Cummins: Licensing to Joint Venture
Risks in Licensing
To enter and explore the Chinese market, Cummins Inc. adopted a licensing strategic alliance in the early 1980s. It signed two license agreements initially; firstly with CQAEP and the other with DFM. There were various risks involved in using licensing, as control over the technology is weakened. There was also a problem in adequately protecting the licensed technology from unauthorised use by other parties. This led to rise in competition. Cummins Inc. was not able to penetrate the Chinese market with its new and advanced technological products as the licensees did not keep up with the technical improvements elsewhere in the world. This exposed Cummins Inc. to various reputational…show more content…
• Wider access to the market. • Cannot engage in direct business activities
Agents • No need of market study.
• Low costs (just commission) • Dependency on agents.
The company initially entered into the Chinese market through licensing. Having gained sufficient local knowledge, it wanted to capture further the growing market with a new strategy which would be a direct involvement for which it could consider exporting and agencies. These would not allow it to form strong customer relationships. Cummins Inc. could also consider opening a Representative Office or a R&D Consortia but it wouldn’t give them access to the Chinese market. Another option for it is to set up a wholly foreign owned enterprise which would require very high investments and intense market study. Finally, Sino-US Joint Venture was the best option for them as it not only allowed them to enter the market fully but also to share the costs and risks with its Venture partner.
Role of Vice President
Steve Chapman, vice president (VP) of East and Southeast Asia (EA) Area Business Organizations (ABOs) for Cummins Inc. was suddenly given the responsibility of VP of International Business. His replacement was to be filled as soon as possible because the VP of EA ABO is required to report the doing’s of his ABO to him in due course regularly. The VP of EA ABO had to control & manage the business operation of the China, Hong Kong, & Taiwan regions, expanding its business