465 CASE
D E L T A F A U C E T: G L O B A L E N T R E P R E N E U R S H I P
IN AN EMERGING MARKET 2 NICHOLAS GRIGORIOU*
MONASH COLLEGE – CHINA The creation of a new venture is a multidimensional
phenomenon; each variable describes only a single
dimension of the phenomenon and cannot be
taken alone . . . entrepreneurs and their firms vary
widely; the actions they take or do not take and
the environments they operate in and respond to
are equally diverse – and all these elements form
complex and unique combinations in the creation of
each new venture.1 INTRODUCTION
Delta Faucet Company is a division of Masco Corporation
and is the largest US manufacturer of residential and
commercial faucets and related accessories. The company
manufactures the Delta®, Brizo™ and Peerless® faucet
brands and holds the number one market share position
in the United States. The market-leading Delta line, with a
strong half-century heritage, delivers exceptionally wellmade, stylish faucets and related accessories that are
precisely crafted to be beautiful both inside and outside. Brizo
provides high-end customers with distinctively designed,
innovative faucets and accessories that complement today’s
luxury kitchens and baths. Peerless offers value-driven,
proven designs that don’t sacrifice style.
Delta Faucet is a worldwide leader in the manufacture, sales and distribution of bathroom accessory
products. Delta Faucet commenced operations in
Indianapolis, Indiana in 1954. Since its inception, the * This case was written by Nicholas Grigoriou as the basis for
discussion rather than to illustrate an effective or ineffective
example of global entrepreneurship. 16_Hanson_3ed_SB_3869_TXT.indd 465 company has grown its operations to over 50 countries.
This entrepreneurial orientation is underpinned by the
pursuit of innovation, the willingness to take risks and
a proactive stance towards understanding the global
consumer and their needs. In 1999, as part of its global
expansion, Delta Faucet commenced operations as a
wholly owned subsidiary in the People’s Republic of
China. This case considers Delta Faucet’s expansion and
operation into China.
An entrepreneurial venture can be identified by the
strategic behaviour of the organisation. Vesper2 supports
earlier theory that there are five categories of behaviour
that are characteristic of an entrepreneurial venture.
These are:
1
2
3
4
5 introduction of new goods
introduction of new methods of production
opening of new markets
opening of new sources of supply
industrial reorganisation. Of these, Delta’s expansion into China represents
characteristic number three. Most entrepreneurial organisations venture into new overseas markets for two reasons.
First, to use organisation-specific knowledge, primarily for
manufacturing and sales activities, or second, to increase
the stock of the organisation’s knowledge, primarily
through research and development (R&D) activities. Delta
Faucet’s foray into China embodies the manufacturing
and sales activities reason. Many of the products that
Delta Faucet markets in China are made from their
manufacturing plant in Guangzhou, southern China. The
Guangzhou operation also serves as a distribution centre
for the agent intermediaries who buy and on-sell Delta
Faucet’s products. 8/29/07 11:58:21 A 466 C A S E T W O : DE LTA FA UC E T: GLOB AL ENT REPRENEU R SH I P I N AN EMERG IN G M A R KE T EXTERNAL ANALYSIS
INDUSTRY DEFINITION
Delta Faucet competes in the residential and commercial
bathroom and kitchen accessory industry.This industry is
characterised by the manufacture, sales and distribution
of kitchen, bath and laundry products such as vanity
basins, taps, and sinks to the building and construction
industry as well as to various retailers throughout China.
Delta Faucet serves two main customer types, namely,
dealers who purchase and then resell to the building
contractors in the construction industry and second,
retailers who purchase and then sell goods to private
individuals who seek to renovate their bathroom or
kitchen areas. GENERAL ENVIRONMENT
A N A LY S I S
ECONOMIC
China’s economy has experienced double digit
compounded growth since she opened her doors to foreign
trade in the late 1970s. This growth can be found in
various areas of China’s economy including manufacture,
exporting and the services sector. As a result of the
dynamic growth in China’s economy, China’s consumers
have also experienced increases in their individual wealth,
especially in larger cities on China’s eastern seaboard.
Increasingly, Chinese consumers are looking to foreign branded goods to satisfy their individual needs. These
products are made more affordable by the steady increase
in disposable income of Chinese consumers. S O C I O - C U LT U R A L
As their wealth increases, Chinese consumers are looking
to foreign brands to satisfy their needs.Younger consumers
no longer subscribe to the ethnocentric view that they
should buy home-made products to support local industry.
Foreign branded goods are seen as being superior in their
quality, design and performance. The purchase and use of
foreign-made goods is seen as a status symbol of wealth
and affluence. I N T E R N AT I O N A L I S AT I O N
More open markets, lower communication and transport
costs and the availability of staff with more international
experience have created opportunities for smaller
organisations to enter international markets. Entrepreneurial organisations distinguish themselves from other
organisations by a higher level of alertness to busi-ness
opportunities and by a stronger willingness to pursue
them without regard to the resources they control at the
inception stage of the entrepreneurial venture. Johansson
and Mattsson3 have provided a framework by which to
understand how entrepreneurial organisations expand
their operation. This framework suggests that the degree
of international entrepreneurship is a function of both
the organisation and the (international) markets that it
attempts to compete in (see Exhibit 1). EXHIBIT 1 Low degree of internationalisation
of the market High degree of internationalisation
of the market Low degree of
internationalisation of the
company The early starter The late starter High degree of
internationalisation of the
company The lonely international The international among others Source: J. Johansson & L. G. Mattsson, 1988, ‘Internationalisation in industry systems – a network approach’,
in N. Hood (ed.), Strategies for Global Competition, London: Croom Helm: 298. 16_Hanson_3ed_SB_3869_TXT.indd 466 8/29/07 11:58:22 A 467 FOREIGNNESS Many entrepreneurial organisations attempting to market
overseas face a potential burden of being a foreign owned
company. Many consumers have an ethnocentric view
of buying products from locally owned organisations
thus supporting local industry, preservation of jobs and
keeping profits within the country.
To overcome the liability of foreignness and
to compete successfully in China against both local
and foreign owned firms, organisations must find an
entrepreneurial means by which to use their foreignness
to their advantage. Delta Faucet achieves this by the
parent company providing the China operation resources
and capabilities (for example, technical expertise)
necessary to compete successfully. In addition, in many
developing economies such as China, products from
Western nations such as the United States are seen by
consumers as being superior to the locally produced
equivalent and are thus sought after for their quality in
performance and design. MARKETS SERVED Delta Faucet serves two primary markets in China. First,
the residential market that consists of end user consumers
who wish to purchase faucets for their kitchen or laundry
at home. Second, the commercial market that consists of
hospitality venues, schools and nurseries. Products are
sold through sales channels such as agencies – however,
while the same markets are served in China, no such large
sales distribution agencies exist. One challenge facing
Delta Faucet in China is the recruitment of national and
regional sales agents in China to further broaden their
sales base.
An area of sales growth in recent times for
Delta Faucet has been the do-it-yourself (DIY) market
segment within China. This segment is characterised
by end user consumers who wish to buy product and 16_Hanson_3ed_SB_3869_TXT.indd 467 COMPETITIVE ENVIRONMENT I N A N EM E R GI NG MA R K ET OVERCOMING install it themselves. With the economic boom comes
a change in living. The lifestyle of consumers is getting
faster, especially in the prosperous cities such as Beijing
and Shanghai. Consumers also tend to value their
spare time and are seeking out more ways to enjoy it,
including developing hobbies. In this regard, consumers
are changing their attitude towards DIY from one of
work to one of enjoyment; an activity that gives them
the opportunity to innovate and have fun. Major players
such as Ikea have begun promoting the DIY nature of
their furniture as a fun activity, in line with this attitude
change. Competitive aggressiveness refers to an organisation’s
willingness to directly and intensely challenge its
competitors to achieve entry into a market or to improve
its position, that is, to outperform industry rivals in the
marketplace.4 Delta Faucet’s main competition in the
China market comes from US-based organisations as
well as Japanese wholly owned subsidiaries operating in
China. INTERNAL ANALYSIS C A S E T W O : DE LTA FA U CET: G L OBA L ENTREPRENEU R SHIP With a presence in over 50 countries, and China
being a nation with a low (but growing) degree of
internationalisation, Delta Faucet is considered a ‘lonely
international’ in the China market. A ‘lonely international’
is a pioneering organisation that attempts to expand
market opportunities in nations where it is considered
to have a sustainable competitive advantage. In the case
of Delta Faucet, its competitive advantage comes from
an industry-recognised brand name and reputation for
quality products. R E S O U R C E S TA N G I B L E
A N D I N TA N G I B L E
PRODUCT I N N O VAT I O N Many of the products that Delta Faucet markets in China
are manufactured locally (in Delta Faucet’s Guangzhou
manufacturing plant), while some are imported from the
US for sale locally. The industrial design of the faucets is
conducted in China. The mechanical design is conducted
in China. Delta Faucet conducts reverse-exporting
whereby many of the faucets manufactured in Guangzhou
are exported back to the US for sales in that market. BRANDS
Delta Faucet markets its goods under three distinct brand
names. The flagship Delta® brand delivers exceptionally
well-made, stylish faucets and related kitchen and bath
accessories. This market-leading product line features a
unique combination of stylish looks and excellent quality,
and is available in a wide variety of finishes. In addition,
Delta markets under the Brizoâ„¢ brand name. Brizoâ„¢ is 8/29/07 11:58:23 A 468 C A S E T W O : DE LTA FA UC E T: GLOB AL ENT REPRENEU R SH I P I N AN EMERG IN G M A R KE T the new premium faucet brand crafted by Delta Faucet
Company that meets the demand for products that provide
aesthetic beauty and superior performance. Brizoâ„¢
promises customers distinctively designed, inventive faucets and accessories that will live up to homeowners’
expectations of elegant style and performance. Finally,
Peerless® is a Delta Faucet brand that offers value-driven,
proven designs that do not sacrifice style. Each faucet is
designed to give consumers confidence in their purchase.
By using multiple brands in the one market, Delta
Faucet is able to target different segments of that market
with a view of satisfying a broad range of consumer
needs. DECISION MAKING
Early in its China operations, the decision making was
decentralised, that is, most decisions regarding the China
operation were made in Delta Faucet’s Guangzhou base.
Gradually since then, much of the decision making has
moved back to its Indianapolis headquarter base. All of
the human resource decisions are still made locally, as
are the decisions on the conduct of local market research.
Head office in the United States has a high involvement
in the decisions related to which Delta Faucet brands are
sold in China. C U R R E N T S T R AT E G I E S
C A PA B I L I T I E S I D E N T I F I C AT I O N
The strength of Delta Faucet’s China operation lies in the
following areas:
Technical/engineering: Delta Faucet invests resources
in product innovation to ensure that the company
develops, with technical expertise, state-of-the-art
products that embody both modern and classical
designs.
Quality assurance: Delta Faucet employ strict internal
quality assurance processes to ensure its products
not only meet the company’s high expectations
for quality, but also to ensure that products meet
industry expectations of excellence.
Supply chain: Delta Faucet’s integrated supply
chain is located close to its manufacturing base
in Guangzhou. This enables Delta Faucet to
enjoy just-in-time (JIT) procurement, materials
handling and manufacturing of its products for
timely distribution to its consumers. C O R E C O M P E T E N C Y A N A LY S I S
Dedicated to a total customer experience, Delta Faucet
invests heavily in internal processes and systems to
ensure exceptional customer satisfaction. From its
integrated supply chain to its industry benchmarked
quality assurance processes, Delta Faucet competes in its
international markets on the basis of using its expertise in
engineering to manufacture, distribute and market world
class bathroom, kitchen and laundry accessory products. 16_Hanson_3ed_SB_3869_TXT.indd 468 Delta Faucet uses product-based aggressive marketing
strategies to increase its presence in the China market.
This strategy is reliant on educating the market on
the benefits of using Delta Faucet’s product range.
The market emphasis is on promoting award-winning
products that set industry standards in design, function
and quality. COMPETITION
The competition in China for bathroom accessories may
be described as monopolistic competition. Nationally,
there are numerous well resourced manufacturers of
bathroom products. Barriers to market entry are low
and many of the competitors, like Delta Faucet, are
from overseas. At a retail level some of the competitors
offer a comprehensive line of products (shower compartments, bath tubs, etc.) while others focus on a
limited product range (for example, taps). ISSUE
The main issue facing management at Delta Faucet is
further expanding their brand presence in China’s booming
construction market. Product innovation and increasing
national distribution through reputable retailers are two
drivers of the company’s expansion. This is occurring at
a time when competition from overseas manufacturers is
strong and buyers are becoming aware of their increasing
choices for bathroom accessories. 8/29/07 11:58:23 A 469 NOTES
1 W. B. Gartner, 1985, ‘A conceptual framework for
describing the phenomenon of new venture creation’,
Academy of Management Review, 10: 697 16_Hanson_3ed_SB_3869_TXT.indd 469 K. H. Vesper, 1980, New Venture Strategies, Englewood
Cliffs, N.J.: Prentice Hall. 3 J. Johansson & L. G. Mattsson, 1988,‘Internationalisation
in industry systems – a network approach’, in N. Hood
(ed.), Strategies for Global Competition, London: Croom
Helm. 4 G. T. Lumpkin & G. G. Dess, 1996, ‘Clarifying the
entrepreneurial orientation construct and linking it to
performance’, Academy of Management Review, 21(1):
135–72. I N A N EM E R GI NG MA R K ET The author would like to thank Mr Seng Lim from Delta
Faucet and Mr Patrick Yu from Monash University for their
kind cooperation in the preparation of this case study. 2 8/29/07 C A S E T W O : DE LTA FA U CET: G L OBA L ENTREPRENEU R SHIP ACKNOWLEDGEMENTS 11:58:24 A

 

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