Daikin Industries Harvard Case Solution & Analysis

PEST Analysis


Daikin can use the opportunity of expanding globally, but before taking the executive decision, analyzing the political situation of that country is very important. Daikin is a technology based company, so legal and business factors should be assessed before operating like, market potential, business environment and trade markets, the effect of the country’s political situations on its business environment and regulations regarding the taxes and environmental laws in the country must be assessed and analyzed completely before expanding or shifting operations in any other country. Political instability influence on the sales of the market; the impact is prominent on the market that Daikin wants to enter, the inflation rate, etc. should also be considered before starting operations.


The economic depression forces companies to restructure their strategies involving every operation from procurement to production, marketing till sales. Companies face difficulties in finding ways of penetrating in the markets and often prefer downsizing in manufacturing and cutting costs. The economic condition of a country influences most to a business irrespective of the trade it belongs. It should consider all the economic factors of the country it wants to operate in, as the products may be expensive and need to look whether the economic condition favors the buying behavior of the consumers towards technological products or not.


Social factors influence the marketing strategy of the companies more frequently. The culture, traditions and norms usually differ greatly among countries, so understanding these differences is very important. Social factors help in understanding and classifying the consumers to find the right market to target. Consumer demographics, income level, education and cultural limitations play a vital role in understanding the customers. Consumers’ needs are a key in bringing the customer to the market and understanding how they are shaped is very important. Daikin needs to assess these factors to identify the right customers or market segments and the way they should be targeted; some countries don’t favor technological products on large, so understanding what influence them in not buying such products and how can Daikin control these situations.


Technology is one of the strengths of Daikin. They can take leverage of this in expanding globally. With the advancement in technologies not only in the production, but also in promotional activities give companies a wider medium to get closer to the consumer. Since Daikin is a technological serving company so it should face no difficulty in adapting to the needs of a particular market. Using social media as a medium of promotion helps countries greatly in reaching the customer all over the world, so Daikin should also keep this point considerable importance before operating in a particular market around the globe.

(Exhibit 1.2)

Porter’s Five Forces Analysis

Since Daikin is considering to operations from Japan to China, they are taking advantage of low labor and production costs to increase their revenues. This option requires an external analysis of the Chinese market for Daikin. The external analysis can be best-done using the Porter’s five forces model.

Threat of New Entrant

The industry, which favors the new entrants and offer no barriers to them will always pose a threat to the company. Daikin needs to analyze the threats that Chinese market pose on to the new entrants. It should also analyze the factors shaping the business in that industry are whether easy or difficult, the rules and regulations and the finance needed to start up a business.

The Chinese market is competitive when it comes to production. The manufacturing cost is very low, and entrant barriers are also minimal, so operating and starting production is not a difficulty. Since the market has very low entry barriers, it might pose, a threat for Daikin as their competitors can also opt for the same changes.

Buyer Power

Daikin is only planning to start production in China, however, they can also utilize the Chinese market for selling a product by gaining a first mover advantage since there is very less competition in the beginning. This calls for the second force of Porter that highlights the buying power of the consumer. The Chinese market has many consumers, and the industry analysis of air-conditioning and related items suggests that the buying power of consumers is very low due the large population and high inflation rate of china.

Threat of Substitute

The Chinese market is very flexible and offers a great variety in every kind of product. Daikin is dealing in electronic goods, especially in air-conditioners that are the new invention of the modern world. The threat of substitutes that it has is very less but prominent.  The natural substitute is the fresh air, but besides that no serious threat Daikin has of substitutes in regards of their products..................................

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