Schneider Electric Service Transformation Strategy Study

With the rapid development of Chinese economy, Chinese manufacturing industrybecome a very important one in the whole world manufacturing industry. The situation ofChinese manufacturing industry is still good, but it must deal with various internal andexternal problems. On the home front, Continuous increase of the manufacturing cost,together with increasingly serious “labor shortage” in recent years, makes the traditionallow-end manufacturing industry face huge survival crisis. On the international front, theproduction cost advantages of Chinese manufacturing industry is weakened because ofhigh dependence on export and appreciation of RMB against US dollar; owing tofrequently international trading friction increasing, the products made in China are facingthe increasing export pressure; in addition, there are a number of other factors restrictingthe development of Chinese manufacturing industry, such as the efforts to prevent globalwarming, the development of low carbon economy and so on.The new concept combines the whole world economic development trends inmanufacturing industry and service economy and the specific conditions in Chinesemanufacturing industry. Service oriented manufacturing, is not a mechanical procedurewhich transfers the economic gravity from manufacturing sector to the service sector, butan organic integration of manufacturing industry and service industry making them reacha benign interaction and synchronized development.In such a new environment of market and economic situation, Schneider electricconducted a comprehensive reform beginning in2008, and put forward “one company”transformation strategy which makes the company from an “electrical and automationproducts manufacturer” change to “energy management expert”. So, Schneider seizes thefirst chance in competitions with the domestic and international enterprises in the sameindustry.Schneider electric (China) Investment Company Limited established in1995was awholly owned subsidiary of France Schneider electric in China, and changed its name toSchneider electric (China) Co., Ltd.(hereinafter referred to as Schneider electric (China))in2010. Schneider electric has2research centers,6distribution centers,22factories andmore than9000employees in China. Since its establishment, the average annual growthrate was between20%and30%.Schneider electric sales reached12billion RMB, a45%increase year on year,21percentage points higher than the global average of24%growth rate in2010.Although Schneider electric has a good performance during the past20years’development, its further development in China becomes more difficult. First, Chineselabor cost advantage is being challenged by more and more developing countriesespecially by the neighboring country, Indonesia, Vietnam, Philippines and India hasmore cheap labor than China; Chinese “Labor Contract Law” and “EmploymentPromotion Law”, which clearly defines the enterprise staff’s minimum wage standard,make Chinese average labor wage rise ceaselessly; along with the rise of the RMB, risinglabor costs will be long-term trend. Secondly, as a result of world economic cycle and theemerging economies demand pull, in recent years the international raw materials pricescontinue to rise. Finally, ABB and Siemens as Schneider’s main rivals have increasedinvestment and adjusted the layout in China. With Chinese local enterprises growth andexpansion, in order to compete for greater market share, the electrical product price wargrows more and more serious, profit drop ceaselessly.Facing increasingly severe development problems, Schneider electric began servicetransformation. Service-oriented manufacturing is first and foremost a business modeltransformation. Through the change of commercial model, according to the manufactorycurrent practical situation, through a variety of strategies (such as brand integration,mergers and acquisitions, business outsourcing etc.), this product service system can helpmanufacturing enterprise achieve service enhancements. Integrating various brands toone “Schneider” brand by unified brand strategy enhances the brand publicity and givescustomers a sense of wholeness and profession; Schneider electric expanded its market tomany related areas by continuous acquisition, which provided a solid product foundationfor the overall solution; it is a significant feature that Schneider focus on both productmarket and service market to make product and service have a benign interaction;outsourcing non-core business can make its resources focus on providing energy-savingproducts and energy-saving services, and enhance its competitiveness in energy industry.Both the change of business model and the construction of new product service systemneed to be completed by people and guaranteed by human action. Therefore, there mustbe effective organization to make human resources and enterprise strategy match eachother; there must be the construction of rules to ensure the implementation of the strategy.Reconstruction of the organization ensures Schneider’s implementation of the reforming strategy, basically including the following methods: first, combined different departmentsto pool resources and reduce communication disorders during the implementation ofsolution; secondly, create “business center” to standard business contract behavior andmanage the contract risk throughout the period of execution; finally, establish SchneiderElectric by the leader of various BU and President of the company to share andcoordinate macroeconomic issues, in order to make all company’s entities keep steps.Business model, product service system and organization mode is three importantparts in service transformation. Through the analysis of successful experience of the threeaspects carried out in Schneider electric (China), proved that the manufacturer’s servicetransformation is scientific choice and inevitable trend. Only to execute servicetransformation, manufacturing enterprises can walk out of price competition mode tocreate “Blue Ocean”. At the same time, hope to offer ideas for the service transformationof Chinese manufacturing enterprises and hope that Chinese manufacturing enterprisescan play a bigger role on the world stage.