Harvard Case - Johnson Controls-Hitachi: Moving Out of the Core Product Range
"Johnson Controls-Hitachi: Moving Out of the Core Product Range" Harvard business case study is written by Sandeep Puri, Shubham Sharma, Shivani Upadhyay. It deals with the challenges in the field of International Business. The case study is 9 page(s) long and it was first published on : May 31, 2017
At Fern Fort University, we recommend that Johnson Controls-Hitachi (JCIH) pursue a strategic shift towards a transnational strategy, focusing on emerging markets, particularly in Asia and Latin America, while leveraging its existing strengths in energy efficiency, building automation, and sustainable solutions. This strategy should involve a combination of organic growth, strategic alliances, and global mergers and acquisitions to expand its footprint in these regions and capitalize on the growing demand for sustainable and energy-efficient solutions. JCIH should utilize its global branding strategies and cross-cultural management expertise to effectively penetrate these markets and build strong customer relationships.
2. Background
Johnson Controls-Hitachi (JCIH) is a joint venture between Johnson Controls, a leading global provider of building technologies and solutions, and Hitachi, a Japanese multinational conglomerate. JCIH operates in the HVAC (heating, ventilation, and air conditioning) industry, a market that is increasingly driven by energy efficiency and sustainability concerns. The case study focuses on JCIH's decision to move out of its core product range, which includes traditional HVAC systems, and explore new opportunities in areas like building automation, energy management, and renewable energy.
The main protagonists of the case are:
- Johnson Controls: A global leader in building technologies and solutions, with a strong presence in the HVAC industry.
- Hitachi: A Japanese multinational conglomerate with expertise in a wide range of industries, including energy and infrastructure.
- JCIH: The joint venture formed by Johnson Controls and Hitachi, aiming to leverage their combined strengths to create innovative solutions for the building industry.
3. Analysis of the Case Study
JCIH faces several challenges:
- Declining demand for traditional HVAC systems: The market for traditional HVAC systems is becoming increasingly saturated, with limited growth potential.
- Increased competition: JCIH faces intense competition from both established players and new entrants in the HVAC market.
- Shifting customer preferences: Customers are increasingly demanding energy-efficient and sustainable solutions, driving the need for innovation and diversification.
To address these challenges, JCIH needs to adopt a strategic shift towards a transnational strategy, focusing on emerging markets and sustainable solutions. This strategy should be based on the following principles:
- Leveraging core competencies: JCIH should leverage its existing strengths in energy efficiency, building automation, and sustainable solutions to develop new products and services for emerging markets.
- Strategic alliances: JCIH should form strategic alliances with local partners in emerging markets to gain access to local knowledge, distribution networks, and regulatory expertise.
- Global mergers and acquisitions: JCIH should consider strategic acquisitions of companies in emerging markets that complement its existing portfolio and provide access to new technologies and markets.
- Global branding strategies: JCIH should develop a strong global brand that resonates with customers in emerging markets, emphasizing its commitment to sustainability and innovation.
- Cross-cultural management: JCIH needs to develop a strong understanding of the cultural nuances of emerging markets to effectively communicate with customers and build trust.
4. Recommendations
JCIH should implement the following recommendations:
- Focus on emerging markets: JCIH should prioritize growth in emerging markets, particularly in Asia and Latin America, where there is a strong demand for energy-efficient solutions and a growing middle class.
- Develop innovative solutions: JCIH should invest in research and development to develop innovative products and services that address the specific needs of emerging markets. This could include solutions for smart buildings, renewable energy integration, and energy management systems.
- Build strategic alliances: JCIH should form strategic alliances with local partners in emerging markets to gain access to local knowledge, distribution networks, and regulatory expertise. These alliances can help JCIH navigate the complexities of doing business in emerging markets.
- Consider global mergers and acquisitions: JCIH should consider strategic acquisitions of companies in emerging markets that complement its existing portfolio and provide access to new technologies and markets. This could include acquisitions of local HVAC companies, renewable energy providers, or building automation specialists.
- Develop a strong global brand: JCIH should develop a strong global brand that resonates with customers in emerging markets, emphasizing its commitment to sustainability and innovation. This could involve adapting its branding and marketing materials to local cultural preferences.
- Invest in cross-cultural management: JCIH needs to invest in training its employees in cross-cultural management to effectively communicate with customers and build trust in emerging markets. This could involve training programs on cultural sensitivity, language skills, and negotiation strategies.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: JCIH's core competencies in energy efficiency, building automation, and sustainable solutions align well with the growing demand for such solutions in emerging markets. This strategy is consistent with JCIH's mission to provide innovative and sustainable building technologies.
- External customers and internal clients: JCIH's target customers in emerging markets are increasingly demanding energy-efficient and sustainable solutions, making this strategy attractive to them. Internal clients, such as employees and investors, will also benefit from the growth opportunities presented by emerging markets.
- Competitors: While JCIH faces competition in emerging markets, its focus on sustainable solutions and its strong global brand position it well to compete in this growing market.
- Attractiveness ' quantitative measures: JCIH's strategic shift towards emerging markets and sustainable solutions has the potential to generate significant returns on investment. This strategy is expected to lead to increased revenue, market share, and profitability.
6. Conclusion
JCIH can successfully navigate the challenges of the changing HVAC market by adopting a transnational strategy focused on emerging markets and sustainable solutions. By leveraging its core competencies, forming strategic alliances, and pursuing global mergers and acquisitions, JCIH can capitalize on the growth opportunities presented by these markets and secure its future success.
7. Discussion
Other alternatives not selected:
- Focusing solely on developed markets: This strategy would limit JCIH's growth potential, as developed markets are already saturated and face limited growth prospects.
- Staying solely in the traditional HVAC market: This strategy would expose JCIH to increased competition and declining demand, leading to a decline in profitability.
Risks and key assumptions:
- Political and economic instability in emerging markets: JCIH needs to carefully assess the political and economic risks associated with doing business in emerging markets.
- Cultural differences and language barriers: JCIH needs to invest in cross-cultural management training to effectively communicate with customers and build trust in emerging markets.
- Competition from local players: JCIH needs to develop a competitive strategy that addresses the challenges posed by local competitors.
8. Next Steps
JCIH should implement the following next steps:
- Conduct a thorough market analysis of emerging markets: This analysis should identify the specific needs and preferences of customers in these markets, as well as the competitive landscape.
- Develop a detailed strategic plan: This plan should outline the specific steps that JCIH will take to implement its transnational strategy, including targets for growth, investments in research and development, and partnerships with local players.
- Allocate resources to emerging markets: JCIH should allocate sufficient resources to its operations in emerging markets, including funding for research and development, marketing, and sales.
- Monitor progress and make adjustments: JCIH should regularly monitor the progress of its strategy and make adjustments as needed to ensure its success.
By taking these steps, JCIH can successfully navigate the challenges of the changing HVAC market and achieve sustainable growth in the years to come.
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Case Description
With the quarter ending December 2016 closing on a sour note after a loss of ₹79.7 million, Johnson Controls-Hitachi Air Conditioning India Limited found itself reassessing its business expansion strategies. The company's stand-alone net profit in fiscal year 2015-16 was down 35.73 per cent from the previous fiscal year. Its launch of a new range of imported air purifiers in 2015 as part of its expansion plan may have hit an obstacle with the dip in profits. Should the company enter into new segments such as air coolers, water dispensers, and water purifiers to increase its product portfolio and revenue? Considering that competitors were already fighting it out in these segments, would the timing be right? What strategic capabilities could the company leverage, and what were the possible obstacles to success in the new segments?
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