DOOSAN INFRACORE INTERNATIONAL: PORTABLE POWER

BRAND TRANSFORMATION (A)

A year earlier, the Korean conglomerate Doosan had acquired from Ingersoll Rand (IR) the Bobcat
compact equipment, the Utility Equipment and Attachment businesses for $4.9 billion and formed the
subsidiary. Doosan Infracore International (DII). Brosick, director of global product strategy at DII and
IR veteran, realized that vice chairman Park wanted to quickly leverage and integrate acquisitions under
the Doosan brand. However, although transforming the IR brand of portable power equipment seemed
inevitable, Brosick wondered if immediate re-branding was the right course of action, or if other branding
strategies might be more effective. He was certain that IR’s brand equity contributed to its market-leading
position in the US, Europe and Asia.

Many key questions needed to be answered before the December 2008 long-range plan presentation:
What effect might changing the brand name, built over 135 years, have on these market positions? In
addition to the name, what other branding elements carried equity in the construction market? How
would end-users and distributors react to brand changes? How could negative reactions be minimized?
And, if he proposed a phased brand transformation plan, how could he best position this strategy to vice
chairman Park?

Doosan

By 2007, 14 Doosan products had been selected as Korea’s Top Export Products by the Ministry of
Knowledge Economy. With over 34,000 employees in 35 countries worldwide, Doosan’s 2008 net
revenues exceeded US$15 billion (refer to Exhibit 1 for additional financial information). Such
accomplishments were testament to the corporate vision for Doosan to become a globally recognized
brand. “What began as a small Korean storefront stands today as a global industrial leader.”1

Doosan Infracore International

Since it began operations as Chosun Machine Works in 1937, Doosan Infracore (DI) had become a
leading manufacturer of first-class products and services in construction equipment, industrial
vehicles, machine tools, factory automation systems and diesel engines. In 2005 the company
relaunched as Doosan Infracore and announced a new corporate vision: To become one of the world’s
top five players in the infrastructure support business (ISB).

Source: http://www.doosaninfracore.co.kr/eng/Company/Vision.aspx

Doosan aspires to be a “Global Top 5” player in the infrastructure support business. To achieve
this goal, the company needs to expand both the breadth and depth of its product line, expand
its geographic footprint internationally and grow its points of distribution presence within
national markets. Doing any of these organically or via “greenfield” investments will be time
consuming and labor intensive. An alternative, more capital intensive, but faster approach is
through acquisition.
Worldwide Construction Equipment Industry
Construction equipment manufacturing was a $100 billion global industry. It consisted of
two main markets aligned with product size and cost: heavy equipment and compact
equipment. The construction manufacturing industry was characterized by:

x Highly cyclical demand

x The need for efficient manufacturing operations to ensure profitability
x Customer price sensitivity
x Strong barriers to entry due to large capital investment for production
x The possibility for smaller companies to compete effectively by producing equipment
with specialized applications
x Annual revenue per worker = more than $300,000.

Like automobile producers, construction equipment manufacturers typically bought key

components like engines and gears, hydraulic pumps and hosing, and structural steel and
castings from parts suppliers, performed various finishing operations and assembled the
components. Materials represented approximately 60% of finished product costs.
Doosan, driven by its goal to be a top global ISB company, had a half-century tradition of
growth through acquisitions. This made brand transitions (i.e., acquired brands being re-
branded or co-branded as Doosan) a frequent activity at Doosan. For example, Doosan held
the No. 1 position in China for large hydraulic excavators, with larger market share than
Caterpillar or Komatsu. However, it was Daewoo that had built this leadership position
before being acquired by Doosan in 2005. The brand transition took only 18 to 24 months
and was highly successful (limited dealer and consumer resistance, no negative effects on
sales and margins). In some cases, the Doosan Visual System was applied to the Doosan
elements but with some visuals of the inherited assets retained (for example, large hydraulic
excavators acquired from Daewoo retained their orange color during the transition to dual
branding – with both Daewoo and Doosan names on the products – and ultimately to Doosan-
only branding).
With the IR acquisitions, no brand transition was required for Bobcat. DII now owned all of the
Bobcat brand assets, which had tremendous equity in the global marketplace. However, due to
the time limit on the use of the IR brand, time was running out for the Portable Power division.
DII and corporate leadership’s philosophy was to transition acquired brands to Doosan as
quickly as possible. History had shown, as in the case of the large hydraulic excavators, that
quick and decisive transitions could be successful. Furthermore, Doosan had no interest in
supporting other companies’ brands. In fact, given that DII sourced components such as airends
from IR, there was perhaps a disincentive to continue marketing portable power equipment
under the Ingersoll Rand name and thereby strengthening IR’s brand through its own efforts,
though both companies would likely continue their business relationship well into the future.
Thus the expectation was set – quickly transition the IR portable power equipment to Doosan
brands.

Portable Power Equipment Brand Transformation

Despite this clear expectation, Brosick wondered just how quickly the brand transformation
should happen. The IR brand was over 100 years old, with a track record of many
innovations. The compressor business unit was No. 1 in market share in the US, No. 2 in
Europe and held No. 1 or 2 positions throughout Asia. The brand was so strong that many
older contractors (end users) even called compressors “Ingersolls.”

3
http://www.doosan.com/en/about/doosan_brand/index.page.
 In their current state, the IR portable power equipment product lines had uniform and widely
recognized characteristics. The products were high quality, supporting relatively high prices.
Thus the line enjoyed both high share and profit margins. While IR products tended to sell at
a 5% to 10% premium price, many of Doosan’s leading products sold at 10% to 20% price
discounts vis-à-vis top players such as Caterpillar and Komatsu. In essence, Portable Power
held a premium position while many Doosan products competed as the “attacker” brand with
a strong “value for the money” brand proposition. The brand markings – logo, signature,
color – made IR’s portable power equipment highly visible at points of sale and use. The
dealer network was extensive, and customers enjoyed superior service. In short, IR portable
power equipment had significant sources of brand equity, across end-user and geographic
markets (refer to Exhibits 7 and 8).

Reflecting on alternative branding solutions, Brosick observed:

When a brand is acquired, viable transformation scenarios must be identified and evaluated.
The extremes are “do nothing” and “immediate transition.” Part of the challenge is determining
what scenarios lie somewhere in the middle.

Four scenarios seemed the most viable (see also Exhibit 9):

1. Keep the IR brand as long as possible (possibly renegotiate brand use agreement)
2. Begin co-branding strategy over 12-24 months, then transition to Doosan
3. Retain the brand for the full five years, then transition to Doosan
4. Immediate transition to Doosan

Decision Time
By the time the IR acquisition was completed in December 2007, the global economy had
become mired in a deep recession. The economic downturn was especially impactful for the
rental, construction and oil & gas industries on which the Portable Power division depended.
In response, DII was keenly focused on cost savings and containment. The rapid dry-up in
funds meant that the global branding study Brosick had proposed, which had been approved
for early 2008, had been taken off the table. With the December 2008 portable power brand
transformation presentation looming, there was a great sense of urgency to develop the right
strategy despite the lack of comprehensive market research.

Brosick wondered how to manage the potential conflict between the corporate branding
mandate (scenario four) and the equity that IR had built up in portable power for over a
century. On the one hand, DI could lose precious brand equity that had taken decades to
establish if the popular Ingersoll Rand brand was removed from the market. How would
dealers and end users react? On the other hand, how would his status as director of global
product strategy be perceived by senior management if he could not come up with a solution
for a rapid brand transition?

Case Questions
1. Organic growth vs. acquisitions – which one holds a bigger promise? Justify your response with
other B2B examples? (1,3)
2. In your assessment of the situation, what role does branding play in B2B? (2,4)
3. Why does Doosan typically re-brand acquisitions to the “Doosan” brand name? (5,6)
4. What are the pros and cons of the four brand transformation scenarios? (7,8)
5. Which of the four scenarios would you recommend? Why? (9,10)

2,4,5,67,8,9,10,1,3

Exhibit 1
Doosan Profit and Loss Statement (2006–2007)

2006 2007(71st
Classification
(70th term) term)
 Sales 19,280 16,276

Cost of Goods Sold (COGS) 13,222 10,687

Gross Profit 6,058 5,589

SG & A Expense 5,628 4,978

Operating Profit 430 611

Non-operating Income 2,308 3,042

Non-operating Expense 1,642 2,775

Income before Income Tax Expenses 1,096 878

Income Tax Expenses 864 738

Profit from Continuous Operation 140

Profit from Discontinuous Operation 107

Net Profit 232 247

Net income/loss per share

Net income/loss per basic share 1,026 won 1,077 won

Net income/loss per diluted share 966 won 1,050 won

Exhibit 2
Brand Transformation Scenarios

Scenario 1

Scenario 2
by by

Scenario 3

Introducing…
Scenario 4