It isn't easy being green - broad air conditioning: pressure on a pro-environment strategy in China

Professor of Asian Business Steven White and Meng Sung of Beijing University reveal how China's broad air conditioning underwent a massive clash of values. Its CEO was internationally lauded for his ecological credentials - a big commercial benefit in foreign markets. But Chinese energy sources were changing radically, profoundly impacting the domestic scene. Many top employees were leaving. Broad was being forced to make major trade-offs between environmentalism, and the almost diametrically opposed demands of national vs. overseas markets.

by Steven White, Meng Sung
Last Updated: 23 Jul 2013

By the beginning of this decade, Broad Air Conditioning was being battered by both external and internal pressures. Founder Zhang Yue felt that his firm had a moral duty to make the most eco-friendly products commercially possible for both Chinese and foreign customers.

The Broad Environmental Manifesto is a codification of Zhang's insistence on putting ecological considerations first and foremost in the company's product development and sales activities. To him, environmentalism, technology and economic issues were inseparable. Public awareness campaigns reinforced this message and mission to both the general public and academic audiences.

Through both superior technology and leading production capacity, Broad's natural gas-powered industrial cooling systems had become a Chinese market leader. Then, in the late 1990s when energy supplies and government policies created an environment of cheap electricity, Broad began losing market share.

Company engineers and salesmen were overwhelmingly pushing for Broad to develop a more mixed product range, including electrical systems in addition to the more environmentally friendly gas-powered systems. Frustrated, many top marketing staff were leaving.

In an award-winning case, Professor of Asian Business Steven White and Meng Sun of Beijing University offer Broad as an example of a socially responsible company in a massive developing market being forced to make trade-offs - whether real or perceived - between environmentalism and market competition.* For Zhang, how successfully Broad could develop popular electrical conditioners was almost immaterial.

In his view, the entire world was heading down a very perilous path by becoming evermore reliant on electricity generated primarily through burning oil and coal, with their polluting by-products. In addition to the ecological threat, increasing reliance on such sources of electricity was also creating a massive disequilibrium at the national and local level in the structure of energy use and efforts towards greater efficiency.

In stark contrast to the domestic market, Broad was selling increasingly more outside of China. In most markets its green image and longer-term operating value proposition were strong advantages.

The case is designed to enable role-playing negotiation scenarios between the various stakeholders involved, including the CEO and disgruntled sales personnel, as well as between an external consultant and Broad senior management. Students are forced to address the strategic and motivational issues that emerge from the tensions among these stakeholders' views. Its description of energy trends in China, Broad's stated corporate vision, and eco-friendly product range for both domestic and foreign markets also provides a substantial basis for debating developmental issues relevant to China and many other emerging market countries.

(*Honourable Mention, 2003 SMS Best CONFERENCE Paper Prize)

INSEAD 2006

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