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INTERNATIONAL MANAGEMENT
Total Marks: 80
Note : All Questions are Compulsory
Each Question Carries Equal Marks
CASE STUDY : 1
(20 Marks)
Zhuhai of Shanghai
“I’m not sure whether they understand that a firm cannot he a bundle of discreet businesses.
Most of the senior
Chinese executives I talk to arc convinced that they can make anything . . . absolutely
anything that will make
money. After so many years of command economy, managers are oblivious to the concept of
market ……they aren’t
keen to get into bilateral trading even when it makes sense. They would rather pursue
different ventures totally
unrelated to each other,” said a financial analyst of an American brokerage firm located in
Shanghai.
Mr. Dong Hong is the president of Zhuhai To Zi Company (Zuhai) which was founded in
1980 as a construction
company. Before joining the company in 1989, Hong was a high ranking army officer in the
People’s Republic of
China. As president of Zhuhai, he attended an executive management programme at Harvard
Business School.
Although Hong enjoyed the programme, he came back with some reservations about the
relevance of what he
learned. One of his oft-repeated summation of the programme was: “I have problem with the
terms like core
competency and synergy. At this point in time, there are ample opportunities in China to
make good return in any
business. You don’t mean to say that we simply stick to the knitting and pass these
opportunities to others? China is a
virgin land, you need to understand that.”
HISTORY OF SGL
Zhuhai has received a favorable media splash in China upon its taking a controlling interest
of Shanghai Gue Za Liao
Company (SGL), a poly-crystal manufacturer. SGL was founded in 1969. At that time, it was
the largest
manufacturer of poly-crystal in China employing 900 people. It received quality awards for
six consecutive years. In
1992, SGL was authorized by the Shanghai Municipal Government to become a joint stock
company. In less than 15
days, it sold RMB ¥(yen) 1.1 million worth of stock at RMB ¥22.00 per stock (¥10 par value)
to the public and to
the employees of the firm. The registered capital was RMB ¥33.799 after the fund raising.
The Government owned
RMB ¥18.799 million worth of stock. The stock was floated through the Shanghai Securities
Exchange Centre. In
1993, the market price per stock was RMB ¥l8.79, with a price of RMB ¥7.85 at its lowest
point. By being a listed
company, SGL cased its cash flow problems but the rate of return was getting depressingly
low and its market share
went down from 51 per cent in 1970 to 36 per cent in 1993.
MANUFACTURING TECHNOLOGY OF POLY-CRYSTAL
Poly-crystal is a crystalline specimen which contains many small individual crystals. There
are different methods of
making this product. The most common and widely used method is called Chemical Vapour
Disposition or CVP. In
this process, the material to be crystallised is vaporised in a chamber and then condensed on a
substrate to form
crystals. Silicon crystals are mostly used in semiconductor (i.e., computer chips) and solar
power applications for
their unique properties and inexpensive raw materials (mainly sand). Though it is not a
labour-intensive process, it
requires rather sophisticated technical skills.
The electronic industry in the developed countries produces its own crystals. IBM, RCA,
Motorola, and Texas
Instruments are the major producers of crystals in the U.S. Application of semiconductors
and use of photovoltaic
cells will continue to rise, and with it the demand for poly-crystal is expected to increase.
OPERATIONAL EFFICIENCY OF SGL
Since China started allowing imports, SGL’s market share had shrunk for a combination of
reasons. First was the
slow rate of growth of Chinese electronic industry where poly-crystal is mostly used. Second
was that imports had
been consistently of high quality which SGL could not match due to lack of skilled labour
and obsolete technology.
Third was the ever-increasing costs of power and raw materials contributing much to
increasing cost per unit of
production.
Pricewise, SGL could not compete with the major importers from the U.S., Russia, Ukraine,
and Germany inspite of
the fact that the labour rate in China is about one-third of the U.S. and Germany. In 1994,
SQL sold 34 tons of
polycrystal where the total domestic demand was estimated to be about 105 tons.
In an attempt to diversify the company, the board of directors decided to get into the taxi
business as the city
experienced a surge in the tourist market. As of 1994, Shanghai had about 35,000 taxis. A
taxi owner typically
receives V300 per day per taxi irrespective of the driver’s earnings. The driver makes on an
average about V150 to
200 each day but he is responsible for buying gas and paying for repairs of any mechanical
defects. In addition, he
has to pay the police for any traffic violation.
The time SGL entered this market, the Chinese banks eased their lending process allowing
many of the existing
drivers to buy their own taxis with easy repayment schedules. This had the salutary effect, for
SQL, of not finding
enough “qualified” drivers without lowering the owner’s usual income of 300 per day.
Managing this line of business
was becoming a headache. SGL asked several of its managers to move into the taxi-sector.
Some of them flatly
refused and a few accepted the assignment grudgingly. SQL, though doing poorly both in
crystal and taxi business,
did not lay-off employees or reduce their benefits.
SGL’s top management thought that the company had gone as far as possible with its
restructuring efforts and
decided to be taken over either by a foreign or a domestic firm. It also tried in vain to form
alliances. In April 1994,
the Government decided to sell its RMB Vl2 million worth of stock of SGL to Zhuhai To Zi
company, making it the
largest stock holder holding 35.5 per cent of the entire stock. Immediately after the takeover,
Zhuhai asked SGL to
produce quartz glass for a particular Japanese company. The outsourcing attempt by this
Japanese firm to SQL lasted
about a year as it was not satisfied with the variance in quality and delivery schedule. With
the available technology
of SGL, Zhuhai decided to get into manufacturing electric energy meters for state-owned
facilities. These stateowned
operations had been the major customer base for SGL’ s poly-crystal. Working with
the similar customer
base, SGL started to make money with its energy meters. The two business segments, real
estate and the energy
meters, contributed much of Zhuhai’s net return of 15 per cent, providing an overall liquidity
ratio of 2.7 per cent and
a quick ratio of 1.94. The financial position of Zhuhai is provided in the Table 1.below
RESTRUCTURING OF ZHUHAI
The president of Zhuhai restructured the company making each division a separate strategic
business unit (SBU). The
revised organisation structure is provided below.
Note that the positions immediately below the unit vice presidents and under them there were
a cadre of personnel
doing various jobs as directed by their bosses. Mr. Hong made it clear to all SBU vice
presidents (VPs) that decisions
regarding product development, pricing, procurement and human resource management
would be taken by the
president himself in consultation with the board of directors. Mr. Hong stated in a recent
meeting that the VPs were
responsible for making at least 20 per cent rate of return for their units. “Lower than 20 per
cent will mean either
demotion or transfer for that particular VP”, he said. “We have started making short cuts,
saving money in every
possible way.... but I’m not sure whether any strategic business unit can function without
strategy. Just a promise of
fixed rate of return at the end of the year? Is that all in the name of strategy?”, asked the vice
president of an SBU.
Question :
1) Discuss the typicality’s of Chinese Industrial system vis-à-vis the Western/global
Industrial system.
2) Where does the Chinese system fault?
3) Is over production and mis-match in marketing leads to poor prices of Chinese products
in the International
market?
4) If you are offered, views as a top consultant, what would you like to suggest the
Chinese Government and
industry. Give your reasons.
Case-2
(20 Marks)
Toyota Comes to Georgetown
Mrs. Friers, in her early sixties, of Georgetown’s new Wal-Mart store cannot be anything but
polite when she
discusses Toyota. In a low voice to my companion, the doctor at the local Scott County
General Hospital, Friers said,
“You know Doe, Toyota did not offer that job to my daughter.” “I am sorry to hear that,” the
Doctor commented
casually. “Are you all glad that Toyota came to town?” I asked Mrs. Friers, somewhat to fill
the void. “Yes and no ...
we were all excited when they first announced it . . . it kind of sank in now, I guess.”
Toyota’s labour practices was the hot topic at the local drug store too. A middle aged man,
who had worked in an
iron foundry for 31 years, commented, “In Toyota you have to earn every penny . . . there is
never a slag . . . never
the time to say hello.” His youngest son, Dwayne, is currently employed in the Toyota plant.
He is extremely pleased
that the company has abandoned the practice of workout in the morning. A skeptical Baptist
preacher asked, “what
the heck have we got because of Toyota? Most of their people come from Indiana and Ohio. I
hear some of them
even commute from Arkansas.”
TOYOTA COMES TO GEORGETOWN
Georgetown, about 25 miles south of Lexington, Kentucky is the Scott County’s heartland.
The county’s population
is 25,000 out of which 22,000 are white. Over 53 per cent of the household income is
between $15,000 to $49,999
per year. It has 93.7 males for every 100 females. About 43 per cent of the population are
between the ages of 18 to
44 years.
It was a puzzle to many residents as to why Toyota selected this sleepy town for their new
venture. Some of them
argued that the then Governor of the State, Martha Lay Collins, charmed the Japanese so
much that they lost their
way and their heads too. Some others contended that the State made huge tax concessions to
the company and wrote
blank checks. The local paper cashed in by printing all possible undocumented stories about
Toyota.
However the present Mayor of Georgetown denied charges of any underhanded deal. He
rationalized the process of
selection thus: Toyota selected this location mainly to take advantage of the transportation
network of 1-75 (North
and South) and 1-64 (East and West). He added, “the topography of the land here is very
similar to the land around
the Toyota City in Japan. I assume the company was also attracted because of non-union
focus in this State.”
The original plant location was about three miles outside the Georgetown city limit. The
office of the Mayor made it
clear to the Toyota people that since the city was the closest municipality it would end up
providing most of the
infrastructural services to the plant but without any return from Toyota. Why should the
taxpayers of Georgetown
accept this liability without any tax revenue coming from the company?
The company’s vice-president had asked the Mayor to attend a series of breakfast meeting
with him and other
officials to sort out this and other related problems. The Mayor described the outcome of
these meetings thus: “We
were aware that this was a huge economic development opportunity but was also conscious
of the fact that the town
people should not be shortchanged in any shape or manner.” In April 1987, Toyota confirmed
the setting up of the
plant in Georgetown.
TOYOTA’S OPERATIONS
In May 1988, the first Kentucky Camry was introduced at a plantwide celebration. And in the
same year, Camry
received the J.D. Power Gold Plant Quality Award. In November 1988, Toyota announced
plans to double the plant
size and production at the Georgetown plant. In September 1991, Toyota unveiled a major
model redesign for the
year 1992. In January 1992, Toyota announced plans to expand Powertrain Plant to add V-6
productions. By March,
the production of Camry Wagon began. In September 1994, the Georgetown plant began
production of the Avalon, a
new large sedan aimed at the North American market.
In 1988, Toyota was able to produce about 200,000 Camry Sedans of which 20 per cent were
exported. In 1995, it
doubled the production to 400,000 with the hope of exporting 20 per cent to Taiwan, Europe
and Japan.
With this tremendous pace of change, the company demanded from its workforce nothing
short of total dedication.
The pace became such that the workers started using “Kaizen”, “Kieretsu”, “Kanban” and
few other similar Japanese
phrases even in dealing with their own family members. In 1995, the employees were told
that since the sales had
declined by 2.5 per cent, the process had to he streamlined, using fewer model variations and
increasing white-collar
productivity. An assembly line worker said, “Gosh, how could any more speed be achieved
without killing each other
. . . but this is Toyota. Find a way to do it . . . or a way out.”
THE GAINS AND THE BARGAINS
Toyota’s direct employment in the U.S., as of December 1993 was 16,674. including the
1438 Toyota/Lexus dealers,
the company employs over 90,000 people in the U.S. In Georgetown alone, it employs 6000
people representing all
120 counties of the State of Kentucky. What Kentucky gained from Toyota is a question that
ninny people ask. For
instance, the company was provided with an incentive package of $325 million. Out of this
amount, $68 million was
paid for job training, and $40 million went to building roads and sewers. Toyota operates
under the Free Trade Zone
which provides tariff exemption of $14 million a year. The company was allowed to import
parts and machinery
without paying any additional tariffs. The State paid $167.6 million interest costs for its
warehousing distribution.
The balance sheet predicts that the Camry plant could generate $673.4 million in state tax
revenue including
individual and sales taxes. Further, due to Toyota’s plant expansion there will be a whole host
of satellite industries
around the area with vast potential for job opportunities. Estimates suggest that the Camry
plant and its suppliers
based in the State have already created 22,000 jobs in Kentucky.
OTHER STATES FOLLOW LEAD
The State of Tennessee, in order to bring in Nissan, convinced the Federal Government to
approve $5 million-a-year
tax break on plant expansion (production expanded from 250,000 to 450,000), and allowed it
to operate under the
Free Trade Zone as Kentucky did for Toyota. The State of South Carolina in its effort to get
BMW also had to
provide $5 million in state income tax credits and an additional $3 million for employee
training. The State wl1 set
the BMW’s property taxes at the same rate for 5 years at a time and extend the Zone on
Greenville-Spartan airport.
This venture estimates 10,000 additional jobs in the region including about 2,000 at the
BMW location itself.
According to his estimate, the State will benefit by $28 million a year in taxes.
The latest in this league of getting large employers is the State of Alabama. Mercedes Benz
has accepted we location
to manufacture under the following conditions: the State will provide $92 million for site
development, $77 million
for infrastructure, $60 million for job training, and $8.6 million for sales and tax concessions
on equipment. The
State also made a good faith commitment to buy from the company, 2,500 vehicles at an
estimated price of $75
million. Mercedes will employ 1,500 people and it expects a mushrooming of industries
around the plant site.
TOYOTA TRIES TO BE A GOOD CITIZEN
From the day of inception. Toyota officials insisted that the company should be a part of the
community. For
instance, it cited the following contributions: $1 million for the citizens of Scott County to
build a community centre,
$15 million over a 20 year period to the County school system; $141,000 to develop a child
care centre; $500,000 for
the development of a Thoroughbred Park; $25,000 and $30,000 to the Lexington’s Children’s
Museum and
Philharmonic respectively. The city of Georgetown receives one per cent of the payroll tax
and an additional
percentage of the net profit of sales. The city’s general fund budget went up to $6.7 million in
1992 from a mere $2.2
million in earlier years. This allowed the city to extend its police force and add a fire station.
Fire insurance rating for
the city went sown from class 6 to class 4, resulting in savings of about $500,000 a year in
insurance costs for the
homeowners.
Although Toyota has never agreed to give preferential treatment in employing Kentuckians or
people from
Georgetown, the mix at the shop floor level suggests that over 80 per cent of them are not
residents of the county. At
the managerial level, the Japanese are in charge of production control,’ purchasing, finance,
engineering, and quality
control functions. The president is also a Japanese national. The U.S. personnel occupy the
positions of senior vicepresident,
human resources, public affairs, and vehicle assembly production. A majority of
managerial and
supervisory staff live in Lexington and Louisville (Kentucky), and Cincinnati (Ohio).
GEORGETOWN ON THE MAP
Has Toyota not been the single most important factor to bring prominence to this area? The
existence of two
interstate highways 1-64 and 1-75 was what had attracted Toyota to Georgetown. Yet these
two highways
contributed negatively by moving people away, towards bigger cities like Lexington,
Kentucky and Cincinnati, Ohio.
Lexington and Cincinnati, for example, have better schools, shopping centres, cultural
activities, and have legal
liquor sales. The Director of Georgetown-Scott County Planning Commission notes, “the
originally anticipated large
increase in population has not occurred . . . and is not anticipated to rise substantially beyond
the normal growth for a
community of our size.” The Director agreed that traffic had dramatically increased since
Toyota’s arrival and this
was much to the annoyance of the local people. But on the plus side, he claims, the local
schools have benefited from
the company’s contributions.
To Mrs. Friers and many others, the presence of Toyota has added to their frustration. They
are angry and dismayed
since the plant has changed their way of life. They feel that the way life was in Georgetown
will never to be back,
and they do not know how to fill the void they now experience. One of them aptly
summarized the feeling of others
thus: “we now see lots of new faces, and we don’t know where they come from, where they
arc going. But they seem
to leave us at night to guard this divided city—that’s the new city where Toyota is . .
Japanese money, fancy cars,
fast foods. The other city is where we folks are—still chewing our deep-fried catfish and
spoon bread while recalling
the long list of small mom and pop shops which used to be on the main street that are now
being sucked up by the
winds of the Wal-Marts and the Krogers of the new world. Do we have to destroy the
yesteryears to get to the year 2000? There used to be a word called co-existen de. I guess, we
don’t care what it
means any more!”
Questions
1. What is the difference between American production policy and Japanese production
policy?
2. Where the Japanese Excel?
3. In quality control of Toyota what do you observe?
4. Can Japanese, be really leader in auto production and marketing, all over the world? Justify
your moves.
Case -3
(20 Marks)
How to Win at Westinghouse
Westinghouse founded the Westinghouse Electric Company in 1886, over 100 years ago.
From the beginning, the
hallmark of the company was one of entrepreneurship and creativity. By inventing a new for
tr3nsmitting electric
current over long distances, the firm penetrated the fledgling electric industry. Its aptitude for
technological
innovation led the firm into the development and creation of diverse products, from
household appliances to watches
to nuclear power equipment. The firm also demonstrated creative diversity, branching into
such endeavours as radio
station operations, softdrink bottling, and low income housing Today, the Westinghouse
Corporation is organized
into six operational groups broadcasting, commercial, electronics systems, energy and utility
systems, financial
services, and industries.
As Westinghouse grew and began its expansion into foreign markets, it became apparent that
the firm’s
organisational structures and communication systems would have to be modernized to
provide the flexibility
demanded by overseas operations. Rigid procedures and red tape had to be eliminated, and
ways had to be developed,
by which key employees around the world could communicate with each other rapidly, so
that their giant company
could adequately react to changing conditions around the world.
To meet this communication support challenge, Westinghouse established a
change-responsive high-tech
communication network to support its far-flung operations. A new commuter system allows
employees at all levels
of the corporation to communicate through decentralized support networks. Westinghouse
employees from different
divisions and different departments can link-up in order to share information around the
world.
The new support system, called the Westinghouse Information Network (WIN), links more
than 600 Westinghouse
facilities, providing both voice and data transmissions as well as an electronic mail system.
Westinghouse employees
can link WIN to their homes or to their lap-tops when travelling. WIN offers
videoconferencing, which reduces or
eliminates the need for costly and time-consuming travel to meetings. WIN also contains an
advanced negotiation
system, called EDGE, which supports sales personnel during complex sales negotiations.
Every working day, over 90000 Westinghouse employees utilize the WIN system, which
provides the flexible on-line
support that Westinghouse needs to expand its global enterprises. (16).
QUESTIONS
1. Describe the ways in which international business has an impact on your life.
2. Pick an Indian corporation with which you are familiar and analyse the reasons why it
might be motivated to
expand its internationalism.
3. What sorts of adjustments might McDonald’s have to make in its operations in India?
4. What do you believe India must do to improve its international competitiveness?
5. How do you perceive your managerial career will have an impact by the phenomenon of
international business?
Case-4 (20
Marks)
Doing Business with the East—Motorola Style
When Motorola decided to do business with the East, it was done in a big way. Motorola has
penetrated virtually
every niche in Asia’s booming telecommunication and semiconductor markets. It’s Asian
strategy has already
accounted for 13 new factories in nine countries. Its dynamic growth in Asia is exemplified
by Tam Chung Ding,
President of Motorola’s Asia-Pacific semiconductor division. His office is located in
Motorola’s now $400 million
Silicon Harbour complex with a grand view of the Hong Kong harbour. Motorola leans
heavily on Turns instincts
and his aggressive leadership style. Tam’s division is one of the most profitable and
fastest-growing of Motorola’s
far-flung industrial empire. In 1990, Motorola’s chip sales in non-Japan Asia rose by 20 per
cent to $528 million,
making it the world’s third largest chip producer. Motorola is also Asia’s top supplier of
top-of-the-line walkietalkies
and digital cordless telephones.
The East is critical for Motorola, as Asian sales—outside Japan—total more than $1 billion
per year— almost 10 per
cent of Motorola’s total sales. Motorola has long recognised the potential of Asia. It began
dabbling in Asian
business in the early 1960s, when it established sales agencies in Tokyo and Hong Kong. A
decade ago, Motorola
split up its Asian semiconductor headquarters in Tokyo, locating the office for its non-Japan
Asian business to Hong
Kong under the charge of Mr. Tam.
For years, Motorola had complained about Japanese trade barriers to no avail. Then in 1987,
it formed an alliance
with Toshiba. The two formed a successful chip-manufacturing joint venture, with Toshiba
providing essential
marketing services. In 1990, Toshiba executive Isamu Kuru joined Motorola after serving
Toshiba for 28 years. Mr.
Kuru provides the necessary insight and understanding necessary to guide the Motorola’s
Japanese operations.
Other notable Motorola successes have been recorded in India, Australia, Singapore, China,
and South Korea.
However, the latter two ventures have been serious challenges. In June of 1992, Motorola
broke ground for a new
$120 million semiconductor plant in Tianjin, a Chinese port city near Beijing. It will be the
first U.S. semiconductor
plant in China. In addition to making semiconductors, the new plant will produce telephone
pagers, mobile
telephones, and electronic equipment for automobiles. Many observers believe that such an
investment, coming so
soon after the Tiananmen Square disaster, is far too risky. Motorola is willing to take that
risk, believing that China
holds the key to future competitiveness in Asia. Hovever, to test those Chinese waters, while
the new plant was just
starting construction, Motorola opened a make-shift plant—also in Tianjin—to build the first
of its paging devices.
Originally, Motorola assumed that the local demand for pagers would be so small that it
would have to export a large
share of production. However, the plant now produces 10,000 units each week, and the entire
output is sold in China,
with each pager selling for $200. Experts indicate that the Chinese demand for pagers has
risen from 1 million in
1991 to 4 million in 1993. With the make-shift plant performing well, the new plant
scheduled to begin production
by the end of 1993, and a second new plant planned for the near future, Motorola’s
competitive position in China
seems to be on a sound footing.
Motorola had more serious difficulties with its “Motorola Korea”, Limited venture, especially
with respect to labour
problems. At first, the well-educated, hard-working Korean workforce seemed to be ideal for
Motorola’s needs.
However, in the late 1980s, Korean labour became disenchanted with long working hours,
low pay, and poor
working conditions. Noting the growing riches of the Chaebols, the working class wanted a
greater piece of the
economic pie. Thousands of Korean workers took to the streets in massive demonstrations,
demanding economic
reforms and the right to form labour unions.
Motorola’s first taste of trouble co” when 34 of its more than 3,800 Korean workers
petitioned the Korean
government for the right to organise a union. Motorola has held a long-standing policy
against the unionisation of its
workers and refused to negotiate the matter with its employees. Some of them latter
barricaded themselves in the
factory cafeteria and threatened to stay there until their union demands were met. In response,
Motorola closed the
factory for a week in an effort to provide a cooling-off period. However, when the factory
reopened, violence
immediately broke out at the factory gates, and Motorola had to evacuate the facility. In the
following weeks,
violence continued, a union organiser was arrested, and public sentiment moved to the side of
the ernployee. Before
the matter was resolved, Motorola lost an estimated $2 million in property damage and lost
product. The settlement
also required Motorola to improve working conditions and to improve wages for its
employees Despite this setback,
the Motorola operations in Korea are still growing in keeping with the firm’s commitment to
Asian development.
Despite the nagging problems of unionisation, a shortage of engineers and technicians
continuing trade barriers, and
dealing with a divergence of local customs, Motorola continues to press Asian development
strategy—without harm
to its domestic reputation. A 1995 Fortune Corporate Reputation survey ranked Motorola the
fourth most admired
corporation in the U.S. (up from sixth in 1994) and the most admired firm in the electronics
and electrical equipment
industry (for the second year in a row).
QUESTIONS:
1. Describe some recent changes in your life or in your community that reflects
the world’s shift from the West to the East.
2. What factors would you suggest are behind the shift from the West to the East?
3. Did Japanese management style evolve from the Japanese culture, or did Japanese culture
evolve from Japanese
management style?
4. Describe the business-government ties that result in Japanese trade barriers.
5. Which of the Four Tigers of Asia do you believe has the greatest potential for long-term
economic growth? Why?
6. What must China do to realise the magnitude of economic success earned by the Japanese?
7. Outside of Singapore, which of the other ASEAN nations holds potential for economic
success? Why?
Total Marks: 80
Note : All Questions are Compulsory
Each Question Carries Equal Marks
CASE STUDY : 1
(20 Marks)
Zhuhai of Shanghai
“I’m not sure whether they understand that a firm cannot he a bundle of discreet businesses.
Most of the senior
Chinese executives I talk to arc convinced that they can make anything . . . absolutely
anything that will make
money. After so many years of command economy, managers are oblivious to the concept of
market ……they aren’t
keen to get into bilateral trading even when it makes sense. They would rather pursue
different ventures totally
unrelated to each other,” said a financial analyst of an American brokerage firm located in
Shanghai.
Mr. Dong Hong is the president of Zhuhai To Zi Company (Zuhai) which was founded in
1980 as a construction
company. Before joining the company in 1989, Hong was a high ranking army officer in the
People’s Republic of
China. As president of Zhuhai, he attended an executive management programme at Harvard
Business School.
Although Hong enjoyed the programme, he came back with some reservations about the
relevance of what he
learned. One of his oft-repeated summation of the programme was: “I have problem with the
terms like core
competency and synergy. At this point in time, there are ample opportunities in China to
make good return in any
business. You don’t mean to say that we simply stick to the knitting and pass these
opportunities to others? China is a
virgin land, you need to understand that.”
HISTORY OF SGL
Zhuhai has received a favorable media splash in China upon its taking a controlling interest
of Shanghai Gue Za Liao
Company (SGL), a poly-crystal manufacturer. SGL was founded in 1969. At that time, it was
the largest
manufacturer of poly-crystal in China employing 900 people. It received quality awards for
six consecutive years. In
1992, SGL was authorized by the Shanghai Municipal Government to become a joint stock
company. In less than 15
days, it sold RMB ¥(yen) 1.1 million worth of stock at RMB ¥22.00 per stock (¥10 par value)
to the public and to
the employees of the firm. The registered capital was RMB ¥33.799 after the fund raising.
The Government owned
RMB ¥18.799 million worth of stock. The stock was floated through the Shanghai Securities
Exchange Centre. In
1993, the market price per stock was RMB ¥l8.79, with a price of RMB ¥7.85 at its lowest
point. By being a listed
company, SGL cased its cash flow problems but the rate of return was getting depressingly
low and its market share
went down from 51 per cent in 1970 to 36 per cent in 1993.
MANUFACTURING TECHNOLOGY OF POLY-CRYSTAL
Poly-crystal is a crystalline specimen which contains many small individual crystals. There
are different methods of
making this product. The most common and widely used method is called Chemical Vapour
Disposition or CVP. In
this process, the material to be crystallised is vaporised in a chamber and then condensed on a
substrate to form
crystals. Silicon crystals are mostly used in semiconductor (i.e., computer chips) and solar
power applications for
their unique properties and inexpensive raw materials (mainly sand). Though it is not a
labour-intensive process, it
requires rather sophisticated technical skills.
The electronic industry in the developed countries produces its own crystals. IBM, RCA,
Motorola, and Texas
Instruments are the major producers of crystals in the U.S. Application of semiconductors
and use of photovoltaic
cells will continue to rise, and with it the demand for poly-crystal is expected to increase.
OPERATIONAL EFFICIENCY OF SGL
Since China started allowing imports, SGL’s market share had shrunk for a combination of
reasons. First was the
slow rate of growth of Chinese electronic industry where poly-crystal is mostly used. Second
was that imports had
been consistently of high quality which SGL could not match due to lack of skilled labour
and obsolete technology.
Third was the ever-increasing costs of power and raw materials contributing much to
increasing cost per unit of
production.
Pricewise, SGL could not compete with the major importers from the U.S., Russia, Ukraine,
and Germany inspite of
the fact that the labour rate in China is about one-third of the U.S. and Germany. In 1994,
SQL sold 34 tons of
polycrystal where the total domestic demand was estimated to be about 105 tons.
In an attempt to diversify the company, the board of directors decided to get into the taxi
business as the city
experienced a surge in the tourist market. As of 1994, Shanghai had about 35,000 taxis. A
taxi owner typically
receives V300 per day per taxi irrespective of the driver’s earnings. The driver makes on an
average about V150 to
200 each day but he is responsible for buying gas and paying for repairs of any mechanical
defects. In addition, he
has to pay the police for any traffic violation.
The time SGL entered this market, the Chinese banks eased their lending process allowing
many of the existing
drivers to buy their own taxis with easy repayment schedules. This had the salutary effect, for
SQL, of not finding
enough “qualified” drivers without lowering the owner’s usual income of 300 per day.
Managing this line of business
was becoming a headache. SGL asked several of its managers to move into the taxi-sector.
Some of them flatly
refused and a few accepted the assignment grudgingly. SQL, though doing poorly both in
crystal and taxi business,
did not lay-off employees or reduce their benefits.
SGL’s top management thought that the company had gone as far as possible with its
restructuring efforts and
decided to be taken over either by a foreign or a domestic firm. It also tried in vain to form
alliances. In April 1994,
the Government decided to sell its RMB Vl2 million worth of stock of SGL to Zhuhai To Zi
company, making it the
largest stock holder holding 35.5 per cent of the entire stock. Immediately after the takeover,
Zhuhai asked SGL to
produce quartz glass for a particular Japanese company. The outsourcing attempt by this
Japanese firm to SQL lasted
about a year as it was not satisfied with the variance in quality and delivery schedule. With
the available technology
of SGL, Zhuhai decided to get into manufacturing electric energy meters for state-owned
facilities. These stateowned
operations had been the major customer base for SGL’ s poly-crystal. Working with
the similar customer
base, SGL started to make money with its energy meters. The two business segments, real
estate and the energy
meters, contributed much of Zhuhai’s net return of 15 per cent, providing an overall liquidity
ratio of 2.7 per cent and
a quick ratio of 1.94. The financial position of Zhuhai is provided in the Table 1.below
RESTRUCTURING OF ZHUHAI
The president of Zhuhai restructured the company making each division a separate strategic
business unit (SBU). The
revised organisation structure is provided below.
Note that the positions immediately below the unit vice presidents and under them there were
a cadre of personnel
doing various jobs as directed by their bosses. Mr. Hong made it clear to all SBU vice
presidents (VPs) that decisions
regarding product development, pricing, procurement and human resource management
would be taken by the
president himself in consultation with the board of directors. Mr. Hong stated in a recent
meeting that the VPs were
responsible for making at least 20 per cent rate of return for their units. “Lower than 20 per
cent will mean either
demotion or transfer for that particular VP”, he said. “We have started making short cuts,
saving money in every
possible way.... but I’m not sure whether any strategic business unit can function without
strategy. Just a promise of
fixed rate of return at the end of the year? Is that all in the name of strategy?”, asked the vice
president of an SBU.
Question :
1) Discuss the typicality’s of Chinese Industrial system vis-à-vis the Western/global
Industrial system.
2) Where does the Chinese system fault?
3) Is over production and mis-match in marketing leads to poor prices of Chinese products
in the International
market?
4) If you are offered, views as a top consultant, what would you like to suggest the
Chinese Government and
industry. Give your reasons.
Case-2
(20 Marks)
Toyota Comes to Georgetown
Mrs. Friers, in her early sixties, of Georgetown’s new Wal-Mart store cannot be anything but
polite when she
discusses Toyota. In a low voice to my companion, the doctor at the local Scott County
General Hospital, Friers said,
“You know Doe, Toyota did not offer that job to my daughter.” “I am sorry to hear that,” the
Doctor commented
casually. “Are you all glad that Toyota came to town?” I asked Mrs. Friers, somewhat to fill
the void. “Yes and no ...
we were all excited when they first announced it . . . it kind of sank in now, I guess.”
Toyota’s labour practices was the hot topic at the local drug store too. A middle aged man,
who had worked in an
iron foundry for 31 years, commented, “In Toyota you have to earn every penny . . . there is
never a slag . . . never
the time to say hello.” His youngest son, Dwayne, is currently employed in the Toyota plant.
He is extremely pleased
that the company has abandoned the practice of workout in the morning. A skeptical Baptist
preacher asked, “what
the heck have we got because of Toyota? Most of their people come from Indiana and Ohio. I
hear some of them
even commute from Arkansas.”
TOYOTA COMES TO GEORGETOWN
Georgetown, about 25 miles south of Lexington, Kentucky is the Scott County’s heartland.
The county’s population
is 25,000 out of which 22,000 are white. Over 53 per cent of the household income is
between $15,000 to $49,999
per year. It has 93.7 males for every 100 females. About 43 per cent of the population are
between the ages of 18 to
44 years.
It was a puzzle to many residents as to why Toyota selected this sleepy town for their new
venture. Some of them
argued that the then Governor of the State, Martha Lay Collins, charmed the Japanese so
much that they lost their
way and their heads too. Some others contended that the State made huge tax concessions to
the company and wrote
blank checks. The local paper cashed in by printing all possible undocumented stories about
Toyota.
However the present Mayor of Georgetown denied charges of any underhanded deal. He
rationalized the process of
selection thus: Toyota selected this location mainly to take advantage of the transportation
network of 1-75 (North
and South) and 1-64 (East and West). He added, “the topography of the land here is very
similar to the land around
the Toyota City in Japan. I assume the company was also attracted because of non-union
focus in this State.”
The original plant location was about three miles outside the Georgetown city limit. The
office of the Mayor made it
clear to the Toyota people that since the city was the closest municipality it would end up
providing most of the
infrastructural services to the plant but without any return from Toyota. Why should the
taxpayers of Georgetown
accept this liability without any tax revenue coming from the company?
The company’s vice-president had asked the Mayor to attend a series of breakfast meeting
with him and other
officials to sort out this and other related problems. The Mayor described the outcome of
these meetings thus: “We
were aware that this was a huge economic development opportunity but was also conscious
of the fact that the town
people should not be shortchanged in any shape or manner.” In April 1987, Toyota confirmed
the setting up of the
plant in Georgetown.
TOYOTA’S OPERATIONS
In May 1988, the first Kentucky Camry was introduced at a plantwide celebration. And in the
same year, Camry
received the J.D. Power Gold Plant Quality Award. In November 1988, Toyota announced
plans to double the plant
size and production at the Georgetown plant. In September 1991, Toyota unveiled a major
model redesign for the
year 1992. In January 1992, Toyota announced plans to expand Powertrain Plant to add V-6
productions. By March,
the production of Camry Wagon began. In September 1994, the Georgetown plant began
production of the Avalon, a
new large sedan aimed at the North American market.
In 1988, Toyota was able to produce about 200,000 Camry Sedans of which 20 per cent were
exported. In 1995, it
doubled the production to 400,000 with the hope of exporting 20 per cent to Taiwan, Europe
and Japan.
With this tremendous pace of change, the company demanded from its workforce nothing
short of total dedication.
The pace became such that the workers started using “Kaizen”, “Kieretsu”, “Kanban” and
few other similar Japanese
phrases even in dealing with their own family members. In 1995, the employees were told
that since the sales had
declined by 2.5 per cent, the process had to he streamlined, using fewer model variations and
increasing white-collar
productivity. An assembly line worker said, “Gosh, how could any more speed be achieved
without killing each other
. . . but this is Toyota. Find a way to do it . . . or a way out.”
THE GAINS AND THE BARGAINS
Toyota’s direct employment in the U.S., as of December 1993 was 16,674. including the
1438 Toyota/Lexus dealers,
the company employs over 90,000 people in the U.S. In Georgetown alone, it employs 6000
people representing all
120 counties of the State of Kentucky. What Kentucky gained from Toyota is a question that
ninny people ask. For
instance, the company was provided with an incentive package of $325 million. Out of this
amount, $68 million was
paid for job training, and $40 million went to building roads and sewers. Toyota operates
under the Free Trade Zone
which provides tariff exemption of $14 million a year. The company was allowed to import
parts and machinery
without paying any additional tariffs. The State paid $167.6 million interest costs for its
warehousing distribution.
The balance sheet predicts that the Camry plant could generate $673.4 million in state tax
revenue including
individual and sales taxes. Further, due to Toyota’s plant expansion there will be a whole host
of satellite industries
around the area with vast potential for job opportunities. Estimates suggest that the Camry
plant and its suppliers
based in the State have already created 22,000 jobs in Kentucky.
OTHER STATES FOLLOW LEAD
The State of Tennessee, in order to bring in Nissan, convinced the Federal Government to
approve $5 million-a-year
tax break on plant expansion (production expanded from 250,000 to 450,000), and allowed it
to operate under the
Free Trade Zone as Kentucky did for Toyota. The State of South Carolina in its effort to get
BMW also had to
provide $5 million in state income tax credits and an additional $3 million for employee
training. The State wl1 set
the BMW’s property taxes at the same rate for 5 years at a time and extend the Zone on
Greenville-Spartan airport.
This venture estimates 10,000 additional jobs in the region including about 2,000 at the
BMW location itself.
According to his estimate, the State will benefit by $28 million a year in taxes.
The latest in this league of getting large employers is the State of Alabama. Mercedes Benz
has accepted we location
to manufacture under the following conditions: the State will provide $92 million for site
development, $77 million
for infrastructure, $60 million for job training, and $8.6 million for sales and tax concessions
on equipment. The
State also made a good faith commitment to buy from the company, 2,500 vehicles at an
estimated price of $75
million. Mercedes will employ 1,500 people and it expects a mushrooming of industries
around the plant site.
TOYOTA TRIES TO BE A GOOD CITIZEN
From the day of inception. Toyota officials insisted that the company should be a part of the
community. For
instance, it cited the following contributions: $1 million for the citizens of Scott County to
build a community centre,
$15 million over a 20 year period to the County school system; $141,000 to develop a child
care centre; $500,000 for
the development of a Thoroughbred Park; $25,000 and $30,000 to the Lexington’s Children’s
Museum and
Philharmonic respectively. The city of Georgetown receives one per cent of the payroll tax
and an additional
percentage of the net profit of sales. The city’s general fund budget went up to $6.7 million in
1992 from a mere $2.2
million in earlier years. This allowed the city to extend its police force and add a fire station.
Fire insurance rating for
the city went sown from class 6 to class 4, resulting in savings of about $500,000 a year in
insurance costs for the
homeowners.
Although Toyota has never agreed to give preferential treatment in employing Kentuckians or
people from
Georgetown, the mix at the shop floor level suggests that over 80 per cent of them are not
residents of the county. At
the managerial level, the Japanese are in charge of production control,’ purchasing, finance,
engineering, and quality
control functions. The president is also a Japanese national. The U.S. personnel occupy the
positions of senior vicepresident,
human resources, public affairs, and vehicle assembly production. A majority of
managerial and
supervisory staff live in Lexington and Louisville (Kentucky), and Cincinnati (Ohio).
GEORGETOWN ON THE MAP
Has Toyota not been the single most important factor to bring prominence to this area? The
existence of two
interstate highways 1-64 and 1-75 was what had attracted Toyota to Georgetown. Yet these
two highways
contributed negatively by moving people away, towards bigger cities like Lexington,
Kentucky and Cincinnati, Ohio.
Lexington and Cincinnati, for example, have better schools, shopping centres, cultural
activities, and have legal
liquor sales. The Director of Georgetown-Scott County Planning Commission notes, “the
originally anticipated large
increase in population has not occurred . . . and is not anticipated to rise substantially beyond
the normal growth for a
community of our size.” The Director agreed that traffic had dramatically increased since
Toyota’s arrival and this
was much to the annoyance of the local people. But on the plus side, he claims, the local
schools have benefited from
the company’s contributions.
To Mrs. Friers and many others, the presence of Toyota has added to their frustration. They
are angry and dismayed
since the plant has changed their way of life. They feel that the way life was in Georgetown
will never to be back,
and they do not know how to fill the void they now experience. One of them aptly
summarized the feeling of others
thus: “we now see lots of new faces, and we don’t know where they come from, where they
arc going. But they seem
to leave us at night to guard this divided city—that’s the new city where Toyota is . .
Japanese money, fancy cars,
fast foods. The other city is where we folks are—still chewing our deep-fried catfish and
spoon bread while recalling
the long list of small mom and pop shops which used to be on the main street that are now
being sucked up by the
winds of the Wal-Marts and the Krogers of the new world. Do we have to destroy the
yesteryears to get to the year 2000? There used to be a word called co-existen de. I guess, we
don’t care what it
means any more!”
Questions
1. What is the difference between American production policy and Japanese production
policy?
2. Where the Japanese Excel?
3. In quality control of Toyota what do you observe?
4. Can Japanese, be really leader in auto production and marketing, all over the world? Justify
your moves.
Case -3
(20 Marks)
How to Win at Westinghouse
Westinghouse founded the Westinghouse Electric Company in 1886, over 100 years ago.
From the beginning, the
hallmark of the company was one of entrepreneurship and creativity. By inventing a new for
tr3nsmitting electric
current over long distances, the firm penetrated the fledgling electric industry. Its aptitude for
technological
innovation led the firm into the development and creation of diverse products, from
household appliances to watches
to nuclear power equipment. The firm also demonstrated creative diversity, branching into
such endeavours as radio
station operations, softdrink bottling, and low income housing Today, the Westinghouse
Corporation is organized
into six operational groups broadcasting, commercial, electronics systems, energy and utility
systems, financial
services, and industries.
As Westinghouse grew and began its expansion into foreign markets, it became apparent that
the firm’s
organisational structures and communication systems would have to be modernized to
provide the flexibility
demanded by overseas operations. Rigid procedures and red tape had to be eliminated, and
ways had to be developed,
by which key employees around the world could communicate with each other rapidly, so
that their giant company
could adequately react to changing conditions around the world.
To meet this communication support challenge, Westinghouse established a
change-responsive high-tech
communication network to support its far-flung operations. A new commuter system allows
employees at all levels
of the corporation to communicate through decentralized support networks. Westinghouse
employees from different
divisions and different departments can link-up in order to share information around the
world.
The new support system, called the Westinghouse Information Network (WIN), links more
than 600 Westinghouse
facilities, providing both voice and data transmissions as well as an electronic mail system.
Westinghouse employees
can link WIN to their homes or to their lap-tops when travelling. WIN offers
videoconferencing, which reduces or
eliminates the need for costly and time-consuming travel to meetings. WIN also contains an
advanced negotiation
system, called EDGE, which supports sales personnel during complex sales negotiations.
Every working day, over 90000 Westinghouse employees utilize the WIN system, which
provides the flexible on-line
support that Westinghouse needs to expand its global enterprises. (16).
QUESTIONS
1. Describe the ways in which international business has an impact on your life.
2. Pick an Indian corporation with which you are familiar and analyse the reasons why it
might be motivated to
expand its internationalism.
3. What sorts of adjustments might McDonald’s have to make in its operations in India?
4. What do you believe India must do to improve its international competitiveness?
5. How do you perceive your managerial career will have an impact by the phenomenon of
international business?
Case-4 (20
Marks)
Doing Business with the East—Motorola Style
When Motorola decided to do business with the East, it was done in a big way. Motorola has
penetrated virtually
every niche in Asia’s booming telecommunication and semiconductor markets. It’s Asian
strategy has already
accounted for 13 new factories in nine countries. Its dynamic growth in Asia is exemplified
by Tam Chung Ding,
President of Motorola’s Asia-Pacific semiconductor division. His office is located in
Motorola’s now $400 million
Silicon Harbour complex with a grand view of the Hong Kong harbour. Motorola leans
heavily on Turns instincts
and his aggressive leadership style. Tam’s division is one of the most profitable and
fastest-growing of Motorola’s
far-flung industrial empire. In 1990, Motorola’s chip sales in non-Japan Asia rose by 20 per
cent to $528 million,
making it the world’s third largest chip producer. Motorola is also Asia’s top supplier of
top-of-the-line walkietalkies
and digital cordless telephones.
The East is critical for Motorola, as Asian sales—outside Japan—total more than $1 billion
per year— almost 10 per
cent of Motorola’s total sales. Motorola has long recognised the potential of Asia. It began
dabbling in Asian
business in the early 1960s, when it established sales agencies in Tokyo and Hong Kong. A
decade ago, Motorola
split up its Asian semiconductor headquarters in Tokyo, locating the office for its non-Japan
Asian business to Hong
Kong under the charge of Mr. Tam.
For years, Motorola had complained about Japanese trade barriers to no avail. Then in 1987,
it formed an alliance
with Toshiba. The two formed a successful chip-manufacturing joint venture, with Toshiba
providing essential
marketing services. In 1990, Toshiba executive Isamu Kuru joined Motorola after serving
Toshiba for 28 years. Mr.
Kuru provides the necessary insight and understanding necessary to guide the Motorola’s
Japanese operations.
Other notable Motorola successes have been recorded in India, Australia, Singapore, China,
and South Korea.
However, the latter two ventures have been serious challenges. In June of 1992, Motorola
broke ground for a new
$120 million semiconductor plant in Tianjin, a Chinese port city near Beijing. It will be the
first U.S. semiconductor
plant in China. In addition to making semiconductors, the new plant will produce telephone
pagers, mobile
telephones, and electronic equipment for automobiles. Many observers believe that such an
investment, coming so
soon after the Tiananmen Square disaster, is far too risky. Motorola is willing to take that
risk, believing that China
holds the key to future competitiveness in Asia. Hovever, to test those Chinese waters, while
the new plant was just
starting construction, Motorola opened a make-shift plant—also in Tianjin—to build the first
of its paging devices.
Originally, Motorola assumed that the local demand for pagers would be so small that it
would have to export a large
share of production. However, the plant now produces 10,000 units each week, and the entire
output is sold in China,
with each pager selling for $200. Experts indicate that the Chinese demand for pagers has
risen from 1 million in
1991 to 4 million in 1993. With the make-shift plant performing well, the new plant
scheduled to begin production
by the end of 1993, and a second new plant planned for the near future, Motorola’s
competitive position in China
seems to be on a sound footing.
Motorola had more serious difficulties with its “Motorola Korea”, Limited venture, especially
with respect to labour
problems. At first, the well-educated, hard-working Korean workforce seemed to be ideal for
Motorola’s needs.
However, in the late 1980s, Korean labour became disenchanted with long working hours,
low pay, and poor
working conditions. Noting the growing riches of the Chaebols, the working class wanted a
greater piece of the
economic pie. Thousands of Korean workers took to the streets in massive demonstrations,
demanding economic
reforms and the right to form labour unions.
Motorola’s first taste of trouble co” when 34 of its more than 3,800 Korean workers
petitioned the Korean
government for the right to organise a union. Motorola has held a long-standing policy
against the unionisation of its
workers and refused to negotiate the matter with its employees. Some of them latter
barricaded themselves in the
factory cafeteria and threatened to stay there until their union demands were met. In response,
Motorola closed the
factory for a week in an effort to provide a cooling-off period. However, when the factory
reopened, violence
immediately broke out at the factory gates, and Motorola had to evacuate the facility. In the
following weeks,
violence continued, a union organiser was arrested, and public sentiment moved to the side of
the ernployee. Before
the matter was resolved, Motorola lost an estimated $2 million in property damage and lost
product. The settlement
also required Motorola to improve working conditions and to improve wages for its
employees Despite this setback,
the Motorola operations in Korea are still growing in keeping with the firm’s commitment to
Asian development.
Despite the nagging problems of unionisation, a shortage of engineers and technicians
continuing trade barriers, and
dealing with a divergence of local customs, Motorola continues to press Asian development
strategy—without harm
to its domestic reputation. A 1995 Fortune Corporate Reputation survey ranked Motorola the
fourth most admired
corporation in the U.S. (up from sixth in 1994) and the most admired firm in the electronics
and electrical equipment
industry (for the second year in a row).
QUESTIONS:
1. Describe some recent changes in your life or in your community that reflects
the world’s shift from the West to the East.
2. What factors would you suggest are behind the shift from the West to the East?
3. Did Japanese management style evolve from the Japanese culture, or did Japanese culture
evolve from Japanese
management style?
4. Describe the business-government ties that result in Japanese trade barriers.
5. Which of the Four Tigers of Asia do you believe has the greatest potential for long-term
economic growth? Why?
6. What must China do to realise the magnitude of economic success earned by the Japanese?
7. Outside of Singapore, which of the other ASEAN nations holds potential for economic
success? Why?
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