Danfoss' Business Strategy in China

This made many manufacturers including Danfoss's customers like air-conditioning and refrigeration manufacturers shift their focus to China. The Danfoss board learned that the air conditioning and refrigeration markets in China were poised for huge growth. Further, China offered huge cost advantages in the form of cheap availability of labor and land. Moreover, the European customers of Danfoss were putting pressure on the company to decrease the prices of expansion valves. All these factors led the company to seriously think of establishing a production facility in China. Danfoss's initial plan was to produce radiator thermostats and expansion valves by shifting the production of expansion valves from Denmark to China, and to develop China as its global sourcing hub...

Initially, Danfoss could not find suitable suppliers in China and had to procure most of the raw materials required from suppliers in Europe. Language acted as a major barrier, and its many technical specifications often led to confusion among the Chinese suppliers. This resulted in the rejection of many products during testing. Danfoss also found it difficult to deal with Chinese employees. The management followed the western style of openness and cooperation, which was new to the Chinese employees. They were used to a system which gave importance to individual performance and were not accustomed to working in a group. Hence, they were reluctant to discuss things and did the work as they were ordered to even if they had the knowledge to do it better...