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Cummins, Inc (A)

Yale School of Management
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Steve Chapman (SOM '85) surveyed the northeast part of the city from his 27th-floor office. Though the sky was cloudy, he could see for miles. Beijing was well on its way to its 2007 target of 245 “blue sky days,” part of an ambitious effort to improve air quality. As Group Vice President - Emerging Markets and Businesses for Cummins, Inc., Chapman knew that Cummins could continue its success as one of the largest producers of diesel engines for the China market only if it continued to meet China’s increasingly strict and occasionally fragmented air quality standards. He wondered if the company could participate more actively in the development of China’s regulatory policy, taking a higher profile after 20 years of a low-profile approach with the government. Cummins had come late to a lobbying office in Washington, D.C., but setting up the office in 2001 had provided a strong business asset. Perhaps it was time to establish a government relations function in China.

China was struggling with its air quality. Its per-capita production of emissions was below that of most developed countries, but its large population and rapid economic growth were leading to large overall increases in pollutants. Consumer consumption was rising and the number of privately owned automobiles was increasing. Emissions from vehicles, especially from trucks, were a major concern. Citizens wrote their newspapers pleading for their children to be able to see blue skies. The U.S. and European press described the devastating effect of pollution in China (many with online translations into Chinese). Foreign governments and international activists pressed concerns about global warming.

China was responding. Premier Wen Jiabao had made commitments to international groups, saying, “The Chinese Government takes environmental protection as a basic state policy.” The Ministry of Environmental Protection (MEP) and other state, provincial and local regulatory agencies were ratcheting up emission standards, regulations, and long-term plans for sustainability. Beijing was spending over U.S. $13 billion to clean up the city’s air. It promised that the 2008 Olympic Games would be the most environmentally friendly ever.

Cummins prided itself on meeting emissions standards. As Chapman said, “You won’t find us protesting against emission standards. We consider ourselves the best in the world in diesel engine technology in terms of meeting emissions standards and exceeding customer expectations by supplying the highest performing product. Emission standards can give us a competitive advantage.” Cummins’ engineers had good working relationships with their peers at MEP, but China’s increasing across-the-board emphasis on the environment was complicating the company’s governmental interactions. In considering a new approach to Chinese regulators, Chapman wondered about the similarities and differences between governmental relations in China and the U.S. Could the Washington, D.C. office provide a model for China?

Published Date: 25/02/2008

Suggested Citation: Constance E. Bagley, Douglas W. Rae, and Jean W. Rosenthal, "Cummins, Inc (A)," Yale SOM Case 08-024, February 25, 2008

Keywords: China