles worldwide, on par with some Eastern European and Asian countries. Combining a Chinese career with a global perspective, this fictive case—based on real client cases—shows how female careers are affected by cultural contexts. LI Ann, a Chinese female top executive, receives coaching to further develop her career within a French multinational company based in Shanghai. While preparing Ann’s continuing coaching process, Jenny Rose, a senior executive coach, reflects on female executive career patterns in China. New information from the Global Women’s Career Lab—a study among female top executives in China— produced valuable insights for Jenny’s coaching practice.

Learning Objectives The case contributes to a greater understanding of success factors and challenges that affect women’s career paths in China and worldwide, and it provides ideas for a discussion on (female) career development concepts in multinational companies. The case also reveals how a coaching process helps to overcome individual challenges and obstacles in the career paths of female executives. It can be used to B. Al-Sadik-Lowinski BAS Coaching, Köln, Germany R. Kattenbach (*) School of Economics and Management, Tongji University, Shanghai, China e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_18

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start a culturally and socially sensitive debate about female career paths and how their careers may differ depending on external determinants, such as country culture, role perceptions of female executives, and the opportunity structure for women in a market.

Themes and Tools Used • • • •

Executive coaching as a tool for HR development International career development for female executives Intercultural differences in career determinants Linking new research findings to coaching practices

Target Audience The case is useful to exercise and demonstrate coaching and career planning for female high potentials who are in the middle of their careers. It is suitable for graduate students who have already been exposed to the essentials of career concepts as well as the concept of coaching as it is outlined by the International Coaching Federation (ICF).1 Basic knowledge of coaching tools such as target setting and the use of powerful questioning is an advantage. The case is also suitable for coaching training with executives.

Questions • Why could it be important for MNC in China to develop and retain female executives in top management? • What stereotypes concerning females in top management positions are you aware of? • What are the differences between career determinants for female and male executives? Are these the same for women in China and in Western countries? • What is the most relevant information that you—as a coach—would summarize in order to prepare for the coaching? What information is missing? • How could a coaching plan for the case look like? Discuss coaching questions and targets!

1 So far, the ICF is the only well-established global head organization that certifies coaches. It aims to set ethical and quality standards in the coaching market.

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A Challenging Coaching Assignment It was springtime in 2018, when Jenny Rose sat in a high-speed train from Shanghai to Suzhou. The sheer number of housing blocks passing by always impressed Jenny, but today, her mind was already in Suzhou, at today’s coaching session with her new coachee, LI Ann. Two hours from now, they would meet for the next coaching session of her assignment. She had prepared herself well, of course, and it was far from her first career coaching. Yet this assignment was unique to her. It not only fit perfectly with her interest in international careers, but it also challenged her to disregard her own deep-seated cultural imprint and career assumptions in order to maintain a neutral position. As part of their global diversity initiative, a French multinational company appointed Jenny to coach one of their female senior executives based in Suzhou. Prior to her assignment, Jenny had gone through a matching process consisting of three meetings to ensure that the personal chemistry was right. After a first meeting with Hugo, the global head of HR from France, who was on a visit to the regional head office, Jenny met her new coachee, the 40-year-old Human Resource Vice President China, LI Ann. Finally, in a joint meeting, Hugo and Ann told Jenny that she was the right coach for this assignment. The coaching concept is based on trust and confidentiality. Accordingly, the coach and coachee alone decide on coaching content. Familiar with this basic principle, Hugo, who also served as Ann’s formal mentor, expressed his trust in Ann and Jenny to decide on the contents on their own. He would not request any information. During the initial conversation, it became clear that career development was a crucial topic for Ann. They agreed that this would be at the core of the coaching. Jenny had a successful career and years of experience coaching international senior executives from all over the world. Originally from Australia, where she had a long corporate career in a multinational pharmaceutical company, Jenny later became certified as a coach and worked in Europe and Asia. Now in China, she supported Chinese as well as expatriate executives. Jenny had a lot of experience in the area of intercultural leadership coaching and was aware of the fact that careers are highly sensitive to cultural issues. Despite her sound experience, Jenny felt challenged by the job as it was the first time she was assigned to coach a Chinese female top manager as part of a global diversity initiative aiming to support women achieving higher global executive roles. She had coached European women in the same situation before, but it was her first time coaching a Chinese female in a Chinese program. Jenny knew from her experience that intercultural issues become a challenge to many companies particularly when combined with gender issues.

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A Retention Tool to Keep Chinese Female Executives The company LI Ann works for is a market leader in the global food and beverage sector. Its headquarters is in Paris, France, and French language skills are critical, even at the global management level. However, the company has several regional offices and subsidiaries all over the globe, several of which are in English-speaking regions such as the UK, Canada, and the USA. The company’s working culture is very people-oriented, and fostering female employees is one important aspect of its HR strategy. Hugo told Jenny that the company invested in developing Chinese female talent in various ways, one of which being the implementation of a worldwide, formal, internal mentoring program. A formal mentor was assigned to all women enrolled in the program. The mentor, an internal, global top executive with a wealth of experience, supported a female talent with his or her knowledge of the business and corporate system. The mentor advised the mentee based on personal experiences. Due to the company losing some of its best senior female staff to its competitors, the HR department decided to include also coaching in the new leadership program. Particularly in China, local companies with a global business have become fierce competitors. The company’s management believed coaching is the best development tool that an executive can receive. Their reasoning was that the employee will perceive individual coaching as a huge benefit as well and that it will further commit their top talents to the company. In contrast to mentoring, coaching is provided by external coaches hired by the company. Coaches refrain from giving advice and instead encourage coachees to find their own solutions and action steps based on their abilities. The coach offers appropriate techniques and a frame for self-reflection in order to help coachees get closer to their goals. The coach helps employees to address challenges or problems more frankly than an internal mentor can. Jenny was well aware of the challenge the company faced in the Chinese market. She also knew that local companies, based on their energetic work environments and inspiring executive visions, might be an attractive career choice for her new coachee, Ann. Moreover, she understood that there are no career barriers to Chinese nationals, whereas a “nationality glass ceiling” still exists in many multinational companies (Al-Sadik-Lowinski 2017).

About Ann Jenny received a lot of information on Ann’s situation in their first meeting. Three years ago at the age of 37, LI Ann attained her current position as VP-HR. As a member of the company’s local executive team, she was quickly identified as a global talent. Ann was well educated. She held a bachelor’s degree from one of the best universities in China and an MBA from an international business school with a worldwide reputation. She was highly proficient in English but did not speak any French.

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Ann has worked for her French employer for 6 years, which is the longest period she has ever stayed with a company. She did not let company boundaries hold her back in the past and changed employers multiple times in order to achieve her professional goals. Prior to her current employer, she had worked for five different multinational companies in Shanghai and persistently worked her way up to her current position. From a Western perspective on female careers, she had made fast career progress and she reached a very high hierarchical level. Ann was married and had an 11-year-old son. Her husband was much less careeroriented. He worked as an accounting clerk in the controlling department of a stateowned company and appreciated the regular working hours and predictable workload. He fully supported Ann’s professional ambitions, and he would not hesitate to follow his wife if her career took her abroad. He took care of their son and fulfilled a few household responsibilities. Yet without their full-time housekeeper, a so-called Ayi, their household would have been a lost cause. She did the cleaning, laundry, and cooking for the whole family. As is common in China, the Ayi was also a significant attachment figure for their son. Moreover, Ann’s parents-in-law, who lived next door, took over substantial parts of childcare, too. Hierarchical progression and financial reward were important components of Ann’s career plan. So far, she was highly motivated at work; she felt valued and received generous compensation and rewards. Even though she had reached the position she had always dreamt of, she started feeling bored. After 3 years in her position as VP-HR, Ann felt a growing need for her next career move. The next step up within her company in China was the position of General Manager China, a highly sought after appointment. However, becoming a GM on a national level was clearly linked to prior overseas experience. Even after an assignment abroad and despite the female development program as well as the support and influence of her mentor, achieving a GM position in China remained uncertain. Ann had always been open and flexible for both local and global business trips, and as she admitted to Jenny, moving overseas had been a secret dream. However, until now she and her husband had enjoyed an excellent childcare support system in Shanghai, allowing both to work full time. Yet it would have been impossible to move this system to a foreign country, and Ann had put her dream aside. However, now, her son was older and would benefit from an international school outside China. According to Ann, her husband was open to taking a leave of absence at work for the sake of her career. He was ready to move within China or even abroad. As genuine Shanghainese, both of them were highly attached to their hometown, and they knew that they would return to Shanghai after a couple of years. However, there were still other issues keeping Ann from a truly unfettered international career. Just a few days prior to the initial coaching session, her father had passed away after a long illness. Her mother was now living alone in an apartment not far from hers. Ann worried about her mother, and she wondered whether her mum was capable of living alone and independently. Ann felt stressed by the idea of leaving her mother alone but also wanted to pursue her career and continue to develop professionally. Moreover, what would happen if she failed to become GM China after a foreign assignment? Ann knew some friends who had

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experienced difficulty repatriating back in China after a global assignment. She also knew from her company that she only had a small chance of getting an adequate position in an English-speaking country. A position in Asia or in the French headquarters would be more likely. Career-wise, headquarters was preferable, but it was a well-known fact that although the working language in Paris was English, the lack of French skills would be an issue at work. Furthermore, living in France would require good French skills for the whole family, as well. Jenny understood quickly that Ann felt torn between her own private situation, her career ambitions, and her home life. She had come to a significant, critical juncture in her career and private life. Even though she was an HR professional, she could foresee neither her next career step nor its personal consequences. Moreover, it became obvious that Jenny felt uncomfortable discussing this topic with her mentor in Paris. She feared his contempt for her situation and a possible disqualification for a global career in his eyes. Ann admitted to Jenny how relieved she felt discussing her career thoughts frankly in the confidential and safe coaching setting. The topic of women’s careers had always inspired Jenny and she used every opportunity to exchange views and experiences on female career paths in different countries. After the initial meeting with Ann, Jenny wondered how to identify the most relevant topics and how to best prepare the following coaching sessions when she received the results from the Shanghai Women’s Career Lab (Al-SadikLowinski 2017). Following a systemic approach including all aspects of a person’s life, Jenny decided to make use of the comprehensive findings from this project to prepare Ann’s target setting for the coaching assignment.

The Shanghai Women’s Career Lab The research project aimed to describe career paths and to analyze career determinants of Chinese women. The study included a unique multiple case study with 35 female Chinese top executives in multinational companies. The participants’ hierarchical levels ranged from General Manager (GM) and President through to Director and included local functions as well as Asia-wide responsibilities. China offers a positive environment for female top managers. Chinese women feel on an equal footing with men in professional settings. Female Chinese senior executives in China are socialized to work full-time, and they are pursuing management careers while being mothers. The combination of strong and supportive family networks (e.g., grandparents assume responsibility for childcare) and affordable household help liberates the middle and upper class female workforce from private duties and enables them to focus on demanding and highly qualified jobs. The women’s observations correspond to published figures showing the high proportion of women in executive positions in China (Grant Thornton International 2014). In addition, the high proportion of mothers (74%) among Chinese executives is noteworthy. This figure is far higher than the proportion in Western countries (Holst et al. 2015). Even at the most senior executive level in companies (e.g., President or GM), discriminations are assumed to be due to nationality rather than to gender.

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Obviously, Ann’s career development situation was quite common for female executives in China. Most women in higher management have so-called unbounded career paths as they change companies several times. Chinese female executives exhibited a high degree of mobility within China or even abroad. However, overseas assignments remain challenging as many women depend on their private networks. The support functions well as long as the women are based in China. Local travel, even for several days, is fully supported by the family. Yet this supportive system in China is not transferable to other countries. However, overseas experience is mandatory for senior levels in many multinational companies. Despite the associated challenges, foreign assignments were very attractive for Chinese women as they represent a promising strategy to satisfy an intense curiosity and interest in foreign cultures. When given the choice, working overseas was mentioned frequently as a top career alternative by Chinese female executives. They indicated exceptional levels of intercultural openness, enabling them to “move between cultures.” They are able to adapt to different management styles as required and to operate within different sociocultural frameworks. This so-called global mindset (Ranker 2017) is more pronounced among Chinese women than men or executives from other countries. For most of the female executives, informal mentoring relationships played a significant role in their careers while formal mentoring did not. In contrast to the findings of various studies (e.g., Tharenou et al. 1994), Chinese women find it easier to develop mentoring relationships with foreign decision-makers than their male Chinese counterparts do. Unlike traditional mentoring relationships described in the literature, Chinese women’s mentoring relationships were characterized by mutual dependence. The mentors, generally foreign GMs, were dependent on reliable Chinese subordinates with local market knowledge and language skills and preferred women to men because they believed them to be more trustworthy. The female executives needed the foreign mentors to work their way up the corporate career ladder and to gain access to the headquarters. Chinese women in the Shanghai Women’s Career Lab have what Helgesen and Goldsmith (2018) describe as the right attributes for women to rise in management. They show strong career orientation and exceptional achievement orientation. They have a distinct self-confidence and a strong capacity to adapt to situations and people. They are capable of advancing in global top management positions and of adapting in multiple cultural contexts. They plan their careers in an autonomous, proactive, and focused way and are continuously evolving. They work strategically toward executive roles and plan how they can work their way up the career ladder. They even adapted flexibly to unanticipated occurrences such as the Asian financial crisis in ways that promoted their personal career goals. Jenny reviewed the findings in order to reflect on her own stereotypes as a coach working with female careers. Jenny was aware that due to her own socialization, she had to work on her perception of female career and wanted to be as free from judgment as possible. With the findings of the Career Lab on her mind, Jenny started to prepare the coaching process. She decided to implement reflection on career locus and career orientation into the coaching. She was eager to let Ann reflect how

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important it really was for her to reach further hierarchical advancement and her readiness and flexibility to plan her next career steps accordingly.

Coaching Based on the FemCareer-Model Coaching schools use various approaches to planning a coaching process. Some schools even state that a plan is not useful as coaching focuses on where the client is at that very moment. They emphasize the importance of following the current needs of the coachee and of staying flexible enough to adapt to events or situations that might come up unexpectedly during the process. Other approaches, and here mainly in executive coaching, require a target-oriented and more planned process as the professional aspect makes up a much larger proportion of the coaching. Jenny’s coaching approach combined target orientation with a high degree of flexibility to make sure that Ann’s needs are covered as much as possible during the 12 planned sessions. Inspired by the career lab, Jenny decided to use the FemCareer-Model (Fig. 1) like a framework or road map for her coaching process with Ann. This model was used in the Shanghai Women’s Career Lab to explore the external and individual career determinants of female Chinese top managers as well as their career paths and patterns. For Jenny, the FemCareer-Model should support the coaching process in two ways: (1) To better understand Ann and her situation in the Chinese context and

Fig. 1 The FemCareer-Model. Source: Adapted from Al-Sadik-Lowinski (2018)

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(2) to provide Ann structure for exploring her own situation throughout the coaching process. Jenny dedicated the next coaching session to offer the model to Ann as a framework and to elaborate all relevant career determinants for Ann together. Within this coaching session, Ann chose to work intensively on the following areas of the model: career development, family influences, and interpersonal support. Based on what she knew about Ann so far, Jenny suggested incorporating the areas management competencies and personal factors as well.

Career Development During the initial meeting, Jenny explored Ann’s current situation. Focusing on career development, she then decided to dig deeper into Ann’s underlying job and career motivation and her next career goals. Jenny knew from her coaching experience that career success could mean very different things to different people. It includes positive psychological or work-related outcomes or achievements one has accumulated because of one’s work experience (Judge et al. 1995). The “subjective career” includes satisfaction with one’s own profession and career path as well as perceptions of the potential career options, which may greatly differ from the options that are actually available (Mayrhofer et al. 2005). Identifying Ann’s individual attitudes toward careers and her individual objective and subjective definition of career was crucial to the coaching process, but how could she bring it to light? Jenny took plenty of time to elaborate Ann’s career orientation and to discuss what she really wanted as a next career step and what her long-term goals were. Jenny used various techniques to visualize Ann’s career path so far and to help her envision future career choices. Jenny wanted Ann to think “really big,” to dare to voice her dreams, and to draw the best and most courageous career scenario. They elaborated the pros and cons for each scenario that Ann brought up. Jenny invited Ann to do the “future-self exercise,” a mental journey into the future. This exercise helps coachees to relax, envision their own future, and connect to their secret dreams. It requires a high level of trust between the coach and the coachee. Moreover, the impact of this exercise depends on the coachee’s mood, which can change day to day. After the exercise, Ann told Jenny that in fact she could see herself in a General Manager position. She got quite excited envisioning herself in that role and explained how fulfilling she imagined it would be to really set visions for the company and improve things for the employees. Part of the dream was also to take time for family activities regularly and to stay physically fit. Asked about the dream location for her future life, Ann explained that she would love to work overseas in an English-speaking country for 3–4 years before returning, buying a house in a green suburb of Shanghai and becoming a GM. Her son would go to a good school overseas and later to one of the international schools in Shanghai. Jenny encouraged Ann to imagine her future dreams intensively and used open questions to help Ann envision herself deeper in her desired role. Ann should not only focus on reflection but also on feelings and the physical side of how it would be in this role. For Jenny it was important to encourage Ann to dream outside of her comfort zone,

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which often means entering a zone with some fears, as “new ground” off the beaten path could be risky. During the “future-self” exercise, she encouraged Ann to think as big as possible and to let go of all obstacles. All of a sudden, Ann smiled and said, “Being GM in Canada or the UK—that would mean breaking fresh ground.” She felt energized by this idea but also a bit scared. Jenny’s role was to “hold the secret dream” and to make Ann stay in it for a while. The danger was in starting a kind of reality check too early or turning the process into action-oriented work too soon. In Jenny’s experience, trust and humor are two good qualities that a coach can use to help clients go deeper into their secret professional ambitions and undisclosed life dreams. It is also very important that coaches master their own personal beliefs and possible assumptions concerning those dreams. Most importantly, coaches should be nonjudgmental when helping their coachees explore their underlying career motives and goals. At the end of the exercise, Ann told Jenny that it felt exciting but also a bit frightening. Jenny used open questions and curiosity again to make sure she really understood what exactly Ann was afraid of. Ann’s major concern was that she would not be able to be as good of a leader outside of China, because of the differences in decision-making and leadership styles abroad. She also felt uncertain whether the time overseas would bring her closer to becoming GM in China. She had heard from some Chinese executives and international expatriates that returning to China would become hard or even impossible. Jenny used the powerful impressions resulting from the future-self exercise to start target setting for Ann. For this process, it is important to set achievable targets that are realistic but courageous at the same time. Ann chose the targets “becoming a GM” and “work overseas in an English-speaking country.” For Jenny these two targets were strong but not yet strong enough. She encouraged Ann to define an overall target that was even more powerful. After reflecting on this, Ann decided that “being a powerful global leader with meaningful influence, and maintaining a good work-life balance at the same time,” would be the right wording for her overall coaching target. All other coaching targets and action steps should be subordinated to these core targets.

Family Influences The question of family organization would become crucial for Ann when moving overseas due to less developed support structures abroad. As family ties are very close for Chinese people, the coaching must also provide enough room to clarify Ann’s role toward her elderly mother. Ann’s husband was happy to support her and even to move overseas with her. The following questions remained: How will her husband—and Ann’s son—adapt to moving abroad, and will the current family setup work in the same supportive way in a new country? Ann set two secondary targets in her coaching plan: (1) clarify the care for her mother during the time of overseas assignment and (2) support her husband and son’s integration into a new country. This included choosing the right school for her son.

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Interpersonal Support As previously mentioned, Ann took part in a mentoring program in her company, where the CEO was appointed to be her formal mentor. It seemed that Ann had problems fully opening up to her mentor. Jenny believed that having the CEO appointed to mentor Ann could be a big advantage if the mentoring relationship could develop. She elaborated with Ann how she could create a “mutual benefit alliance” with her mentor following the example of the women in the Shanghai Women’s Career Lab. During her last session, Ann started to work on this issue and used examples from her network and close friends to generate ideas. Jenny used examples from other female clients to support her. Finally, Ann identified two action steps she could try. Jenny also addressed how else Ann could foster this relationship in order to come closer to realizing her dreams of working abroad and becoming a GM in the future.

Management Competencies and Personality Factors Elaborating competencies, strengths, and weaknesses, Jenny asked Ann to bring an old 360-degree feedback or other feedback she had recently received from her boss. Jenny started by asking Ann about her own evaluation of her strengths. She later asked her to include the feedback she had received from others on her strengths. In Jenny’s experience, many women found it easier to speak about their weaknesses than about their strengths. Interestingly, with her Chinese female clients, the opposite appeared to be true. She wanted Ann to reflect and focus on her strong suit. Like the women in the Shanghai Lab, Ann saw one of her major strengths as her intercultural leadership capacity. As a result, they would examine how she could possibly transfer this competence into a new country context and how she could utilize it for the benefit of her future career advancement. Later on, Jenny instructed Ann to reflect on weaknesses. As a major weakness, she mentioned her ability to be visionary. She felt that she did not have an opportunity to work on this skill, as it was not required much in her recent role. Based on this evaluation, Jenny would use an exercise in a later coaching session, asking Ann to identify role models who are visionaries for her. As a result of this exercise early in the coaching process, Ann became more aware of her own career mindset and related strengths. She got new insights into how they could support her in reaching her overall targets. She also saw her potential weaknesses more clearly. Now it was Jenny’s job to process all of this information into a plan for the remaining sessions. Based on the background information from the Shanghai Women’s Career Lab and on all of Ann’s information, Jenny tailored the remaining coaching sessions.

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Coaching Plans in Executive Coachings On average, executive coachings cover 10–12 meetings of 2 h. In the present case, the first meetings were used for setting coaching targets and defining the development goals. The last meeting usually includes a wrap-up to summarize what has been achieved and to identify future development areas. For executive coaching, it is essential to cover as many of the topics agreed upon. Based on her experiences with previous clients, Jenny believed it was most powerful when the coachee summarized his/her own takeaway at the end of each meeting and was in charge of the coaching plan. Jenny provided a structure for that. Her main role in following the agenda with Ann was to ensure that they would cover all the subjects they had agreed upon. The FemCareer-Model was Ann’s inspiration to start the coaching process. Based on this, the coaching plan developed and included topic, target, action, and achievements. The plan functioned as a tool to make the process visible to Ann. In an ideal setting, the coachee (with the support of the coach) would follow up on her plan autonomously after the first or second meeting. However, Jenny had to watchfully regard that neither coaching plan nor the model became too directive. There is no gold standard of coaching. Coaching is a very individual and tailor-made development process. For each coaching assignment, Jenny had to decide on a coaching style and tools depending on her assessment of the coachees’ needs. The coach has to identify appropriate coaching tools for each client and each situation separately.

References Al-Sadik-Lowinski, B. (2017). “More than half the sky?” Descriptions and determinants of the career development of female Chinese senior executives working for multinational companies in China. Göttingen: Cuvillier. Al-Sadik-Lowinski, B. (2018). How Chinese women rise: What we can learn from Chinese women with successful careers in top management. Göttingen: Cuvillier. Grant Thornton International. (2014). Grant Thornton International Business Report 2014: Women in business; From classroom to boardroom. Accessed October 19, 2018, from https://www. grantthornton.global/globalassets/1.-member-firms/global/insights/article-pdfs/2014/ibr2014_ wib_report_final.pdf Helgesen, S., & Goldsmith, M. (2018). How women rise: Break the 12 habits holding you back. London: Random House Business. Holst, E., Busch-Heizmann, A., & Wieber, A. (2015). Führungskräfte-Monitor 2015: Update 2001–2013. Accessed October 19, 2018, from https://www.diw.de/documents/publikationen/ 73/diw_01.c.510264.de/diwkompakt_2015-100.pdf Judge, T. A., Cable, D. M., Boudreau, J. W., & Bretz, R. D. (1995). An empirical investigation of the predictors of executive career success. Personnel Psychology, 48, 485–519. https://doi.org/ 10.1111/j.1744-6570.1995.tb01767.x Mayrhofer, W., Meyer, M., & Steyrer, J. (2005). Macht? Erfolg? Reich? Glücklich? Einflussfaktoren auf Karrieren. Wien: Linde. Ranker, G. (2017). Global mindset coaching: Perspectives and practices from a coaching pioneer. Provo: Executive Excellence Publishing. Tharenou, P., Latimer, S., & Conroy, D. (1994). How do you make it to the top? An examination of influences on women’s and men’s managerial advancement. Academy of Management Journal, 37, 899–931. https://doi.org/10.2307/256604

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Bettina Al-Sadik-Lowinski is an experienced international executive coach, team coach, mentor coach, and management trainer who draws on her extensive corporate background to deliver highimpact outcomes for her clients. She is certified as a Professional Certified Coach (PCC), is a member of the International Coaching Federation (ICF), and is a leader of Coach Certification programs (ECCP, China). With particular expertise in cross-cultural effectiveness, her coaching primarily focuses on executive transitions and presence, global leadership development, and communication style improvement. It also includes work-and-life balance in a systemic approach (www.bascoaching.com). Bettina’s clients are international senior executives and managers from all over the globe. Bettina was educated in Germany (Diplom Kauffrau, German M.B.A.) and France (SKEMA) and did her PhD with the University of Burgundy, France, while she resided in China. She also gave lectures in Shanghai as Guest Professor at Tongji University. Her research on “Chinese Women in Top Management” was so far published in two books (www.howchinesewomenrise.com). Her international background includes living and working experience in Japan, France, and China. Bettina comes from a multicultural family background and speaks native German, fluent English, and French. Ralph Kattenbach holds the VW/SAIC VW Chair in Human Resource Management at Tongji University, Shanghai, and is affiliated to the International School of Management, Hamburg. He is a member of the AgileVentureLab, a global think tank focused on researching and applying agile principles to management and leadership and helping companies and individuals to cope better with ambiguity and unpredictability. Ralph holds a Master in Organizational Psychology from Utrecht University, The Netherlands. He earned his PhD degree at the Centre for Personnel Research at Hamburg University. With 15 years of expertise in organizational research, survey conception, and analyses, he is consulting and accompanying companies on HR and OB issues. His behaviororiented research aims to unravel the interplay of structural determinants, psychological antecedents, and specific job conditions in predicting job engagement, performance, and organizational outcomes. As such, the impact of professional coaching in the organizational context is a recurring topic.

Fostering a Collaborative Mindset Annette Metz

Case Synopsis Case Summary In its 100-year history, Auto Supplier Ltd has developed processes and procedures, which perfectly match the needs of Western car manufacturers. However, they do not seem to be successful in winning Chinese original equipment manufacturers (C-OEMs). The top management finally understands this challenge and decides to reorganize the customer teams. Although the new setup helps Daniel—the customer team director—and his team in winning new Chinese customers, it creates at the same time a gap between customer teams and plant managers. Without close alignment of the two groups, long-term customer satisfaction is difficult to reach, as the plants might not produce what customer teams have sold. The top management recognizes those risks and asks Daniel to come up with ideas on how to overcome this new challenge. Together with Lisa, his HR business partner, Daniel figures out that none of the traditional HR development approaches—such as training, workshops, big group interventions, or individual coaching—is completely suitable in the given context. In a creative manner, Daniel and Lisa are thinking of combining different elements in a peer coaching process to help customer teams and plants to cooperate better in the future.

A. Metz (*) CONBEN, Shanghai, China e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_19

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Learning Objectives Understand both challenges of international automotive suppliers in the fast-moving Chinese market and the need for reorganization in order to adapt to market needs. Encourage the students to reflect about the link between external customer requirements, internal structure and cooperation, as well as the role of HR development to keep the competitive edge. Realize that structural changes do not automatically help to align employees’ mindsets and behaviors. Stimulate a discussion on innovative HR development initiatives to strengthen the employees’ self-management capacities.

Themes and Tools Used • • • • •

Intercultural challenges when working with Chinese OEMs Importance of customer orientation in China Internal cooperation conflicts HR initiatives to strengthen self-management Peer coaching

Target Audience The case is suitable for graduate students who have a holistic understanding of the different business functions and their connections with external customers. Furthermore, it is recommended that students know about the basics of human resource management and, particularly, about human resource development.

Questions • Which behaviors and mindsets of managers and employees are particularly important to ensure a company’s success in a Chinese environment characterized by fast pace? Does everybody have to work faster? Please explain the link between the behaviors and mindset that you identify and the aspect of high speed. • Imagine you are thinking of changing the structure of an organization, which other questions need to be asked before restructuring? Which impacts might a reorganization have on the employees’ feelings? • What does self-management mean to you? Which HR interventions might help an organization, if it wants to strengthen its self-management capabilities? • Imagine you were Daniel and Lisa: Which proposal would you provide to your top managers aimed at strengthening the cooperation between customer teams and plants of Auto Supplier Ltd in a sustainable manner? Who should be responsible for which step?

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Introduction Shanghai in spring 2017: Daniel Xu, customer team director of Auto Supplier Ltd, was highly frustrated. He was trying so hard to win Chinese OEM customers. And today again Geely, one of the growing Chinese automotive companies, had chosen a Chinese supplier for delivering a new door module, not Auto Supplier Ltd. And the reason for it? As always, Auto Supplier Ltd was too slow in presenting the quotation. While they were still working on the offer, by following all Auto Supplier Ltd’s internal processes and procedures, a Chinese competitor won the project. Daniel really liked the 100-year history of Auto Supplier Ltd and its roots in Germany, which were reflected in the top-notch product quality reputation and in technological advancement. However, the long processes and detailed procedures, which were suitable to win Western OEMs, like BMW, VW, or Daimler, didn’t match the requirements of Chinese OEMs as Geely, Chang’an, or Great Wall. With this conservative Western (German) focus on standardization, it was difficult to win any Chinese customers. On the one hand, this strict process orientation led to top quality, but on the other hand, it made the whole process rigid and slow. Finally, at the end of 2017, the Management Board of Auto Supplier Ltd announced a reorganization in China. In the past, the customer teams (CTs) had comprised mainly sales and project management functions. From now on, the customer orientation should be strengthened by also moving development, test, quality, and industrial engineering functions into the CTs. Auto Supplier Ltd hoped that this restructuring would help to foster synergies between the mentioned functions within the new big customer team (CT), as they had now the same reporting line. This change should make it possible to react faster to customers’ requirements. Daniel Xu was very satisfied with the reorganization. Finally, the Management Board seemed to have understood the importance of real customer orientation in China. However, Daniel, with his long-term experience in the automotive market, was not naïve. He was also fully aware of the downside of the reorganization: the ten plants of Auto Supplier Ltd in China, highly recognized for their production capabilities, had lost their power. That hurt them and created bad feelings. Daniel heard a plant manager saying: “Now we have two separate planets in our universe: our plants and our CTs. Let’s see how far the CTs will get without us as plants. . .” Daniel was alarmed, thinking to himself: “How should we convince both ‘planets’ to cooperate well together although they have different reporting lines and although they are measured against different key performance indicators (KPIs)?” Daniel knew that the reorganization would help his CT to win Chinese OEMs more easily. However, in order to build long-term successful relationships with the OEMs, a trustful cooperation with the plants was mandatory; otherwise, they would not deliver what CTs had promised the customers. As CT director for the Chinese OEMs, Daniel felt the increased pressure. How to reach this alignment between CTs and plants with all the bitter feelings created by the reorganization?

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The 100-Year Success Story of Auto Supplier Ltd Auto Supplier Ltd develops and produces mechatronic systems for vehicle doors and seats. The company has built its reputation in the automotive industry for innovation linked with safety, comfort, and efficiency. For example, their contact-free anti-trap feature in trunk lids sets standards in terms of safety, their easy adjustable seats with massage functions enhance passenger comfort, and their intelligent material mixes for door modules provide lightweight solutions, which reduce fuel consumption. As a global system supplier, Auto Supplier Ltd cooperates with around 60 car manufacturers worldwide. When and where did the success story of Auto Supplier Ltd start? The company was founded in Germany, in the early twentieth century. It was a time when people still thought horse-drawn carriages to have a future. However, soon the automobile gained popularity, and Auto Supplier Ltd quickly grew with the automobile. The product range became wider and deeper which led to the decision to transform the trading house for automobile accessories into a manufacturer. Products were continuously developed further: manual window regulators from the 1920s became electronically controlled window regulators in the 1980s; separate door products in the 1980s were integrated in complete lightweight door systems at the beginning of the twenty-first century. The steep development could also be seen in the customer portfolio, and this customer portfolio was reflected in the company setup. Until the end of the 1980s, Auto Supplier Ltd had only produced in Germany. As customers required closer proximity, the company started to build new plants outside of Germany. First, they focused on the expansion to other European countries, and later—when internationalization became a key component of their strategy—they also expanded to the growth markets of North America and Asia. Today 30,000 employees realize a company turnover of 6 billion euros at 55 locations in 20 countries. Worldwide, every second a new vehicle is equipped with at least one product of Auto Supplier Ltd. When China opened its doors in 1979, Western car manufacturers started to look at the Chinese market. Volkswagen launched its first joint venture in China in 1984. One decade later, Auto Supplier Ltd followed by setting up its first joint venture in China to deliver to Volkswagen. Following positive market signs, the company decided to invest into its first wholly owned plant in China in 2002; the Asian Headquarters in Shanghai followed in 2004. The expansion has continued until today. In 2018, the setup of Auto Supplier Ltd in China embraces 5000 employees, 10 plants, an R&D center, and the regional headquarters. Over the years, the diversity in the China team has changed. In the beginning, 10% of the workforce was non-Chinese (mainly German, French, American, Korean, and Singaporean). However, given the strong localization tendencies in the last 5 years, this percentage dropped to 3%. The worldwide Auto Supplier group was turning its attention to China as it now represents 20% of the total turnover share and an even higher profit contribution. Although it looks like a solid success story in China, one core element has been changing recently, and it might influence future development dramatically. For the last 20 years, Auto Supplier Ltd relied on its relationships to Western

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international car manufacturers such as VW, Daimler, Ford, and others. Although the China management team of Auto Supplier Ltd had strongly fought for more attention toward C-OEMs, the German Management Board had always declined to do so, as business with the newly developing Chinese car manufacturer was perceived as too risky. As a consequence, Chinese manufacturers represented only 5% of the Auto Supplier turnover in China in 2017. However, given the protective measures by the Chinese government which favor Chinese car manufacturers over their international competitors and given the fast growth rate of C-OEMs also in the international market, the German Auto Supplier Board decided on a strategic switch in 2017. By 2025, a 25% turnover share has to be realized with C-OEMs. That objective was perceived by the whole Auto Supplier Ltd group as extremely ambitious since Chinese car manufacturers were felt to have little in common with Western car manufacturers. Would it be possible to win C-OEMs just by following the same approach that was applied for winning Western OEMs?

Chinese OEMs and the Need for a New Setup Daniel Xu was one of the earliest employees of Auto Supplier Ltd in China. In fact, during the last Chinese New Year celebration, he proudly received the employees’ award for reaching 15 years with the company. As a young engineer, he had started to work in one of the first plants in Changchun, his home town in Northern China, in the quality department. Later on, due to his strong technical background, he was offered a position as project engineer in the headquarters in Shanghai. Being suddenly part of the CT was a completely new world for him. Daniel was excited to learn about customers and commercial topics. Subsequently, he was promoted to project manager and finally became customer team director for BMW, one of the company’s important accounts. As the key decision-makers in Western OEM were mainly Westerners, the customer team directors were normally Westerners too, as they possessed the necessary network. Therefore, becoming the first Chinese customer team director for a Western OEM was a great personal success. His family was very proud of him! At the beginning of 2017, the Auto Supplier Ltd Management Board decided to change the strategy and to set up a CT for Chinese OEMs. It didn’t take the China management team long to choose Daniel for the prestigious position as customer team director for this new team. He had both the long-term experience as customer team director working with Western OEMs and the knowledge of China. Daniel was more than happy about the shift in strategic direction, because he was seeing the C-OEMs as a growth opportunity for Auto Supplier Ltd. He felt honored and also challenged to build up the new CT for the Chinese clients. Unfortunately, soon the challenge turned into a nightmare. Although Daniel recruited a motivated CT—some internal referrals and some external new joiners—the first 6 months were more than frustrating, as his team had to follow certain processes and procedures which simply didn’t match with Chinese OEMs’ requirements. Auto Supplier Ltd had reached its technological leadership and top-notch quality reputation by thoroughly building up

Phases

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Preparation

Acquisition

Concept validation

Product & process development

Product & process realization

Ramp-up

Production

Service parts

Fig. 1 The Auto Supplier product development process. Source: Own illustration

and following a product development process (PDP) with eight sequential phases, as illustrated in Fig. 1. The different phases of the PDP were linked with clear milestones in each phase and internal quality gates to ensure the process to be on track. In order to win C-OEMs, Daniel and his team had to concentrate first on the preparation and the acquisition phases. The additional milestones in both phases clearly defined which function had to deliver which information so as to develop a project proposal for the client: e.g., the development department had to deliver a product concept, the testing department a test and prototype concept, the industrial engineering (IE) a production concept, and so forth. As none of those functions reported to anyone in the CTs, but instead to either plant managers or central functions based in Europe, Daniel had limited influence on colleagues on whom he depended to provide the customer with a project proposal. The PDP approach worked very well with Western OEMs as their internal organizations more or less mirrored the Auto Supplier Ltd organization. Western suppliers like Auto Supplier Ltd and Western OEMs had developed into “twins” over decades of close cooperation. Daniel knew that Chinese car manufacturers followed a different working approach and used different decision criteria. Most of them were new in the market, it looked like they were still experimenting and learning, and they didn’t follow wellformulated processes. For them high-speed growth as a way to gain market share was of key importance, much more important than quality and innovative technology—the key criteria of Western OEMs. In the year 2000, owning a car still reflected a high social position and an exceptional high income in China; CEOs and CFOs might have owned cars, but not the other members of management. Almost 20 years later, it was not uncommon to see even receptionists driving their own small cars. Although BMWs, Daimler, and Porsche possessed an outstanding reputation, the masses of Chinese end-consumers decided better to buy a small affordable Chinese car than no car at all. As a consequence, Chinese car manufacturers had two major requirements: first, fast reaction to end-consumers regarding new models and, second, pricewise highly competitive cars. The complex and rigid Auto Supplier PDP was unfortunately not suitable to satisfy either of those two needs. What was the practical impact of the PDP in daily life? When a C-OEM was asking for a quotation, local Chinese suppliers could deliver it within 2 weeks. Although Daniel was pushing all related functions constantly for their input as demanded by the PDP, it seemed impossible to deliver a quotation in less than 4 weeks. When they were ready to deliver the quotation, the C-OEM had already given the project to a Chinese supplier. Finally, the Auto Supplier China management team was ready to

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react to Daniel’s constant demand of empowering the CTs by changing the reporting structure. Mid 2017, the China management team announced a reorganization. By moving the related development, quality, and industrial engineering functions into the CTs, Daniel had now the disciplinary power to ensure that all functions were focusing on the same priority: winning C-OEMs. That reorganization helped to speed things up. The new setup earned applause from the CTs that gained power but earned harsh critique from the plants and central functions that lost power. Although shortly after the reorganization Daniel and his team won two important projects from C-OEMs, Daniel could smell that the new structure would bring along new challenges. Some colleagues in the plants started to “play separation” from CTs. What to do if the CTs won projects from C-OEMs but the plants didn’t produce what the CTs sold? Only with good cooperation between CTs and plants could the 25% turnover with Chinese OEMs be reached. But how to get there? Daniel had again sleepless nights.

Cooperation Problems Created by the Reorganization According to the PDP, Daniel and his CT were responsible for leading the projects up to SOP (start of production). In other words, they had not only the task to win the acquisition project but also to ensure a smooth concept validation, product/process development, product/process realization, and finally the ramp-up. After the start of serial production, the plants took over responsibility. Until then, CTs and plants had to work closely together. Unfortunately, the reorganization seemed to have decreased the willingness of colleagues in the plants to work closely with CTs. Often these issues were linked with information sharing, especially as both sides had different networks and contact partners within the customers. Sometimes plant colleagues saw or heard something at the customer’s place which was of high interest for the CT colleagues—but did not pass on that piece of information. Just last week, one of those unpleasant events had occurred again. The C-OEM asked for a quotation for an additional product linked with a window regulator project which Auto Supplier had finally won. After 1 week had already gone, the C-OEM gave this additional project to a Chinese supplier. When discussing in the project meeting that obviously the Chinese supplier knew about the upcoming bidding earlier (otherwise he couldn’t have delivered a quotation within 1 week), it turned out that a colleague from plant logistics who had good “guanxi” (Chinese expression for close connections) with that customer had also heard about the upcoming project 3 weeks earlier but did not pass on the information to the CT. Daniel got very upset about it. Wasn’t it just common sense to proactively pass on relevant information? On the other hand, Daniel also knew about CT members’ behavior that wouldn’t qualify as “good behavior.” Yesterday, he overheard the plant manager in Chongqing gossiping with the plant manager from Shanghai about him, Daniel. “Does Daniel train his CT members to treat us plant managers as assistants?” Daniel couldn’t help listening to the conversation. By listening he understood that a CT member travelled to Chongqing to visit a customer. Instead of sharing this

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information with the plant manager, involving him actively, asking him for advice or suggesting the plant manager to join the customer meeting, the CT member had only asked the plant manager to organize a car from the airport to the customer’s location. Daniel felt ashamed for this team member’s behavior, another example of poor cooperation. Nothing sophisticated, just common sense, but still involving the colleague actively didn’t happen. It felt like the reorganization had enlarged the gap between plants and CTs. That was a painful experience for Daniel who had fought so strongly for the reorganization. Last year, Daniel had spent 1 month in the Auto Supplier headquarters in Germany. They had had a similar reorganization, but the situation felt different. How come? Daniel was wondering. What did the German colleagues do differently to the Chinese colleagues? Daniel had problems putting his finger on it. The gap between CTs and plants also existed. But how did people handle their problems? Daniel remembered that once a plant manager shouted in a meeting at his CT colleague, as he wasn’t happy with his behavior. That would never have happened in China. Yes, that was probably the point. In Germany, colleagues addressed problems directly. For Chinese, that would be unbearable, the loss of face in front of everybody. It was more indirect, like the two plant managers talking about the CT colleague. Did the CT member know what the Chongqing plant manager thought about his behavior? Probably not. Daniel realized that this cultural difference added an even more challenging flavor to the situation (Metz and Gunkel 2018). He had to smile, as he recalled a book which a German friend had given to him before travelling to Germany. He opened his desk drawer. Here it was: “East meets West” from Yang Liu (2015), a young Chinese artist, who used a pictogram to visualize the difference between Chinese and Germans in handling problems. While the Germans step directly on the problem, the Chinese walk around the problem. After working in a German company for 15 years, Daniel realized the German flavor in how he himself handled problems, as he was known to address them directly. Although he didn’t like the shouting common when Germans were involved, he liked the direct way of discussing problems. For him the Chinese tendency to avoid or to not address problems directly seemed to make the solution-finding even more challenging. One morning, Daniel came to the coffee corner, where he saw his boss; the customer team VP, standing with the President; and the COO who was responsible for all plants. They laughed about something and spirits seemed to be positive. When Daniel approached, the President said, “Hi Daniel, how is it going?” And although Daniel hadn’t planned to address the topic, he heard himself sighing deeply. When all three looked up, Daniel decided to continue: “Hmm, maybe not so well. . . If we don’t get CTs and plants working really together, the re-organization was the wrong decision.” With a slightly bitter tone, the COO, who had been in favor of keeping the original organization structure, snapped: “But it was you, young man, who pushed very hard for this re-organization, right?!” “Yes, you are right,” replied Daniel, “but as we all know, our set-up at Auto Supplier Ltd is highly complex. And just announcing the new structure doesn’t mean that people show the suitable mindset and behaviors!” Silence. No one had expected such a serious message in the coffee

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corner. After a short reflection, the President looked at Daniel: “Yes, I see your point. We already had a similar discussion in the management team.” Daniel’s boss stepped forward: “Daniel, you are one of the few colleagues who have first-hand experience from both sides, CTs and plants. How about you work out an idea, how to improve the cooperation in the new structure?” Daniel was a bit speechless. He hadn’t planned to address the topic and he had certainly not intended to receive a new task. But seeing the expectations in the three top managers’ eyes, Daniel had no option except agreeing: “Ok, give me a week; I’ll get back to you with some ideas.” And with this Daniel had a new challenge.

Improving Cooperation Between CTs and Plants Brainstorming on Suitable HR Development Approaches “What can I do?” Daniel was sitting at his desk, looking for an idea how to get started with this new task. In that moment he saw Lisa Wang, the HR business partner of his CT, walking by. This was it! “Hi Lisa, do you have a moment?” Lisa came over “How can I help?” That is why Daniel liked so much working with Lisa! As HR Business Partner, she really saw her role in supporting the CT in all HR-related topics to help them reach their targets. In addition to this positive mindset, Lisa was a real HR professional, and her special expertise was HR development topics. “Let me tell you about a new task I just got from our top management. I’m really struggling with it and hope we can do something together.” They sat down in Lisa’s office and, after Daniel had shared the background information with Lisa, she summed up: “If I understand you correctly, the challenge we have here is: How to encourage the colleagues from the plants and from the CTs to cooperate better, to exchange more information, to support each other more in order to win new Chinese customers and to build long-term relationships with them.” “Yes, absolutely,” confirmed Daniel, “and, although it is especially important for my CT that deals with Chinese OEMs, the other CTs responsible for Western OEMs face the same challenge.” “Ok, but then we are talking here about ten CTs and people from ten plants who have regular interactions with the CTs, right?” asked Lisa. “Yes, I hadn’t thought about the number of people so far, but I guess you are right, we are talking here about easily two hundred people as a core group. And if I think it through, ideally those two hundred people should help and support each other, and they also should positively influence the others in their environment to do the same.” Daniel was summarizing his thoughts. “That sounds to me like strengthening a teamculture and at the same time encourage all individuals to show proactive and helpful mindset and behaviors, right?” concluded Lisa. “Yes, that sounds even more complex than I thought in the beginning,” admitted Daniel. “Let’s perhaps start by formulating what we want to achieve.” Daniel and Lisa summarized three major objectives: first, strengthen common understanding that winning and building customers is a shared target of CTs and plants; second, reflect honestly on own behavior and mindset regarding “cooperation”; and third, support each other in

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changing habits to strengthen cooperation between plants and CTs. As a next step, Daniel and Lisa arranged a meeting with the President, COO, and customer team VP. The top management agreed quickly on the presented targets, and the President saw them off by smiling encouragingly: “We look forward to getting your specific ideas how to strengthen the cooperation.” Which kind of intervention would be the best to reach their three objectives? In their follow-up brainstorming, Daniel and Lisa quickly figured out that each HR development approach had pros and cons. “How about individual coaching with external coaches?” proposed Daniel. “As we want the colleagues to reflect on their individual mindsets and behaviors, I think individual coaching would be great.” Although Lisa was a fan of individual coaching on the executive level, she pointed out that there was probably a budget constraint if they wanted to offer individual coaching to two hundred people. Or was it perhaps an idea to offer individual coaching to only some colleagues? If so, how to select those? And how might non-selected colleagues feel about it? Daniel continued to think it through, but it seemed complicated to find answers. “How about group training then?” suggested Daniel, changing his train of thought. “Is it about learning something new? New tools and techniques in working together? Then training would help. . .” reflected Lisa. When deepening the discussion, they realized that Lisa had a point there. It was about changing behaviors and mindset, not really learning something new, as it was more about common sense “good behavior.” Although Lisa didn’t seem to favor the training idea, Daniel wasn’t so sure. Was it not possible to train “discipline” to encourage people to apply “good communication and cooperation” every day? While Daniel was still wondering about the training topic, Lisa added a new idea: “Do you remember the Open Space event we had, or the World Café1 Event which we organized with our worldwide HR team and which I told you about?” Now Daniel was the practical one, pointing out that getting 200 people together from ten plants and the Shanghai headquarters would be logistically challenging—and expensive. “How about classical workshops in different locations, mixing at least some plant colleagues with some CT colleagues?” They both liked the workshop idea, in which the current challenges could be discussed and in which awareness for better cooperation would be addressed. However, would a one-time workshop really help colleagues to change their mindset and behaviors? It seemed like there were so many HR development approaches available, but none really fitted to their task at hand. “What a pity that we can’t combine individual coaching sessions—as it would really help the colleagues to work on their discipline to change behaviors—with mixed workshops—as we would force them in workshops to discuss their issues together,” laughed Daniel. “That would be a perfect combination. How about inventing our own coaching-workshop-combination?” he added jokingly. “Bingo, that’s it!” Lisa

A World Café is a large group intervention. This methodology represents a flexible format for hosting large group dialogues. Participants discuss pre-defined questions in table groups, and during the process they switch the tables. The café ambience helps to relax the interactions. 1

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suddenly got excited. “Let’s organize peer coaching: a combination of both coaching and workshop elements.”

Possible Experiment: Peer Coaching Between CTs and Plants “What do you mean by peer coaching? Do you mean team coaching?” asked Daniel. Lisa thought for a moment. “Good question, Daniel. Some people might use the terms as synonyms. I do not. For me team coaching, group coaching and peer coaching represent different tools.” Saying this, she went to the flip chart in the corner of her office, and, explaining her understanding of the differences of the three coaching terms, Lisa started to draw a table (Fig. 2). Daniel understood that all three coaching approaches meant involving a number of peers. In team coaching, the organic team—the real-life team—sat together and tried to move forward in team-related challenges. Whereas team coaching was normally initiated by the team leader, group coaching as well as peer coaching could both be described as approaches which encourage the self-management forces of individuals. Over recent years more and more organizations have realized that the classical management hierarchy—and, with this, top-down-driven HR initiatives— is not sufficient. In order to become more flexible and agile in a fast-changing environment, organizations have started to think about distributed management approaches which support self-management initiatives. In the area of development and learning, those trends are reflected in decentralized approaches encouraging learners to connect with others in order to drive and steer their own learning (Laloux 2014). While group coaching was more like a one-time event (e.g., the case giver had 1 h to be coached by all other coaches), peer coaching was more suitable for

Fig. 2 Differences between team, group, and peer coaching. Source: Author

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changing habits, as each individual sets up a personal target linked with the overarching purpose. During a period, e.g., 3 months, the peers coached each other in smaller groups, e.g., five peers, to move forward toward their individual targets. “I think I understand the traditional team coaching approach. But can you give me an example of peer coaching?” asked Daniel. Lisa thought for a moment and decided to start with an example from universities. Since 2006, the universities around the world have seen disruptive innovation, such as massive open online courses (MOOCs). Two types of MOOCs could be distinguished. xMOOC represented the rather traditional course structure with recorded lectures and self-tests. However, the second type, the cMOOCs, added an additional element: They included “co-creation teams” or “hubs” or “learning groups” or “coaching circles.” All those titles described the same core idea, namely, connect the learners to each other, and let them drive their own development (Bates 2014). “Perhaps you can describe it best as supported self-learning,” explained Lisa. “Each learner might have an individual topic he wants to improve on, and the group acts as a support function.” Daniel started to understand the idea of peer coaching: “Sounds good, but that will only work if individuals show enough initiative to at least choose a topic which they want to work on, right?” Lisa nodded, “Yes, peer coaching requests a certain mentality of pro-activeness as well as a motivation to help others. Therefore, it is useful to start with a core group of people who show those traits. Later, hopefully they become positive role models and encourage others to do the same. I personally think, especially in China, where we are trained through our education system in school and often our homes to obey teachers and senior people, it can add so much value to enhance our employees’ proactive selfmanagement capacity” (Wang and Chang 2010). When Lisa saw Daniel struggling to transfer the university example to the corporate world, she provided another example. “Have you heard about Working Out Loud (WOL)?” When Daniel shook his head, she grabbed from the shelf a book with the title “Working Out Loud” and explained: “WOL is a way to build relationships in learning circles that can help you achieving a goal or changing a habit. The idea is to make your progress visible, share it with others” (Stepper 2015). She then explained that WOL is one example of peer coaching, which was initiated in 2014. In 2018 there were WOL circles in more than 40 countries. In particular, big German companies are known to use the WOL approach, e.g., Bosch, Continental, Daimler, Siemens, BMW (Stepper 2018). “However, WOL would not be the ideal approach for us,” Lisa pointed out. “For us, it is not important to make our work visible to others. I just gave you the example of WOL to show that connecting in learning circles represents a current trend.” Daniel tried to link all the information that Lisa had provided on peer coaching: “That means peer coaching starts with an overarching objective which is valid for the whole group. From there all individuals set up an individual goal contributing to the overarching objective. Afterwards the peers meet in smaller groups one hour every week for twelve weeks. And at the very end they meet again for a sharing workshop, right?” Lisa agreed. “But even if it should enhance the self-management capacity of each individual, is it realistic that the groups organize meetings over twelve weeks by themselves? Can we expect

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people to be so disciplined?” Lisa could hear Daniel’s doubts. “There is a small trick,” she added. “We would send out guidelines week by week. Those guidelines include ideas about what to focus on in the weekly meeting. The groups are free to decide whether they follow the weekly guideline or whether they follow their own agenda—as long as they meet one hour per week and discuss their objectives.” Daniel started to get a feeling for what a peer coaching process would look like.

Sustainable Good Cooperation: The Challenge Ahead Daniel knew that their three top managers were expecting a practical proposal on how to achieve good cooperation between CTs and plants. And he also knew whatever he and Lisa proposed was expected to have a sustainable effect. After their intense brainstorming about possible HR interventions such as training, individual coaching, big group interventions, workshops, and different forms of peer coaching, Daniel felt a bit overwhelmed with the task. Whereas he had thought in the beginning that they would present one of those interventions to the top management, the longer his discussion with Lisa went on, the more he understood that it might be useful to combine different approaches, to tailor-make a solution based on their specific challenges. Daniel and Lisa both felt peer coaching should be part of the proposal. But how should that work exactly? With whom to start? How to mix the groups? How to roll out the peer coaching to the others? Or is it better not to roll out the same approach but to do something else? Who should take the lead? Should HR take over? Or an external consultant? Or, since we are talking about selfmanagement, should it be left to each individual? These are open questions that Daniel and Lisa had to answer in order to present a solid proposal to their three top managers.

References Bates, T. (2014). Comparing xMOOCs and cMOOCs: Philosophy and practice. Accessed October 19, 2018, from https://www.tonybates.ca/2014/10/13/comparing-xmoocs-and-cmoocs-philoso phy-and-practice/ Laloux, F. (2014). Reinventing organizations: A guide to creating organizations inspired by the next stage of human consciousness. Brussels: Nelson Parker. Liu, Y. (2015). East meets west. Mainz: Schmidt. Metz, A., & Gunkel, M. (2018). China speaks out: How and why Chinese employees use their voice toward German managers. Thunderbird International Business Review, 60, 365–385. https://doi. org/10.1002/tie.21880 Stepper, J. (2015). Working out loud: For a better career and life. New York: Ikigai Press. Stepper, J. (2018). About working out loud. Accessed October 19, 2018, from http://workingoutloud. com/en/about Wang, Q., & Chang, L. (2010). Parenting and child socialization in contemporary China. In M. H. Bond (Ed.), The Oxford handbook of Chinese psychology (pp. 53–68). Oxford: Oxford University Press.

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Annette Metz is the Chief Representative of the HR consulting company CONBEN in Shanghai, China. She earned her PhD in International Management from Leuphana University in Lueneburg (D), her Master’s degree in European Marketing Management from Brunel University (GB), and her Bachelor’s degree in European Business Studies from Osnabrueck University of Applied Sciences (D). Following purchasing, sales, and marketing positions in the international trading business as well as a position as senior consultant within a Swiss consulting company, Annette Metz co-founded the HR consulting company CONBEN Deutschland GmbH in Duesseldorf. In 2004, she relocated to Shanghai to support CONBEN customers in China and Southeast Asia. In her role as HR consultant, she works with MNC/SME leaders and teams on HR development as well as organization development topics. Annette Metz is writing articles and is speaking on conferences on leadership questions mainly related with the cooperation between Western and Chinese managers and teams.

Part VI Conclusion

The Rise and Fall of Boundaries Ralph Kattenbach

From the ancient Silk Road on until its revival nowadays, people have found it lucrative to cross country boundaries between the Far East and the West. Boundaries represent meaningful demarcations as well as challenges for actions. As the grass always seems greener on the other side, crossing boundaries has ever been promising for merchants, companies, and whole societies alike. People want to cross market boundaries to expand; they cross technological boundaries to change production lines for increased efficiency; they cross cognitive boundaries to foster innovation through exchange and competition. Consequently, there are always ambitions to abolish boundaries and to enhance interactions across them. Against that, humans have a natural inclination to differentiate themselves from others through drawing lines, creating a social identity, and protecting their own in-group against (perceived) threats from the outside (Lamont and Molnár 2002). The higher the impression of uncertainty and unfairness through external threats, the stronger the tendency for in-group protection. However, even without external threats, groups show in-group favoritism to maintain and achieve superiority over an out-group (Tajfel and Turner 1986)—a process extensively reflected in today’s political landscape. We thus face the paradox that people tend to look over the edge of their own boundaries but build up those same boundaries to prevent others from doing so. Guilds and trade associations set occupational standards to shield their members from external competition, and countries define import regulations and taxes to protect the domestic economy. China’s Belt and Road Initiative illustrates this ambivalence toward boundaries. The project is a huge attempt to cross them. China provides loans to countries along the land and sea routes from China to Africa and Europe. Chinese companies massively invest in the infrastructure of such countries (e.g., by leasing ports in R. Kattenbach (*) School of Economics and Management, Tongji University, Shanghai, China e-mail: [email protected] # Springer Nature Switzerland AG 2019 C. Prange, R. Kattenbach (eds.), Management Practices in Asia, https://doi.org/10.1007/978-3-030-19662-2_20

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Singapore and Sri Lanka or buying the biggest seaport of Greece). Along its routes, the Belt and Road Initiative provides a promising economic outlook for a large number of countries by linking them to global economic corridors and by a more intense participation in regional and global trade. However, the initiative also raises concerns among the adjacent states about financial dependencies on China (e.g., Kuo and Kommenda 2018) and about China’s growing geostrategic influence (e.g., Gabriel 2018). The Belt and Road Initiative reveals the strengthening of Asia and especially China in the global market. Another indicator for the growing economic power of Asia is the so-called economic center of gravity, which is a function of the countries’ geographic position and their economic power in terms of the GDP. From the 1980s on, this economic center of gravity started to shift increasingly toward the East (Dobbs et al. 2012). Along with this shift, Western countries no longer dominate global trade. Asia and particularly China contribute in drafting rules for global trade with increasing self-confidence, a development not only observable at state level but also at the level of companies and individual consumers. The markets in Asia have outpaced the period of adaptation to Western products. From 2006 to 2016, the Asian share of global patent applications rose from around 50 to 65% (World Intellectual Property Organization 2017). Currently, China is pioneering with the replacement of cash money by mobile payment systems, and South Korean as well as Japanese car manufacturers pride themselves on alternative drive systems. Flourishing economies and the ever-growing middle class have promoted selfesteem and a new identity in many Asian countries, which in turn bring forth new lifestyles and innovations that more and more affect Western societies. For example, local Chinese shoe brand Feiyue has gained international cult status, and even Hollywood stars are wearing the Chinese sneakers. National borders and market delimitations are only the most obvious boundaries of societies. There are more subtle ones. Cultural and communicative boundaries often follow the lines of national borders but are more challenging, as they are less visible, ambiguous, and heterogeneous. Hofstede’s (1980) cultural dimensions, which made cultural differences measurable, and “The Tortuous Evolution of the Multinational Corporation” by Perlmutter (1969), describing the cultural positioning of companies, have been trendsetting for decades of intercultural research and management. Particularly, entering the Far East or Southeast Asia has been a big topic for international management of Western companies in search of cheap labor and new markets. When entering a new environment, organizations have to overcome manifold boundaries. On the one hand, globalization has provided a leap forward to make borders and boundaries more permeable and to enable economic growth and prosperity for developed as well as emerging countries. Market entry boundaries have significantly fallen, while international dialogue and exchange have led to cultural adaptions and a greater openness to products and influences from other cultures. On the other hand, organizations have massively expanded their international activities precisely through this ease of international trade, and thus, cultural issues gained in importance again. In consequence, economic ties have

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become more and more intense, but the perceived cultural distance between Western and Eastern societies has remained huge. We can also observe the rise of completely new boundaries. The online-offline interface, for example, is becoming more meaningful for companies and individuals. This boundary between traditional sales, e-commerce, and mobile services has emerged within the space of a few years only. With increasing competitive pressure, e-commerce and m-commerce manifest new market boundaries on a virtual level. Online regulations, consumer behavior, and other local practices must be explored. As the speed of digitization in Eastern Asia outpaces many countries in the West, foreign companies are generally more challenged to deal with this boundary in the right way. Underlying cultural characteristics and local habits still affect online purchase decisions, for example. In this vein, early in this millennium, eBay failed to implement its secondhand platform in China since they did not anticipate the lack of both supply and demand for secondhand goods (Wang 2010). Entering e-commerce requires new strategies, IT expertise, changes to logistics and distribution systems, etc. Another boundary developing refers to the generation gap, which realizes a stronger cultural boundary between the generations than between nationalities. Millennials around the world are ascribed the same work values. They have more in common with each other than they have with the older workforce in their home country. Moreover, for many (younger) people, the affiliation to an (international) subculture (like hip-hop or cosplay) is more relevant than a national culture. Despite the often-proclaimed boundaryless organization with a dispersed workforce striving for boundaryless careers, we still face boundaries for employees, too. From an employee’s perspective, hierarchical boundaries may have decreased thanks to flatter hierarchies. The glass ceiling effect, hindering members of a particular group (e.g., women or ethnic minorities) to enter higher management levels, is for many people still a meaningful boundary in organizations. Groups affected and the permeability of the glass ceiling widely differ at country level. The topic thus gains in importance for MNC who have to deal with different local glass ceilings. At the same time, MNC have the power to make a difference by challenging the local discriminatory boundaries instead of accepting them.

Aspiring Global Giants Crossing Boundaries For aspiring global giants, boundaries change with growth. Starting from the selection challenge when hiring new staff, new internal operations and leadership tasks emerge. As the company grows, the organization ought to redefine and explicitly communicate its corporate culture that has been on a subconscious level before. Within this continuous development process of fast-growing companies, the internationalization takes place. International capabilities must be acquired and a global organizational structure found. Culture, communication, and codes of conduct— aspiring giants—have to consider standardization versus adaptation of their strategies.

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Although this holds true for Western and Eastern companies alike, the conditions are not the same. Western companies selling their products in Asia still benefit from the high-quality reputation of Western products and connotations of modern and stylish. In contrast, Asian multinationals have to consider their marketing strategy thoroughly to overcome national or regional assumptions and stereotypes regarding quality, reliability, or safety. As more and more Asian products other than cheap goods penetrate Western markets (e.g., Huawei mobile phones), the prevailing prejudices may change. Some big companies or aspiring giants may have the power to change the game and to shape boundaries. Some may find a niche or a unique selling point that makes it easier to overcome boundaries. However, environmental changes are more threatening to foreign players, who are commonly less aware of—and more cautious and less agile in reacting to—upcoming trends or disruptive changes. Even if companies are well established in a foreign market, they are at risk of being crowded out if they do not cross newly emerging boundaries. Western companies, for instance, have to keep pace with the rapid change from offline toward e- and m-commerce in Asian countries.

Ethnocentrism and Cultural Aspects Crossing cultural boundaries is an inherent component of the international organization. Various factors determine the characteristics of the boundary. First, the crossing becomes more challenging with increasing cultural differences and language barriers. Second, the ethnocentric view can be more or less pronounced in an organization’s structure, strategy, and marketing. Ethnocentrism with derogatory stereotypes about other cultures complicates international activities. Third, for marketing considerations also the country-of-origin effect and the consumer’s ethnocentrism are relevant. Particularly, when products constitute a part of the national identity—be it coffee in Vietnam and the USA or baguette and pastry products in France—market entry becomes culturally sensitive. Sometimes it may be wise to stick to your origin, to stand out and emphasize your own strengths as an (exotic) alternative. This holds all the more true as we have to abandon the simplistic view on national cultures. We face tendencies toward a globalized culture and global trends. Online sales and shipment make regional products available on a global scale; information and entertainment programs are broadcast around the world, and in most societies, a meaningful proportion of citizens has a migrant background with bi- or multicultural roots. Against this backdrop, national cultures and identities have become less distinct. Sure, we still have to consider cultural differences, but as a fourth factor, we also have to consider cross-cultural commonalities in trying to hit a global nerve.

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CSR Gains in Importance CSR activities in Asia have strongly increased since the beginning of the millennium (Chapple and Moon 2005; Chapple et al. 2014), and they have become business as usual, as many large companies provide periodic CSR reports. Still, major proponents of CSR in Asia are foreign MNC (Debroux 2006). However, local competitors are increasingly keeping pace and new standards have been set. The absence of CSR violations as a minimum and the presence of visible CSR activities gain importance with the economic development of a society and increasing expectations. International CSR activities are a promising mean to increase awareness and acceptance in foreign markets. Moreover, CSR has the power to overcome consumers’ ethnocentrism and skepticism and to increase public appreciation of the company and its products. One has to differentiate carefully between lip service and meaningful impact: CSR activities in Asia do not follow a global standard, and in several Asian countries, CSR and compliance issues go hand in hand, as corruption and bribery do exist and governments combat against them, like in Vietnam or Indonesia (e.g., Kucher 2015). Notwithstanding whether CSR activities focus on the code of conduct, social initiatives, or supply chain management, in all cases, MNC have to strike the right note to get people committed and to choose for the right actions to help others effectively. CSR collaborations could be a promising step to overcome boundaries. And professional CSR service providers could have a meaningful impact on the future design and organization of international CSR activities.

Coaching as a Means to Overcome Boundaries Coaching is a tool to enable individuals deal with their respective boundaries. During the last two decades, coaching services have become established on the Asian markets. While the coaching market is saturated in the USA and Europe, the Asian market is still growing. In the beginning, Western coaches offered services to Western companies; now, local and international coaches alike execute coaching assignments, and their clients are international as well as local private companies. International standards have gained acceptance, and nowadays the certification by an international accreditation body has become a reliable quality criterion (Arora et al. 2017). In a sense, coaching has crossed the boundary of the Asian market. New promising niches still to explore in Asia are NGOs and governmental organizations as coaching clients, as well as the self-paid individual market. Coaching helps the coachees to overcome their personal boundaries, be it an expatriate assignment, work culture, or the glass ceiling obstacle within a company. Only rarely, coaching services are used specifically for employees in a transition phase like a foreign assignment, although expatriation coaching is a fruitful approach to accompany foreigners during their continuing crossing of boundaries in an unfamiliar country and culture. Coaching has a positive impact on various outcome variables like performance, task satisfaction (Ellinger et al. 2003), and commitment (Kalkavan and Katrinli 2014). The impact of coaching is incremental. Thus, the longer the coaching process

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endures, the better the performance (Liu and Batt 2010). For teams, coaching helps to improve coordinated action, resulting in a higher product quality, goals, and project completion within time (Hagen 2012). Organizations can make use of it to foster a more active, self-confident, and powerful workforce—which may even lead to a more agile organization ready for the next boundaries to cross.

Conclusion We believe crossing boundaries is worthwhile. Personnel growth, organizational success and the openness, stability, and further development of societies benefit from explorations beyond existing boundaries. Obviously, it takes an effort to overcome boundaries; it goes along with struggles, risks, and uncertainties. Individuals and companies need to be well equipped to deal with these challenges. Shedding light on boundaries, we should not only focus on differences but also keep commonalities and synergies of Western and Eastern approaches in mind. Deng Xiaoping, the leader of the People’s Republic of China from 1978 to 1989, probably voiced the opinion of Western and Eastern consultants or coaches alike, when he encouraged crossing boundaries, but in a careful way: “Crossing the river by feeling the stones” reflects his policy to move ahead with economic reforms slowly and pragmatically. Awareness and consideration of boundaries are most crucial to the endeavor on new shores. Step by step, feeling the quality of the ground, exploring invisible obstacles and currents, will ensure a secure footing on your way to the far bank. With its iterative, cybernetic repetition of stepping, sensing, and evaluating, this metaphor is more than ever a guideline to cross all kinds of boundaries with circumspection and mutual respect. While we were editing this book, major changes on a global level have been challenging the status quo. Looking at Western countries, long-lasting alliances and practices are questioned. The EU struggles with the rise of right-wing and populist parties in many member states like Italy, Poland, and Hungary; and the President of the USA, Donald Trump, holds nationalistic beliefs and is risking a global trade war for a better position of his own economy. “Repressive regimes in Asia continued to consolidate their power in 2017,” and democracies all around the world are in a rollback (Freedom House 2018). There are economic as well as cultural reasons for the recent rise of national boundaries. The globalization process has caused a global alignment toward a more liberal and progressive culture. As a counterreaction, traditional forces gain strength. Moreover, crossing boundaries may cause uncertainty for those crossing but also for those on the other side—particularly in times of growing disparities and when industries, technologies, and societies are in rapid transition. Against this backdrop, we remain uncertain whether the relevance of national boundaries and ethnic preconceptions will rise again or whether other issues like culture, communication, and technology advancement will set the agenda. Believing in the benefits of free and fair global trade, we have focused on the latter.

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References Arora, U., Assegid, Y., Chan, C., Dolly, A., Dorosh, M., Kattenbach, R., & Roth, A. (2017). 4th coaching survey: An Asia coaching benchmark. Accessed October 2, 2018, from http://www. coachingsurveys.com/pdf-files/4th-coaching-survey-china-hong-kong-india-30-june-2017-en. pdf Chapple, W., & Moon, J. (2005). Corporate social responsibility (CSR) in Asia: A seven-country study of CSR web site reporting. Business and Society, 44(4), 415–441. https://doi.org/10.1177/ 0007650305281658 Chapple, W., Herzig, C., & Slager, R. C. (2014). The dynamics of corporate social responsibility in Asia: A 6 country study. Academy of Management Proceedings, 2014(1), 16813. https://doi.org/ 10.5465/ambpp.2014.16813abstract Debroux, P. (2006). Corporate social responsibility in Asia: The beginning of the road. Sōka Keiei Ronshu, 30(2–3), 17–29. Dobbs, R., Remes, J., Manyika, J., Roxburgh, C., Smit, S., & Schaer, F. (2012). Urban world: Cities and the rise of the consuming class. Accessed October 2, 2018, from https://www. mckinsey.com/~/media/McKinsey/Featured%20Insights/Urbanization/Urban%20world%20Cit ies%20and%20the%20rise%20of%20the%20consuming%20class/MGI_Urban_world_Rise_ of_the_consuming_class_Full_report.ashx Ellinger, A. D., Ellinger, A. E., & Keller, S. B. (2003). Supervisory coaching behavior, employee satisfaction, and warehouse employee performance: A dyadic perspective in the distribution industry. Human Resource Development Quarterly, 14(4), 435–458. https://doi.org/10.1002/ hrdq.1078 Freedom House. (2018). Democracy in crisis: Freedom House releases freedom in the world. Accessed October 2, 2018, from https://freedomhouse.org/article/democracy-crisis-freedomhouse-releases-freedom-world-2018 Gabriel, S. (2018). Speech of the former German foreign minister at the Munich Security Conference. https://www.auswaertiges-amt.de/en/newsroom/news/rede-muenchner-sicherheitskonferenz/ 1602662 Hagen, M. S. (2012). Managerial coaching: A review of the literature. Performance Improvement Quarterly, 24(4), 17–39. https://doi.org/10.1002/piq.20123 Hofstede, G. H. (1980). Culture’s consequences. International differences in work-related values. Cross-cultural research and methodology series (Vol. 5). Beverly Hills: Sage. Kalkavan, S., & Katrinli, A. (2014). The effects of managerial coaching behaviors on the employees’ perception of job satisfaction, organisational commitment, and job performance: Case study on insurance industry in Turkey. Procedia – Social and Behavioral Sciences, 150, 1137–1147. https://doi.org/10.1016/j.sbspro.2014.09.129 Kucher, A. (2015). Korruption und Korruptionsbekämpfung in Indonesien: Ein Vergleich der Suharto-Jahre mit den ersten Jahren in Reformasi. Dissertation. Bonn: Rheinische FriedrichWilhelms-Universität Bonn. Accessed October 2, 2018, from http://hss.ulb.uni-bonn.de/2015/ 4201/4201.pdf Kuo, L., & Kommenda, N. (2018). What is China’s belt and road initiative? The Guardian. Accessed October 2, 2018, from https://www.theguardian.com/cities/ng-interactive/2018/jul/ 30/what-china-belt-road-initiative-silk-road-explainer Lamont, M., & Molnár, V. (2002). The study of boundaries in the social sciences. Annual Review of Sociology, 28(1), 167–195. https://doi.org/10.1146/annurev.soc.28.110601.141107 Liu, X., & Batt, R. (2010). How supervisors influence performance: A multilevel study of coaching and group management in technology-mediated services. Personnel Psychology, 63(2), 265–298. https://doi.org/10.1111/j.1744-6570.2010.01170.x Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. The Columbia Journal of World Business, 4, 9–18.

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Tajfel, H., & Turner, J. C. (1986). The social identity theory of intergroup behavior. In S. Worchel & W. G. Austin (Eds), Psychology of intergroup relations. The Nelson-Hall series in psychology (2nd edn, pp. 7–24). Chicago: Nelson-Hall. Wang, H. H. (2010). How eBay failed in China. Forbes. Accessed October 2, 2018, from https://www. forbes.com/sites/china/2010/09/12/how-ebay-failed-in-china/#2b5b88e55d57 World Intellectual Property Organization (WIPO). (2017). World intellectual property indicators 2017. Accessed October 2, 2018, from http://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_ 2017.pdf Ralph Kattenbach holds the VW/SAIC VW Chair in Human Resource Management at Tongji University in Shanghai, China and is affiliated to the International School of Management in Hamburg, Germany. He is a member of the AgileVentureLab, a global think tank focused on researching and applying agile principles to management and leadership and helping companies and individuals to cope better with ambiguity and unpredictability. Ralph holds a Master in Organizational Psychology from Utrecht University, the Netherlands. He earned his PhD degree at the Centre for Personnel Research at Hamburg University, Germany. With 15 years of expertise in organizational research, survey conception, and analyses, he is consulting and accompanying companies on HR and OB issues. His behavior-oriented research aims to unravel the interplay of structural determinants, psychological antecedents, and specific job conditions in predicting job engagement, performance, and organizational outcomes. As such, the impact of professional coaching in the organizational context is a recurring topic.