Integrative Case 1.7 Ostnor's Offshoring and Reshoring Klaus E. Meyer (China Europe International Business School) Sweden's Ostmor searches for the best locations for its reshoring was not easy. Young people in the local area business. were looking for job opportunities, yet they needed to be trained—and manufacturing jobs were not so pop- In Mora, Sweden, a small town four hours north of ular in the Internet generation. In response, Ostnor Stockholm, there was a company named Ostnor mak- invited school classes to visit its factories for them to see ing bathroom armatures and mixers for households the high tech nature of the work and to attract future and businesses (see Exhibit 1). Faced with German and apprentices. Another challenge was finding suppliers Swiss competitors challenging Ostnor's market leader- for manufactured components in the Nordic and East ship in Sweden, Ostnor decided in 2003 to follow the European area. Chinese suppliers were neither inter- trend of offshoring and outsourced its production to ested nor able to deliver the relatively small volumes to partners in China. However, business did not develop Sweden. well: lead times for new product introduction became Ostnor managed two brands with very distinct longer, capital employed increased because of the design characteristics. Mora Armatura and F.M. need to hold more stock in the warehouses, and qua- Mattson. Both brands had their origins in the same lity control consumed substantial resources. In short, family firm. But in the 1920s two brothers disagreed on the re-location of production to China turned into a how to manage the company and one of them left to set nightmare up his own business. The brothers' rivalry stimulated In 2010, a new CEO, Claes Seldeby, came in and both of them to produce ever better products, and decided to turn back the time. The new vision was some 80 years later they were re-integrated. Yet, they reshoring to bring back the business to its hometown of had developed distinct organizational cultures and Mora. Moreover, the "made in Sweden" identity would brand identities, which still occasionally led to tensions. become an increasingly valuable brand feature as con- Ostnor emphasized innovation and introduced new sumers were skeptical of the reliability of products product lines about every 18 months. Seldeby modern- imported from the Far East. Swedish craftsmen from ized the innovation process to stay in close touch with the local community were again to make the arma consumer preferences. For example, the R&D team was tures using high technology and local inputs. Since almost all male when he arrived, yet in Sweden 82% of these armatures were produced in modest volumes, purchasing decisions on bathroom and kitchen equip- the process required substantial skilled labor. Yet, this ment were made by women. So, he brought in new peo- ple, especially some women, into the R&D team who Exhibit 1 Basic Data for 2013/2014 would not only understand the technologies, but also the consumers. 570 employees (including Damica) In 2014, Ostnor acquired a Danish competitor, • SEK 824 M tumover (B9 M euro) in 2013 slightly Damixa (see Exhibit 2). Together they became num- down from previous years. ber one or two in all five Nordic countries (Denmark, • 164 shareholders . Ca 60% of equity in the family, 30% extemals (including financial investors), less than 10% Exhibit 2 Timeline management team (IPO was envisioned for the future) • Sales by region: Sweden 76%, other Nordics 17%, rest of the World 7% .2003 offshore . 2010 new CEO • 2011 reshore 1) The author thanks Mike Peng for helpful discussion. All views and errors are those of the author Klaus E. Meyer. Reprinted with permission Discussion 2014 Damixa acquisition Questions were added by M. Peng . 146 Part One Laying Foundations Finland, Iceland, Norway, and Sweden). Ostnor also had its own sales subsidiaries in Belgium, China, Germany, the Netherlands, and Singapore, and sold via distributors to Australia, the Baltic countries, Britain, France, and Russia. By 2014, Ostnor faced three new challenges. 1. With the acquisition of Damixa, Ostnor now had three brands. The CEO proposed to position Mura Armatura at the top end, F.M. Mattson in the middle, and Damixa as an economy brand. This however raised operational challenges. First, employees at Damixa were not pleased to become the lower end brand compared to the Swedish brands. Second, if Ostnor wanted to develop a brand for the economy segment, then offshoring some parts of the operations again was on the agenda for discussion 2. With the company's growth, Ostnor hit the limits of what could be achieved in the community or Mora. It was difficult to attract skilled workers to the area, and the board's need to travel interna- tionally made the four-hour car journey (if there was no snow) from Mora to Stockholm Arlanda Airport rather cumbersome. Therefore, Ostnor decided to relocate its headquarters and some operations to Stockholm, and Seldeby and his family moved back to Stockholm after four years in Mora. 3. Ostnor took initiatives to enter the Chinese mar. ket, where its designs would only be able to serve a small niche market. Yet, a small niche in China can quickly outgrow total sales in the Nordic region because China's population is so big. Hence, Ostnor in 2013 established a sales office in Hong Kong and participated in trade shows in China to develop sales in the Greater China area. In fact, it had to investigate the necessary regulations and certifications, Chinese consumers design prefer- ences, and decision making processes. Ostnor quickly learned that "hand made" was not a good way to advertise in China a "machine made" product was supposed to be highly reliable. It also found that putting a Swedish flag on the packag. ing to emphasize "made in Sweden" helped creat- ing a premium image Case Discussion Questions 1. What motivated Ostnor's offshoring? 2. What motivated Ostnor's reshoring? 3. From a resource-based view, what are the lessons from Ostnor's offshoring and reshoring? 4. Which area should the firm focus on in 2015? Sources: Based on the CEO's presentation and company documents.
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