Schindler India is a part of the Schindler group, the largest supplier of escalators and the second largest manufacturer of elevators worldwide. Schindler’s presence in India can be traced back to 1925, when the first Schindler elevator was installed, however it was not until the late 1950’s when they appointed a local distributor, with the next step being taken almost 40 years later to open its own wholly owned subsidiary. Schindler as a firm was established in 1874 in Switzerland by Robert Schindler and elevator manufacturing began in 1889.
Almost a century later, Alfred N. Schindler became the fourth generation of the family to lead the firm with an aim to transform the Company’s culture from a purely engineering based manufacturing company to one of a customer oriented service company. Schindler in the meanwhile had progressed to being the leader in producing elevators and escalators with worldwide revenues of 6. 6 billion Swiss Francs (US $4 billion). The company employed over 38000 people worldwide in 97 subsidiaries, but yet to have any operations in India a market that Alfred N.
Schindler felt had great potential. Schindler’s presence in India was limited to a long term distribution agreement with ECE in 1958 that when terminated in 1985 resulted in entering into a technical collaboration with Bharat Bijlee (BBL) to manufacture, market and sell its elevators and also acquiring a 12% equity stake in BBL. BBL consequently with the support of Schindler became the number two player in the Indian elevator market with a 10 – 15% share a decade later.
Alfred N. Schindler always felt that the Indian market had great potential and thus on assuming the role of chairman in 1995, he undertook a sabbatical for 6 months wherein he travelled through several important markets China, Japan and also several weeks in India traversing almost the entire country that reinforced his belief of the great growth potential that India had for Schindler. (Fagan, Yoshino et al. 2004) 2. Silvio Napoli
In 1996 Schindler proposed a new venture that will get it more management control of the Joint that they had with BBL. The subsequent talks to resolve this proved difficult thus resulting in the dilution of the collaboration that Schindler had with BBL. Schindler subsequently began to consider options to establish its own operations. This task was entrusted with Silvio Napoli who had joined Schindler in September 1994 as head of Corporate Planning reporting directly to the CEO after graduating from the MBA program at Harvard University.
Silvio Napoli’s career began as head of Corporate Planning and as staff to the Corporate Executive Committee known as Verwaltungsrat Ausschuss (VRA) that was composed of Alfred Schindler (Chairman), Luc Bonnard (Vice chairman) ; Alfred Spoerri (Chief Financial Officer) he was entrusted with taking meeting minutes and following up on the action items and special project that were discussed by the VRA. Silvio Napoli first major project involved the Swatch Project that primarily revolved around developing a Standardized elevator at a significantly lower cost than existing broad line of Customized products.
This involved significant changes to the existing processes in place that consequently resulted in the development of the S001, an elevator that could not be customized and also used many parts from external suppliers that led to halving the cycle time of 20 – 30 weeks. In the meanwhile as previously mentioned negotiations with BBL broke down in India, consequently resulting in the VRA engaging the Boston Consulting Group for suitable local partners with Napoli being the reference point for this project, however during this time it became legally possible to start up a 100% wholly owned company in India.
The VRA on learning this as well as the lack of finding any suitable partners instructed Napoli to investigate further on opening a wholly owned company in India. Napoli consequently contacted various people in India to enable him to understand the magnitude of this challenge to enter the Indian elevator market that he then integrated into a formal business plan detailing the aspects of Schindler’s entry into the market and submitted to the VRA.
The plan essentially called for a $10 million investment and hinged on using the S001 elevator developed previously in the Swatch project. The plan also proposed that to avoid high import tariffs, all manufacturing and logistical activities outsourced to local suppliers. The VRA on approving the plan offered Silvio Napoli the role of creating the Indian subsidiary with the reasoning offered by Bonnard of the need for a young guy who was easily approachable and of someone who could handle the different cultures i. e. young and flexible.
(Fagan, Yoshino et al. 2004) 3. Creation of Schindler India Napoli as mentioned was entrusted with the task of creating the subsidiary and hence he decided to relocate himself to New Delhi, with the company headquarters at Mumbai. The initial phase was consumed between frequent travelling between Delhi and Mumbai as well as settling on the family front along with searching for suitable candidates to head his management team. The search for candidates led him to firstly hire M. K Singh as the role of Managing director.
M.K Singh brought with him firsthand experience of building an organization from scratch as well as someone who had a different perspective of seeing things including invaluable feature of seeing things from the customer’s point of view due to his previous credentials of leading Construction project for some of India’s largest hotels. T. A. K. Matthews with previous credentials of working for Otis for nine years was next recruited to head field operations, with Ronnie Dante being hired next as General Manager engineering.
Ronnie Dante brought with him superior elevator engineering skills that were comparable to his European counterparts. Prakash Sinha was hired to lead the company’s human resource department and finally Jujudhan Jena was appointed as the Chief Financial Officer. With the team in place, the next phase involved developing a strong working relationship amongst the various members of the team. The team building process also highlighted the difference in perspectives with Napoli’s strong headedness as opposed to the friendly easy going attitude of M.
K partially derived from his previous experience of working in the hotel industry. The diverse and complex nature of the project called for lean efficient organization that as it would enable ongoing interaction and feedback among other members of the organization. (Fagan, Yoshino et al. 2004) 4. Indian Elevator Market Scenario The liberalization of the Indian economy in the early 1990s resulted in reviving the construction industry which consequently led to reviving the fortunes of the elevator industry.
The rapid rise in low – mid rise building due to rapid increase in urbanization and shortage of space in the fast growing cities of Mumbai, Bangalore and Pune that further fuelled the need for building an increased number of low – mid rise buildings. The Indian elevator had an installed base of 40000 at the end of 1997, however the growth potential was significant as space was always at a premium, and hence the only way to reside India’s burgeoning population would be to build high which in turn would lead to increased demand for elevators.
At the start of 1998 Mumbai and Delhi together represented 60% of the total Indian elevator market with Single speed (65%) and two – speed (20%) elevator type dominating the residential market. Competition was naturally intense in the Indian elevator market as other major world and local players had already realized the growth potential of the Indian elevator market. Otis India (subsidiary of Otis) with an installed base of 26000 elevators (approximately 50% of total market share) was the dominant player in the Indian market with BBL, Finland’s Kone and ECE along with other small local manufacturers accounting for the rest of the market.
The Indian elevator market was naturally very price sensitive with the high growth rate causing further pressures on pricing, however this also contributed to service also substantially playing a key part in the buying decision for elevators. The significance of the service factor becomes more crucial as the life cycle of an elevator can be classified into seven distinct phases: engineering, production, installation, service, repair, modernization and replacement.
The first three phases contribute towards a third of the labour content with ensuing profits of only 20% on the contrary latter four phases contribute towards two – thirds of the labour contents with ensuing profits of 80%. This thus indicates the importance of annual maintenance contracts in terms of not only maintaining the elevators but also as a significant contributor towards enhancing future profits. In light of the above scenario as was documented by Napoli in his business plan as well, he strongly felt that for Schindler to be competitive they will have to come with a radical approach. (Fagan, Yoshino et al. 2004)