Danfoss' Business Strategy in China

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Case Details:

Case Code : BSTR220
Case Length : 15 Pages
Pages Period : 1994-2006
Organization : Danfoss
Pub Date : 2006
Teaching Note :Not Available
Countries : China, Denmark
Industry : Air-conditioning and refrigeration equipment

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

The company had a lot at stake in China and plans to make the country its 'second home' after Europe. Danfoss had already invested more than US$ 100 million in China by 2005 and built a factory in Tianjin Wuqing Development Area (Wuqing). It had shifted some of its manufacturing facilities from Denmark and other regions to China. The Wuqing factory had become the manufacturing hub for Danfoss in the Asia-Pacific region.

Background Note

During the Great Depression6 in the 1930s, Mads Clausen (Clausen), an engineering graduate, decided to manufacture automatic valves for refrigeration plants in Denmark; at this time, these valves were being imported into Denmark from the US.

In 1933, he established Dansk Koleautomatik-og Apparat-Fabrik (Danish Cooling Technology and Apparatus Factory). By 1938, the company (DCTAF) also started producing a number of other products such as ball float valves, thermostats, automatic spring valves, pressure-controlled valves, room thermostats and constant-pressure valves.

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In the 1940s, DCTAF expanded its operations in Europe by appointing dealers in Belgium, Norway, Sweden, the Netherlands, England, Norway and Spain. In 1946, the company's name was changed to Danfoss for convenience, especially in the international markets. In the same year, a new office with 261 employees was opened in Copenhagen.

In 1949, Danfoss established an office in Argentina, its first outside Denmark. In 1950, Danfoss introduced piecework, a system through which the employees were paid on the basis of the quantity produced. By the end of the year 1953, the number of employees had increased to 2,000. Danfoss also started manufacturing compressors and radiator thermostats.7 In 1955, it launched its in-house newspaper Ventilen. In 1962, Danfoss started its own research department. After Clausen's death in August 1966, his wife Bitten Clausen took over as the Chairman of the Board. During the 1970s, Danfoss manufactured different types of electronic frequency converters, hydraulic components and flow meters...

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6] On October 1929, the New York Stock Exchange witnessed a sudden fall in the stock prices and the fall continued till the next three years. By 1932, the value of the stocks was about 20% of what they were in 1929. This ruined many investors and banks and about 11,000 of the total 25,000 US banks were affected. This resulted in low consumer spending which reduced production leading to an overall economy downturn. This was referred to as the Great Depression and it also affected Europe and the colonies of European powers. The depression ended in 1939.

7] Thermostats used to control the temperature of radiators (valves) are called radiator thermostats.


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