Like many other global companies, Danfoss had been taking a slow boat to China. During the mid-1990s, the company moved some of the manufacturing of its valves, compressors, and motion controls there to take advantage of low wages. It was selling some of the output around the world and the rest locally, at high prices, to business customers in the major coastal Chinese cities.

This approach was successful: after some ten years in China, Danfoss can boast profits, high growth rates, and excellent relations with the Chinese authorities. Yet the company's CEO, Jørgen M. Clausen, who in 1996 took the helm of his family's business (which had €2.2 billion in net sales in 2004), wondered if Danfoss was achieving its full potential in China. Moreover, he doubted that the cautious approach would ensure a lasting and meaningful role for the company in a market that over the next 40 years will probably overtake the United States as the world's largest.

A company's long-term goals in China and the timing of the moves required to meet them are strategic issues that chief executives all over the world are, or should be, pondering. For Danfoss, another dimension was involved as well. Coming...