Large companies in some European countries, and even in the United States, are worried about the saturation of their home markets. Consider how much more worried they would be if—like Danish industrial-controls company Danfoss—their home market consisted of only 5.1 million people to start with. In this interview, Danfoss CEO Jorgen M. Clausen explains how he set out to turn China into one of its core markets, where it would have a market share similar to those it has in Europe.

Danfoss has been operating in China for a decade and has achieved profits, high growth rates, and excellent relations with the Chinese authorities. Clausen explains that the company “didn’t really have a long-term strategy” in the 1990s. The business was fortunate in a couple of ways, and made the most of it by quickly setting up in an industrial-development park. Rather than adapting manufacturing systems and product ranges to Chinese conditions, Danfoss “simply replicated our European production lines and even used our old suppliers, to begin with.” This had some advantages, but the company gradually changed to local suppliers, while avoiding taking on too many difficult challenges at once. By around the middle of the 1990s, business in China as going well.

The approach changed drastically in 2004, after Clausen realized that, although it was doing well in China, it could be doing much better. The company set new goals: growth of 50 percent a year and a quadrupling of sales by 2008. This would eventually bring its market share close to its average 15 to 20 percent in Europe. Some investigation showed that Danfoss was capturing just a few percentage points’ share in most of its product markets, primarily addressing only the high end and some of the middle. The next move was to identify areas in which to create new offerings.

Clausen explains that the ambitious plans were spurred by a determination not to allow others to establish themselves as the market leaders. In the rest of the interview, Clausen goes on to explain how the company tackled the operational and organizational challenges of this strategy, how the organization is addressing the low-end gap in its product range by designing low-cost product from the ground up rather than by stripping down a European product, how they are protecting intellectual property, and what Danfoss is doing to develop and retain Chinese managerial talent.