TEAM EXERCISE: CUMI CHINA STRATEGY

1. How important is China to CUMI? Is a China-centric strategy correct for CUMI?

China possessed more than 50% of the raw materials that CUMI required to
manufacture their abrasives globally. Additionally, China was projected to become the largest
abrasives market by 2015. CUMI believed that China would be setting global standards for
pricing, quality and delivery. CUMI had the goal of becoming a global leader in the abrasives
industry within 10 years. All of these factors combined prove that a China-centric strategy is
extremely important for CUMI. A China-centric approach is correct for CUMI as long as it is
approached by reviewing the positives from their Russian experience and by reviewing what
they would do differently from their time in South Africa.

2. What are CUMI’s problems in China? What is different in China in comparison to

Russia or South Africa?
The problems in China arose primarily due to differences in management styles of CUMI

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and their Chinese partner, Jingri Industrial Diamond Company. Even though Jingri was

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aggressive in their support of setting up factories; they did the first one in 3 months, there were

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differences in business philosophy. The Chinese believed primarily in striving for volume and
that profits were secondary. CUMI wanted to make small, incremental investments and try

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markets out before moving to the next stage. CUMI and Jingri finally decided to part ways after
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three years. CUMI seemed to have misread the political and social forces in China. They initially
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attempted to have an Indian “superhero” leader in China, but this did not work and they later
replaced the leader with a Chinese executive.
Further, when CUMI was operating as a joint venture in China they were profitable,
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however, when they were an independent organization they were unable to reach profitability.
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This was due to raw material cost disadvantages in the grinding wheel business that was now
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separated. When CUMI was part of the joint venture, they had access to preferred raw materials
and capital, but that was no longer the case as a stand-alone business. The case referred to
this phenomenon as not being able to obtain “Chinese prices.”
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Unlike in China, in Russia CUMI retained the local management and utilized cross
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functional teams from both India and Russia. The lack of a cross functional team in China meant
that there was an abundance of Indian team members, resulting in higher costs for the
expatriates. Additionally, the cost of Chinese capital was high once they dissolved the joint
venture as they were unable to experience the benefit of government support. Lastly, although
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CUMI initially approached China as a joint venture similar to Russia, they ultimately reverted to
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a standalone venture.
CUMI’s entry into South Africa also involved the purchase of an existing company,
Foskor Mineral Zirconia, but they rolled out a 100 day integration plan that was too aggressive
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and encountered unforeseen internal and external challenges. For example, material costs in
South Africa increased more than 200% during the time of their expansion, similar to the
expense increase in China when CUMI operated as as standalone venture. Both the existing
company’s leadership team and work culture in South Africa were substandard in CUMI’s view
and resulted in CUMI letting the head of Foskor go and sending in a manager from India, again
similar to China.

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 3. What are CUMI’s options for its future in China? Briefly describe and assess each
option.
The following are the options that CUMI may consider:
Transactions – CUMI could consider stepping even further away from their investment in
China. They have experimented with direct investment in China with limited success. While a
transactional strategy may be less risky and less capital-intensive up front, it may cost CUMI
more in the long run, especially since China is such an important part of their strategy into the
future.
Direct Investment – CUMI has engaged in both a joint venture and a wholly owned subsidiary
in China. The joint venture was not successful due to differences in management styles and
country cultures and norms. These differences are more philosophical in nature and seem to be
concerns that would continue. The wholly owned subsidiary model has been working but may
not be reaping all the benefits that a different option would present.
Transnational – This approach seems to be a good fit in that it recognizes the resources and

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capabilities of each country while driving for efficiency and innovation across the organization.

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The opportunity for this approach will only be realized if the company sets clear corporate

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objectives, develops managers with broad perspectives, and builds supportive norms and

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values across the organization.

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What China strategy would you recommend to CUMI? Why? How would you
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implement your recommended strategy?
We would recommend the transnational China strategy to CUMI. We would build off of
our evaluation from above and focus on the following objectives to ensure CUMI’s China
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strategy would be successful:

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1. Establish corporate objectives – Create a singular unit with representatives from each
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country to establish key corporate objectives. Develop a mobile, cross-functional team to

focus on supporting technology and financial systems to ensure continuity of service.
Identify each country’s key capabilities and create environments for other countries to
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learn from one another.

2. Develop talent – Focus on key behaviors for all managers including protocol for
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interacting with other country leaders. Set bonus measurements to incentivize

international sharing and implementation. Establish a rotational program for managers to
rotate in different roles in their home country. Create a human capital plan to identify
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when international leader exchanges occur.

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3. Ensure cultural support objectives – Educate internal leadership on Hofstede’s Cultural

Dimensions. Use this research to further understand the different perspectives of each
home country.
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