PART ONE – INTEGRATING CASE 1
Royal Dutch Shell in Nigeria: Operating in a Fragile State
Synopsis
This case begins when Benjamin Aaron, a conflict resolution and public policy
consultant, is receives a request from one of his important clients, a
potential new member to the board of Royal Dutch Shell, to provide advice on
how to address the problems that Royal Dutch Shell faced in Nigeria.
The case walks through the corporate stigma faced by Shell, which, despite
efforts to the contrary, was identified as the “winner of the villain of the
Nigerian environment Public Eye Aware” at the 2005 World Economic Forum. The
case goes on to review the turbulent political history in Nigeria, and then
describe the steps that Shell has taken to establish socially responsible
business practices in Nigeria. The case focuses in on the oil-rich Niger
Delta region, and describes how violence and corruption has led to social
unrest in the region.
Despite Shell’s significant foreign direct investment in Nigeria, the social
benefits to the local people have been largely unrealized. Instead, oil
prices are growing higher and local communities are in uproar. Shell’s
challenge is to help improve its image and maintain its long-term economic
viability in Nigeria.
Teaching Objectives
The case is intended to introduce students to the kind of complex issues that
a major multinational corporation (MNC) may encounter when operating and
doing business in a developing country that is politically, economically, and
socially unstable.
The issues and topics up for discussion include political risk, economic
risk, ethical dilemmas, human rights, corporate social responsibility,
environmental management, sustainable development, stakeholder management,
public policy, legal rights and the rule of law, foreign direct investment,
property rights, conflict management and negotiations, to name a few.
Case Discussion Questions
Shell has been in Nigeria for more than 60 years. What has made Shell’s
operations in Nigeria more at risk and simultaneously more valuable?
What political risks does Shell face in Nigeria?
Does Shell have the option to pull out of Nigeria?
How do the roles of the government and the MNCs differ?
What underlying assumptions, observations and recommendations should Benjamin
Aaron include in his brief?
Analysis
Shell has been in Nigeria for more than 60 years. What has made Shell’s
operations in Nigeria more at risk and simultaneously more valuable?
The fact that Shell has such a large investment in Nigeria is beneficial
because the world’s demand for oil has been increasing. This automatically
puts Shell in a potentially valuable position, as they stand to reap
extraordinary profits by providing the majority supply from this region, to
meet this demand. It also places Shell at greater risk because the stakes
involved in extracting their product in this region are higher.
The issue of transparency has also product a risk-benefit situation in that
there are greater pressures to disclose financial and operational details to
the public. The benefit of transparency is that it can improve public image
and trust from its stakeholders. On the down side, they open themselves up
to greater scrutiny as to how they are operating their business.
The labor force is yet another component that adds both benefit and risk.
Shell employs a substantial portion of the population – nearly 10,000
employees, the majority of which are Nigerian. As such, Shell has a
significant impact on the local economy. The risk is that, the local labor
organization (unions) can dramatically affect the ability to operate
seamlessly.
Finally, powerful NGOs have emerged as of late, some of which have the
propensity to impact Shell positively – but others quite negatively by way of
political influence and good/bad publicity.
What political risks does Shell face in Nigeria?
Shell faces a host of political issues in Nigeria, ranging in scope and
complexity. They must deal with the national government, regional and local
governments, local people and tribes, and powerful NGOs.
As we saw in the case, not only are there challenges in facing these groups
individually, but there are additional challenges due to the inter-connection
of these groups. For example, the national government was receiving profits
from Shell; however, those profit gains were not adequately being realized in
the local communities in the Niger Delta regions, suggesting corruption
within and/or between the governmental entities.
Each of the groups have differing agendas, increasing the volatility of this
region. Further complicating their operation in Nigeria, there are
overarching inadequacies in terms of corruption, bribery, and an overall weak
legal system.
Does Shell have the option to pull out of Nigeria?
It would be quite difficult for Shell to pull out of Nigeria at this point,
for a variety of reasons:
The steep investment Shell has made in Nigeria creates a strong tie and
motivation to remain in the region
The opportunities for profit in the oil and gas markets are simply too
valuable to walk away from
There is a fiduciary responsibility to the stakeholders, which would arguably
be violated if Shell were to pull out, as the economic and social effects
could be devastating to the region
Nigeria would not likely be better off, nor would the problems of corruption
and social unrest be solved, by a Shell retreat and alternative oil & gas
player’s takeover of the region.
problems.
Nigeria would still be facing the same
How do the roles of the government and MNCs differ?
It should be clear that the role of government and the role of MNCs are
distinctly different.
One way to define
who and what they
responsibility to
responsibility to
the
are
the
the
differences in their roles is to determine and analyze
responsible for. The multinational corporation has
shareholders, whereas the government has a
people within their jurisdiction.
The MNC is thus, motivated by the return of profit to the shareholder. It
does this by maximizing profits, but in a manner that is socially
responsible. Why is the social responsibility of any importance? There are
various motivational theories, as is explored in this text, but using the
motivation factor of satisfying shareholders, the answer (and assumption) is
that shareholders expect companies to act in a socially responsible manner.
To apply this to the current case, then, Shell should take steps to assure
environmental and social viability in the Nigerian region.
The government, being responsible for its people, will behave in a manner
that is largely dependent upon its agenda for the country/locality over which
it governs. In this example, the Nigerian government provided opportunity
for foreign direct investment by Shell, and thus, this investment should have
been used by the government to better its people and country. Unfortunately,
it has not been used in this manner. The government’s role should also
include responsibility for the safety of its people and natural resources –
something else that has not been done.
Unfortunately, the government has not fulfilled its role, but Shell and other
MNCs should not, and often times cannot, assume these responsibilities on
their behalf.
What underlying assumptions, observations and recommendations should Benjamin
Aaron include in his brief?
It is appropriate to assume that Shell has made great efforts to try to
improve the situation in Nigeria, but to little or no avail. Conversely, it
is also safe to assume that Shell has been somewhat successful in their
ability to survive and thrive in an unstable and inhospitable environment.
After all, they have been doing business there for 60 years.
Benjamin Aaron’s observations and recommendations should address the
challenges that are growing more complex for Shell in Nigeria, especially in
its joint venture operation, SPDC. Despite their efforts to do the right
thing, Shell is still facing significant public image problems, and they are
the convenient scapegoat for all that is wrong in Nigeria.
From a corporate perspective, Aaron should propose that Shell take an
integrated and long-term approach to mitigate risk and restore credibility.
The recommendations should address Shell’s long-term strategy in Nigeria, a
defined corporate social responsibility agenda that is transparent to all,
and a plan of action to work more strategically and effectively with the
stakeholders in the region – the governments and NGOs alike.
Lessons
This case depicts many of the complex issues involved for multinational
companies when doing business in developing countries
This case raises the situation of multinationals evaluating whether to remain
in a country, or to pull out
The case also explores the issue and importance in an organization defining
its core values, tied to social responsibility
PART ONE – INTEGRATING CASE 2
Organizational and National Cultures in a Polish – U.S. Joint Venture
Synopsis
This case focuses on the experiences of a U.S. company with their Polish
joint venture. It depicts succinctly some of the major challenges facing
U.S. companies as they operate in a former communist country. Specifically,
the case shows how U.S. cultural values clash with the Polish’s values and
focus on how expatriates can manage this situation. The interesting aspect
of the case is that the Polish workers are generally very interested in U.S.
management styles – however, they clash on some issues.
Case Purpose and Objectives
This case provides a good understanding of the challenges facing companies
operating in former communist societies. This strengthens the knowledge base
as students deal with yet another former communist country.
The case also shows workers in such societies generally distrust each other.
This is the result of decades of the effects of a system where promotion and
success is dependent on your connections rather than performance.
The case also generally depicts the situation faced by multinationals as they
try to motivate their workers. Western-based styles don’t always work well.
The case raises important issues regarding cultural differences. It is
written clearly enough for students to readily see the differences between
U.S. and Polish culture and how they affect the work environment.
The case also provides the opportunities for students to think about what to
do in such situations.
Possible Discussion Questions
What are some important cultural differences between the Polish and the U.S?
Using the Hofstede's and 7d cultural dimension models, explain some of the
cultural differences noted in the case.
What are some institutional explanations for how the Polish workers are
reacting to U.S. management style?
How can the joint venture take advantage of the initial enthusiasm of the
Polish managers to build a stronger organization?
What cultural adaptations would you suggest to the U.S. expatriates managers
regarding their management styles?
Analysis
What are some important cultural differences between the Poles and the U.S?
This is a fairly simple question – but makes students think about culture and
sources of cultural differences. Differences include:
Teamwork vs. individualism – Poles tend to be more individualistic than
Americans because of the communist system, making every worker think for
his/her own benefit.
Merit, age, and seniority – Poles respect older people, and they believe that
young people cannot have the knowledge and experience to manage.
Trust – Poles don’t trust as easily as Americans.
Informality – Poles are more used to formal communication skills – Americans
tend to be more informal and direct in their communications.
Poles expect to be hired immediately as managers. They do not see the
importance of experience in the basic business functions of the people
reporting to them, whereas Americans believe you need to “earn your spurs”
first.
Poles want a clearer distinction between work and family.
necessary hard work as an intrusion on their family life.
They see the
Polish managers are more likely to use criticisms and negative feedback
rather than seeing the value of positive feedback.
Using the Hofstede's and 7d cultural dimension model, explain some of the
cultural differences noted in the case.
This question can be answered in several ways. First, students can make
possible inferences by looking at Hofstede’s major cultural dimensions and
explain the cultural differences. However, students can also research Poland
actual scores on cultural dimensions – Hofstede latest publications provide
the following:
Power distance: Poland: 68; U.S.: 40 Uncertainty avoidance: Poland: 93;
U.S.: 46 Individualism: Poland: 60; U.S.: 91 Masculinity: Poland: 64; U.S.:
62 Long-term orientation Poland: 32; U.S.: 29
The major first major difference is that the Poland is clearly a higher power
distance society. This explains the fact that promotions/evaluations are
based on trustworthiness. As the text documents, this can also explain the
general dislike for work and acceptance of inequality. This can also help
the general distrust.
The second major difference is that Poland is a very high uncertainty
avoidance country. This explains why seniority and age is a valued component
in Polish. For instance, seniority is a typical criterion for promotion as
it reduces uncertainty.
With regards to the 7d model, the following scores are provided for each
dimension:
Universalism: Poland: 37; U.S.: N/A Individualism: Poland: 87; U.S.: 77
Neutral: Poland: 96; U.S.: 54 Specific: Poland: 90; U.S.: 77 Achievement:
Poland: 39: U.S.: 97 Past orientation Poland: 27; U.S.: 14 Future
orientation Poland: N/A; U.S: 21 Internal control Poland: 100; U.S: 66
The first major difference for the 7d model is for the neutral dimension.
The high Polish scores provide some explanation for the Pole’s level of
formality – in more neutral cultures, people are expected to act more under
control and not to reveal thoughts or feelings. This translates into a
higher level of formality.
A second critical difference is for the achievement dimension. The lower
Polish scores provide an explanation for the preference for seniority (i.e.,
it is more of an ascription society where status is based on background
rather than performance). This also provides an explanation for the Pole’s
general preference for titles.
A third critical difference is on internal control. With a score of 100,
Poland shows a strong drive to try to control their environment, whereas
Americans have more tolerance for volatility, and more of a “take it as it
comes” attitude.
What are some institutional explanations for how the Polish workers are
reacting to US management style?
The major explanation here is some of the institutional effects of the
communism system and how it affects workers
For instance, as the text suggests, Poles are used to a communist system
where success is dependent on personal connections and affiliation with the
party rather than performance – thus this explains their desire to be hired
as managers without the appropriate qualifications
Research by Pearce as discussed in the text suggests that in communist
societies, the institutional structures guaranteeing exchanges are missing.
Individuals thus tend to be less trusting of other people and rely on
personal relationships. This also explains the low level of trust.
The lack of trust also provides an explanation for why teamwork doesn’t
function – as the case mentions, any new worker is viewed as a competitor and
it is hard to get people to work together if they don’t trust each other.
The lack of positive feedback on the job is typical of communist systems and
also provides an explanation for why Poles preferred that their salaries are
made public – they want to get an idea of where they stand, and what their
status is.
How can the joint venture take advantage of the initial enthusiasm of the
Polish managers to build a stronger organization?
Although there are definite cultural differences, there are some strong
points that can be relied on:
As the text suggests, it is necessary that multinationals implement practices
that adapt to local cultural situations. First of all, the Polish workers
are extremely eager to learn. The U.S. company should invest the necessary
resources in order to train the workers in basic business functions. Polish
workers were also very enthusiastic about on-the-job training, so US managers
can also provide more opportunities there. In that respect, Polish workers
can be slowly trained to understand the value of rewards based on objective
performance. Positive feedback can also be used to motivate good and
continued performance.
Take time to build trust – maybe organize company events to slowly make the
workers trust each other. Show them that they are all now valuable to the
company and that their cooperation is necessary to the survival of the
organization. Give them projects, let them take on work that is meaningful
to them, give them some autonomy and positive feedback.
The Polish managers are also very enthusiastic about their jobs – however,
they are reluctant to let their jobs (the firm) interfere with their private
lives. The company should design policies to respect the work/life balance
but also take advantage of the enthusiasm on the job.
What cultural adaptations would you suggest to the US expatriates managers
regarding their management styles?
Respect for older people
Work at developing trust – give assignments, autonomy, feedback
Respect the degree of formality by using titles etc.
Respect the Polish workers’ preference to separate their work lives from
their private lives
Slowly work on the team issue – do not force Polish workers in such
situations yet – but provide gradual training. Show them the value of
teamwork. Help them understand the connection between all jobs – how one
affects the rest and results in overall success or failure for all.
Lessons
Case depicts the situation of a joint venture in a former communist country
and the challenges of operating in that country
Case provides for the ability to compare cultural differences to explain
workers’ approaches to their work
Case provides some understanding of the institutional environment in a former
communist country and how it affects workers
Ultimately, case discusses issues facing large number of multinationals as
they try to take advantage of opportunities presented by transition economies
PART TWO – INTEGRATING CASE 1
Tata Motors
Synopsis
This case discusses the global automotive industry, and showcases a company
named Tata Motors (often referred to in this case as “TM”). Tata Motors,
based in India, is a global automotive major, with a wide and diverse range
of products – from the costliest, Jaguar and Land Rover, to the cheapest car,
Nano.
The case goes on to describe the domestic Indian economy in general, a
country whose GDP is population are both growing, and whose government is
investing heavily in the transportation infrastructure. Consumers are
shifting more and more of their disposable income to transportation. The
global automotive market is also summarized, noting that consumers have a
wide range of expectation and preference depending on the country/location.
Tata Group is then described in greater detail. The case discusses their
international business initiatives, which are organized by country; their
organic growth strategies, which include capacity expansion and development
of new products; and their inorganic growth plan, which includes acquisition,
asset purchases, and strategic alliances. Finally, TM’s global partnership
initiatives are revealed, including joint ventures, industry alliances, and
the formation of subsidiaries.
Case Discussion Questions
What are some of the features of the Indian market that make it an attractive
domestic market for TATA?
Prepare a SWOT analysis for TATA Motors.
What does the five forces model look like for TATA in the global automotive
market?
What are the key success factors for a global automobile major?
As mentioned in the case, the international success strategies for TATA
Motors were “to consolidate position in the domestic market and expand
international footprint through development of new products by leveraging in
house capabilities, acquisitions, and strategic, collaborations to gain
complementary capabilities.” Did TATA achieve these goals? Please elaborate
your answers with examples from the case.
Mr. Ravi Kanth MD TML said that the success internationally will be through
focused positioning and marketing in selected countries. Do you agree with
his viewpoint?
Analysis:
What are some of the features of the Indian market that make it an attractive
domestic market for TATA?
Some of the features that make India an attractive market for TATA are:
A growing GDP
India’s investment in the transportation infrastructure
An increasing per-capita disposable income
An increasing transportation consumption rate
Prepare a SWOT analysis for TATA Motors (TM).
Strengths
Strong R&D skills sets
Ability to produce products indigenously at a low cost
Widest range of product offerings in the Indian market
Weaknesses
TM is new into the luxury car market and needs time to learn
Has TM spread itself too thin in terms of the wide range of product
offerings? Can TM lead the market in each segment in which it operates?
Opportunities
With the purchase of Jaguar and Land Rover, TM will have the opportunity to
enter the luxury car market
The opening of the new plant in Korea
Expanded capacity and new product offerings
The acquisition of Daewoo in Korea
The opening of the first plant outside India, in South Korea, which will give
that local market access to low cost alternatives
An increasing middle-class population in India
Customers in the two-wheeler market
Threats
Environmental regulations and emission standards may mean significantly
increased costs to TM. Are they prepared to take that on, and how will that
affect the end consumer in terms of passing on some of that cost?
Similarly, there are increasing cost pressures on input materials like steel,
engineering plastics, aluminium, copper, etc.
What does the five forces model look like for TATA in the global automotive
market?
Degree of competition in the industry – high. There is a great deal of
competition in the auto industry. Consumers have a lot of choices among
transportation products, and there are many options available to them,
generally speaking.
Threat of new entrants – low. Given TM’s long track record of 130 years, and
other major players in the auto industry that have been in business for
decades, the threat of new entrants that could pose a significant threat to
TM is minimal.
Bargaining power of buyers – high. As mentioned above, consumers have a
great deal of choice in the auto industry, so auto makers are constantly
monitoring customer expectations to provide timely products that meet their
needs. Companies that can hold onto a low-cost advantage, or offer the
desired differentiation characteristics in the high-end market likely have
more power over the buyers than other segments.
Bargaining power of suppliers – moderate.
are on the rise.
Supplies for auto manufacturing
Threat of substitutes – moderate. Just as there is so much competition
within the industry, the threat of competitors producing similar products is
there as well.
What are the key success factors for a global automobile major?
In countries where population is increasing but motorization is saturated,
the key success factors are how well the auto major can consolidate their
present position, and launch new products to attract new, young customers.
In countries where population and motorization are both increasing, the key
success factors are how well they invest in services, supply chain, and new
product launches.
As mentioned in the case, the international success strategies for TATA
Motors were “to consolidate position in the domestic market and expand
international footprint through development of new products by leveraging in
house capabilities, acquisitions, and strategic, collaborations to gain
complementary capabilities.” Did TATA achieve these goals? Please elaborate
your answers with examples from the case.
Consolidate position in the domestic market
Expanded capacity and new platforms were developed to accommodate the trend
in transportation demand – for small pickups, intercity and intracity buses,
as well as global trucks, a new utility vehicle, and compact cars
Expand international footprint through:
Leveraging in house capabilities
Manufacturing remained in India, and products were exported
Acquisitions
Acquired Daewoo, which gave TM access to assembly technology for high-end
trucks, and an entry into the South Korean market
Acquired Jaguar Land Rover to give them a comprehensive product portfolio
with an immediate global footprint
Strategic collaborations to gain complementary capabilities
Joint venture with Marcopolo to take advantage of product development and
participation in mass transport opportunities in both domestic and
international markets
Alliance with Fiat, which gave them access to world-class car engine
technology and production capacity
Joint venture with Thonburi Thailand, where the eco car project was started
TM formed a subsidiary in South Africa to deal with customs in that country
Mr. Ravi Kanth MD TML said that the success internationally will be through
focused positioning and marketing in selected countries. Do you agree with
his viewpoint?
TM offers a wide range of products to a very global and diverse market.
is discussed in the case, customer needs and expectations are vastly
different by country. Obviously, this fact does not allow for a one-
As
dimensional or general/generic strategy. In order to be successful in the
large global footprint, TM will need to adopt a focused product offering to
accommodate the local need, and they will have to do it at the right price.
Lessons
To provide an illustration of the structured evaluation of foreign markets.
Depicts a good understanding of the factors to take into consideration when
considering foreign markets
To understand how to evaluate a company’s current status in the selected
market (SWOT analysis)
Understanding low-cost and focused strategies, and how to gain economies of
scale
PART TWO – INTEGRATING CASE 2
The Fleet Sheet
Synopsis
This case describes the start-up and success of an English language
publication that summarizes political and economic news for international
companies operating in the Czech Republic. The news summary was relayed
primarily by a 1-page fax that was distributed before 9:00 A.M. each day.
However, a 1-page e-mail was later distributed as a marketing tool to
potential customers of the paper. The major issues in the case are related
to the problems of beginning a new venture in a former Soviet Bloc country;
the intricacies of using discount pricing among various market segments; and
the challenges of maintaining a “first mover” advantage in a new country.
Case Purpose and Objectives
To acquaint students with the difficulties of starting a new venture in a
former Soviet Bloc country;
To explore the intricacies of using discount pricing among various market
segments to increase the profitability of a product
To analyze the difficulties of maintaining the “first mover” advantage of
introducing a new product in a country
To determine when the development of a business plan is absolutely essential
in the establishment of a new venture; and
To analyze the relationship between education, experience, personal skills
and entrepreneurship for the entrepreneur in this case.
Case Discussion Questions
What are the potential difficulties of starting a business in a transition
economy?
Prepare a SWOT analysis for the Fleet Sheet.
What are the key success factors of Fleet Sheet?
What is the relationship between education, experience, and personal skill
and entrepreneurship for Erik Best?
What do you learn about small businesses and entrepreneurship from this case?
Erik Best did not prepare a business plan for starting Fleet Sheet.
type of operation would most benefit from a business plan?
What
Other Possible Discussion Questions
Using Michael Porter’s Five Forces Model, analyze the competitive position of
the Fleet Sheet.
How did Erik Best use discriminatory pricing with the Fleet Sheet, and upon
what variable was the discount pricing based? Name other companies and
industries that regularly use discount pricing strategy and identify
variables (time, personal characteristics of customers, age, sex, etc.) upon
which they base their discounts. What possible inefficiencies or illegal
activities by customers can develop with such strategies?
How would you assess whether a venture is a “going concern” or not? How will
that consideration affect Erik Best’s relationship to the business in the
future?
Analysis
What are the potential difficulties of starting a business in a transition
economy?
The potential difficulties include the following:
High inflation rates that characterized the first years of the free market
economies in the countries of Eastern Europe before the respective
governments could take steps to bring burgeoning prices under control;
Unfair and cumbersome legal procedures in the regulatory environment;
The growing presence of the Mafia and corrupt government officials;
The lack of secure contracts for the lease of property; and
Banking systems that were experiencing difficulties in moving from stateowned banks to privatized banks.
Prepare a SWOT analysis for the Fleet Sheet.
Strengths:
A unique product that met a market need;
The timeliness with which the product was distributed;
The effective use of discriminative pricing;
Erik Best’s facility with Slavic languages;
The company’s “first mover” advantage in the country;
Low start-up costs; and
The perceived high quality of the product.
Weaknesses
Low barriers to entry into the industry;
Increased competition because of the profitability of the company;
The closing down of some international offices in Prague;
The weakness of Asian economies, which would affect their investments in the
Czech Republic;
Problems within the Russian economy which would affect their investments in
the Czech Republic; and
The fact that Erik Best took little thought initially to the establishment of
an appropriate long-term structure for the company.
Opportunities
To exploit the new technologies of fax, E-mail and web sites on the Internet
in a timely fashion;
The establishment of new laws governing the operations of businesses in the
Czech Republic which would facilitate the entry into the economy of more
international companies;
Resorting to smaller type to get more information on each page of the faxed
copy; and
Since Erik is fluent in the Slavic languages, there is an opportunity to set
up similar operations in other former Soviet Bloc countries where
inter_national companies are moving in.
Threats
The growing use of the Internet, which would allow individuals to access
in_formation in a timely fashion;
The possibility that someone will begin publishing an English language
newspaper in the Czech Republic that would summarize the political and
economic news of the country;
The possibility that the legal and regulatory environment in the Czech
Republic will not get any better than it is; and
The continued threat of new entrants into the industry.
What are the key success factors of Fleet Sheet?
The most prominent factors are Erik Best’s facility with Slavic languages
His early perception that such a product would have a market in the new Czech
economy
The use of discriminatory pricing to take advantage of a downward sloping
demand curve
The first mover advantage of the company in the Czech Republic
The relatively low start-up costs of the company
The entry of many international companies into the Czech economy in the early
1990’s.
What is the relationship between education, experience, and personal skill
and entrepreneurship for Erik Best?
There is no indication that Erik Best ever intended in his early life to be
an entre_preneur. There are many entrepreneurial ventures that require a
specialized edu_cation or technical capability. For example, most people who
start “high tech” ventures have previously received an education or special
training in the field.
In Erik’s case, the special preparation that opened the door to this venture
was the intersection of his early experience as a journalist coupled with his
education in the Russian language, which equipped him with the appropriate
skills to launch such a venture.
One of the most important personal skills seemed to be the ability to
anticipate and take advantage of a unique opportunity in the marketplace that
he was equipped to meet. Often a liberal arts education will develop within
an individual the ability to question and pry for innovative solutions to
problems. Apparently, Erik’s education provided this kind of foundation.
What do you learn about small businesses and entrepreneurship from this case?
The difficulties and challenges of starting a new business in a transition
economy – especially with respect to existing infrastructure and experience
The challenges of making predictions in such economies
The difficulties of dealing with the appropriate regulators in a country –
for instance, the initial requirement of sending papers to libraries at their
own cost
The ability to find opportunities in your environment – especially with
regards to differential pricing and direct marketing, etc.
The necessity of developing a business plan when starting a business
Erik Best did not prepare a business plan for starting Fleet Sheet.
type of operation would most benefit from a business plan?
What
People who consult with start-up businesses and teachers of entrepreneurship
often suggest that everyone should prepare a business plan before beginning a
new venture. The reality is that many successful businesses were begun
without the benefit of a business plan. The Fleet Sheet is one such example.
Often com_panies that have very low capital needs, need no external funding
initially, and are simple in design can function quite well without a
business plan. However, for any business where the market is uncertain, the
start-up costs are not immediately known and where the entrepreneur is
unaware of the operations of the industry, a business plan is imperative.
Often entrepreneurs carry numbers around in their heads that they believe are
reliable indicators of the success of a new venture; however, upon further
research those initial numbers may prove to be incorrect.
Other Discussion Questions:
Using Michael Porter’s Five Forces Model, analyze the competitive position of
the Fleet Sheet.
First Force — “Rivalry Among Existing Firms”
The primary competitive advantage that the Fleet Sheet presently has is the
perceived high quality of the product and the facility that Erik Best has
with Slavic languages. Also, they have a “first mover” advantage as the first
company to offer this product in the Czech Republic.
Second Force — “Suppliers”
The most important supplier to the Fleet Sheet is the personnel Erik has
working for him who select the most pertinent information to be delivered and
translate it in a timely fashion. The company must provide appropriate
incentives to retain the present personnel and seek qualified personnel in
the future.
Third Force — “Potential Entrants”
The greatest deterrent to the entry of companies into the industry in the
future will be the continued higher quality of the Fleet Sheet and the fact
that it has a “first mover” advantage. First movers in a new market often
build up brand loyalty and experience that insulate the company from new
entrants.
M. Liberman and D. Montgomery have an interesting article on “First Mover
Advantages” in Strategic Management Journal 9 (Summer Special Issue 1988),
pp. 4 1-58.
Fourth Force — “Buyers”
Much of the success of finding future buyers of the paper rests upon the
ability of the Czech government to move quickly enough to implement changes
in existing law to encourage international companies to stay in the country
or move into the country for the first time. This, unfortunately, re_presents
a force beyond the control of the Fleet Sheet.
Fifth Force — “Substitutes”
A potentially devastating new product might be the availability of an English
language Czech news summary on the Internet. Such a product might be offered
as a subscription service with a password protection. However, the
convenience of receiving a fax on a daily basis might outweigh the benefits
of such an offering.
How did Erik Best use discriminatory pricing with the Fleet Sheet, and upon
what variable was the discount pricing based? Name other companies and
industries that regularly use discount pricing strategy and identify
variables (time, personal characteristics of customers, age, sex, etc.) upon
which they base their discounts. What possible inefficiencies or illegal
activities by customers can develop with such strategies?
Any firm that faces a downward-sloping demand curve has the opportunity to
use discriminatory or discount pricing to its advantage to increase market
share. The Fleet Sheet correctly anticipated that with the delivery of
political and busi_ness news, time would be the most valuable discriminating
factor. For large companies with greater resources to whom “time is money,” a
premium price to receive the new early in the day would be acceptable.
However, for smaller companies or individuals with limited resources, the
delivery of the news later in the day or week at a discount price would be
acceptable.
Other industries that use discriminatory pricing and the variables that they
use to discriminate are the following:
Industry Discriminating Factor Long distance calling Time of day or week
Airline carriers Time of day or week and proximity of making reservation to
traveling Professional baseball Sex or age of customer—.-“Ladies Night” or
“Children’s Day” State parks Permanent residence in the state Movie
theaters Age of customer (children and senior citizens get discounts) and
time of day (cheaper rates for matinees)
Possible inefficiencies or illegalities that may arise from such
discriminatory pricing arise out of the difficulty of preventing a customer
in a category that re_ceives a discount price from reselling to a customer in
a category that receives a higher price. An example is “scalping” for
football tickets.
How would you assess whether a venture is a “going concern” or not? How will
that consideration affect Erik Best’s relationship to the business in the
future?
A company would be judged to be a “going concern,” at least in the
foreseeable Future, if the viability of the company as a profitable
enterprise seems reasonable. In the year 2000, the Fleet Sheet certainly
appeared to be a “going concern.” Therefore, Erik Best, in planning for the
future, should decide if he wants to keep the company or perhaps sell it. If
he keeps it, he should reconsider the legal structure of the venture.
Originally, he established it as a sole proprietor_ship; however, wisdom
would suggest a change to an LLC or S Corp status would be preferable to take
advantage of their limited liability and single taxation provisions.
Lessons
Case depicts some of the challenges of starting a new business in a
transition economy
Case illustrates the particular difficulties of operating within a foreign
regulatory environment
Case shows the creativity of the entrepreneur with respect to pricing
strategies and other components
Case also shows that small businesses can succeed without business plans –
but also demonstrates the importance of such business plans
PART THREE – INTEGRATING CASE 1
Transition at Whirlpool-Tatramat
Synopsis
This case focuses on Whirlpool’s experiences as they gradually increase
ownership in an original joint venture with Tatramat, a Czech washing
machines manufacturer. Facing limited growth potential in the U.S.,
Whirlpool began global expansion in the mid 1980s. Tatramat had very
successful operations in its market until the communist government in
Czechoslovakia was overthrown. The Velvet Revolution brought increased
international competition and forced Tatramat to consider options to survive.
At that time, they realized that they had high fixed costs, low productivity
and a host of other problems that required more that just new technology
purchase. They sent a ‘memorandum’ to interested companies and eventually
agreed to a joint venture with Whirlpool. Various financial problems during
the course of the joint venture allowed Whirlpool to gradually buy out all of
the remaining shares to become full owner.
Case Purpose and Objectives
This case provides a good understanding of the opportunities and challenges
provided by companies in former communist countries with respect to access to
new markets, relatively cheap labor, and to a lesser degree, new technology
Illustrates the pros and cons of the various forms of participation
strategies
Illustrates the consideration of the various factors when making a choice
among the various participation strategies
Depicts the process that Whirlpool went through as they navigate from a joint
venture to full ownership
Case Discussion Questions
Would you have recommended a greenfield investment strategy for Whirlpool
Slovakia rather than a joint venture? Explain your answer.
Would you have recommended a direct acquisition of Tatramat for Whirlpool
rather than a joint venture? Explain your answer.
How would you assess the control versus risk trade-off by Whirlpool?
Analysis
Would you have recommended a greenfield investment strategy for Whirlpool
Slovakia rather than a joint venture? Explain your answer.
Looking at the advantages and disadvantages discussed in the case for the
various participation strategies, it seems obvious that they would have
preferred a greenfield investment. The reasons for that include:
They will get full control of operations
Access to new labor force
Trained own labor force
Low costs
However, there are significant problems that make a greenfield investment
problematic. As discussed in the case, these include:
They don’t yet have a labor force
There is local competition
Difficulty of dealing with the local market without any local knowledge
No market share
No brand name recognition
More expatriates needed
Local governmental regulations.
The biggest obstacle obviously is that the legal requirements in
Czechoslovakia do not allow Whirlpool to go at it alone. A joint venture
therefore makes most sense. However, even if the legal requirements allowed
Whirlpool to be involved in a greenfield investment, many of the problems
discussed above may prove too difficult to surmount – i.e., no brand name
recognition, no knowledge of local market etc. Additionally, navigating such
a new environment for Whirlpool may be very difficult – as such transition
economies have very fluctuating environmental elements. Hence, based on
these factors, a joint venture is perhaps the most sensible of options.
Would you have recommended a direct acquisition of Tatramat for Whirlpool
rather than a joint venture? Explain your answer.
A response to this question requires an assessment of the pros and cons of a
direct acquisition vs. a joint venture for Whirlpool. As discussed in the
case, the major advantages for a JV are:
Access to existing facility, brand, workforce
Established market share
Existing distribution, supplier, etc.
Contact with authorities through local partner
Advantages of an acquisition include:
All of the above with full control
However, a look at the problems with acquisition suggests that a joint
venture is the best option. Problems include:
Resistance from target firm and local government
As discussed in the text, employees of former nationalized firms tend to be
very wary of privatization
No precedence for direct acquisitions – this may result in more problems
Difficulty in dealing with labor force
Based on the above, it does make more sense to start with a joint venture.
This will give Whirlpool the opportunity to deal with the local government
and workers etc. – as changes are not as drastic. Additionally, Whirlpool
seems adequately prepared to deal with the problems associated with a joint
venture. Finally, the fact that Whirlpool has the ability to acquire the
remaining share of ownership also points towards joint venture – as has
happened in the case, they can start slow and learn and gradually acquire the
whole company.
How would you assess the control versus risk trade-off by Whirlpool?
Various options are available here – Whirlpool can do a cost and benefit
analysis of the various options. Such an assessment should include both
quantitative factors (e.g., increased sales and market share; increased cost
of assigning expatriates etc.) as well as qualitative factors (e.g., dealing
with local government; dealing with low morale etc.). This will allow
Whirlpool to adequately consider all necessary factors.
Lessons
Depicts some of the opportunities as well as challenges of operating in the
formerly communist country
Provides a good understanding of the practical side of the various
participation strategies
Shows in a concise way how firms choose between various forms of
participation strategies
Illustrates how although one form of participation strategy may be
appropriate, other qualitative factors are also important considerations
Charters the process of moving from joint venture to full acquisition
PART FOUR – INTEGRATING CASE 1
People Management Fiasco in Honda Motorcycles and Scooters India Ltd
Synopsis
Honda Motorcycles and Scooters India Ltd. (HMSI) is a wholly-owned subsidiary
of Honda Motor Company Limited (HMCL), Japan, which is one of the world’s
leading manufacturers of automobiles and power products. HMSI which was
established on October 20, 1999, with an aim to produce world-class scooters
and motorcycles in India. HMSI employed about 3,000 employees, to which it
provided decent pay and many welfare benefits. The human resource (HR)
policies of HMSI were in alignment with the philosophy of its parent company,
HMCL, which included two fundamental beliefs – respect for individual
differences; and the “Three Joys,” which included the joy of buying, the joy
of selling, and the joy of manufacturing.
In November 2004, workers first began expressing discontent over poor and
unfair treatment by their Indian managers at the Indian plant. HMSI operated
with a strict and autocratic rule on the manufacturing shop floor that
resulted in a list of demands by the employee population, in addition to an
attempt to unionize. Management, in collusion with the government, attempted
to block the formal unionization registration efforts, which led to
escalating tensions between workers and management.
The tension manifested itself into the worst ever industrial relations
scenario in the short history of HMSI on July 25th 2005. When HMSI workers
arrived at the office of the Chief of Civil Administration of Gurgaon
district to protest the alleged collusion between HMSI and state agencies to
block unionization attempts, violence erupted between the HMSI workers and
the local police resulted in severe injuries to some 70 workers. The
resulting public image nightmare forced the issue and resulted in the
formation of the union.
Following this July 2005 incident, many changes were taking place to improve
the working conditions of the Indian manufacturing plant. Still, its CEO was
in a dilemma and wondering how they could repair the significant damage that
had been done in terms of lost business, employee relations, public image,
and future growth plans for the company.
Case Discussion Questions
Identify and discuss the key factors that led to the breakdown of industrial
relations at HMSI.
Discuss the failures on the part of the Japanese and Indian managers that
contributed to the present situation.
What HRM strategy was being pursued by the management and what factors led to
its failure?
Discuss the provisions of Indian industrial relations law that may have been
violated by the HMSI management.
How should HMSI go about attending to the issues in people management systems
and processes? What HR strategy should it adopt and implement for making
lasting improvement in industrial relations?
Analysis
Identify and discuss the key factors that led to the breakdown of industrial
relations at HMSI.
There are multiple factors involved in the breakdown of industrial relations,
leading up to the July 25, 2005 incident.
Cultural Differences
The Indian plant adopted philosophies and practices that they were
comfortable with in their own Japanese culture, but they clearly had no idea
or concern for whether or how these practices would be effective in their
Indian plant. The plant was run day-to-day by ill-equipped Indian managers,
but clearly controlled by their Japanese parent company leaders. The
Japanese leaders adopted a high authoritative, strict model of management.
In addition, the Japanese managers did not understand the significance of the
Diwali national holiday. The payment of the low-value Diwali gift was
insulting to the Indian workers, who place a much higher importance on it
than the Japanese managers anticipated.
Unionization Process and State Involvement
Clearly the unionization process was broken and wrought with unfair labor
practices that discouraged the good faith bargaining process. In addition,
the State was in collusion with HMSI management to block the unionization
efforts before them. (See answer to question #4 below.)
HRM Strategy
Though the HRM strategy did have some positive infrastructure in place –
including the Works Committee and employee welfare benefits – the HRM
practice carried out was largely insufficient for healthy industrial
relations. (See answer to question #3 below.)
Discuss the failures on the part of the Japanese and Indian managers that
contributed to the present situation.
The overall autocratic leadership style, as practiced by the Indian managers,
and either unknown or ignored by the Japanese managers, made life on the shop
floor next to unbearable. Workers were denied even the most basic of human
necessities – using the restroom. They were denied leaves of absence, even
when sick, and were punished and ridiculed publicly if they did something
wrong.
Furthermore, the Indian managers refused to let the workers meet with top
(Japanese) management, further perpetuating an environment of bickering and
frustration amongst the workers. Indian managers refused to handle the
issues that were developing. When there are no formalized procedures in
place and available to employees to voice or settle grievances, the animosity
continues to fester below the surface, until it finally boils over, and
finally reveals itself in an unproductive and potentially damaging manner.
Overall, and as was summarized in a subsequent evaluation and review of
events, the Japanese managers did not understand the needs of its Indian
employees. Likewise, the Indian managers did not understand how to handle
industrial relations issues. Finally, the Indian managers were not given the
authority to make locally-appropriate decisions to correct the problems that
were developing.
What HRM strategy was being pursued by the management and what factors led to
its failure?
The HRM philosophy adopted by HMSI was derived from the HRM philosophy of its
Tokyo-based parent company, HMCL, which included the belief in the value of
each individual, and the “Three Joys” – of buying, selling, and
manufacturing. As is explained in the text, the respect for the individual
translated into “independence of spirit and freedom, equality and mutual
trust of human beings.” Yet, the HR practices actually implemented within
the firm were far removed from the defined philosophy. The strict,
authoritative management style practiced by HMSI represents quite the
opposite belief – that employees are not to be trusted and need to be closely
watched and managed.
The HR department was expected to organise training programmes and facilitate
internalisation of culture-building so as to promote the Honda way among the
employees. However, we did not see this happen prior to the July incident,
which was no doubt due, in large part, to the fact that HMSI did not have
personnel in the HRM positions to carry out its objectives.
Discuss the provisions of Indian industrial relations law that may have been
violated by the HMSI management.
When workers came forward with a charter of demands in March 2005, the
workers were offered an increase in compensation on condition that they would
not form a union – clearly an unfair labor practice. Furthermore, management
began using fear-based tactics to deter workers from forming a union –
another significant labor practice violation.
Further complicating matters, HMSI management was in collusion with the state
to not only discourage, but to block unionization efforts. The State issued
a denial to the unionization request based on frivolous reasons. Only when
the violence erupted in a widely publicized forum did the State finally
concede and approve the formation of the union.
How should HMSI go about attending to the issues in people management systems
and processes? What HR strategy should it adopt and implement for making
lasting improvement in industrial relations?
Significant damage has been done to the company on all fronts – lost sales,
public image dilemma, and low employee morale. HMSI is going to have a long
uphill battle to repair the damage and restore its position in the market.
Ultimately, the solution comes down to a complete transformation of how they
manage the business. At the end of the case, we see strides being made in a
positive direction, and this must continue. Whether HMSI likes it or not,
they are going to have to deal with the union as part of its normal
operation. Management must reshape its entire philosophy and perspective
related to the role the union plays. It must view the union as part of the
solution, instead of part of the problem. Positive change comes about by
creating a collaborative relationship, as opposed to an adversarial one.
HMSI is going to have to operate with transparency, fairness, and equity in
order to re-build the trust that has been broken with its employees and the
public at large.
HMSI needs to place a high investment in HRM leaders who can provide the
training and support for the Japanese and Indian managers. The HRM strategy
needs to be focused on understanding the needs of the work force, and
determining appropriate solutions that will motivate and inspire its
employees to operate in a productive manner that benefits everyone. HR
programs need to be reassessed and redefined, such as the job posting
process, to promote a culture of fairness.
Last, but not least, the power of communication should not be underestimated.
Communication is one of the most productive tools in a company’s toolkit to
impact the workforce and the public image. Management should communicate
regularly to and with its work force, and create platforms for a two-way
dialogue. HMSI should also take advantage of the communication tool through
the union. In the interest of viewing the union as part of the solution, the
company should leverage the voice of the union to further communicate with
employees. If the company adopts a successful collaborative strategy with
the union, the union can often act as a voice and advocate for management as
well.
Lessons
This case depicts the outdated practice of autocratic management in an
environment of capitalism and free trade, and demonstrates why that style is
ineffective.
We learned about the importance of a defined HR strategy to facilitate
healthy industrial relations.
This case also demonstrates how important it is to have a mechanism for
understanding and resolving employee grievances.
We also see how the State – government, police, etc. – can have a significant
impact on the effective operation of a business.
PART FOUR – INTEGRATING CASE 2
Cisco Switches in China: The Year of the Manager
Overview
This case describes the philosophy and establishment of a new R&D facility in
Shanghai,
China with a focus on building a culture through human-resource practices.
Jan Gronski,
managing director of the Cisco China Research and Development Center (CRDC),
and Ivo
Raznjevic, engineering director, set out to get the organization up and
running. The bulk of the
case describes such steps in the process of building a business as securing
an appropriate
building, assembling a workforce, seeking appropriate projects, developing
managers, building
teams, evaluating performance, protecting intellectual property, and
continuing to grow.
Within a year, CRDC had top-notch local engineers building relationships with
its U.S.based counterparts and providing early delivery on its first few projects.
Then the case presents
specific challenges that arose regarding talent management: How does a
manager manage people
different from his or her self overcome dramatic cultural differences within
a diverse
workgroup? Should a local female employee be promoted from a test engineer to
a development
manager? How should Raznjevic help his newest manager through his first
encounter with
Cisco’s ranking system? What action, if any, should Raznjevic take regarding
a senior engineer
who sent out a controversial e-mail? This material highlights organizational
culture and offers an
opportunity for students to learn to recognize and manage difference.
At the time this teaching note was written, the case had not been taught in
our classroom.
The following contains an anticipated discussion we believe the material
should generate.
Topical Areas
This case can be used to explore a variety of issues including the challenges
of creating a
new organization, organizational design, organizational objectives,
organizational problems and organizational structure, generating a pipeline
of new talent, building an international team,
managing across cultural differences, individual behavior and teams,
experiencing issues that
confront executive expats, developing management skills and style, leading
negotiations, and
recognizing personal leadership models. The material presents the daily
trials of managing and
leading intelligent, highly motivated professionals.
Teaching Objectives
• Explore practical issues of designing a new organization and building a
culture
• Develop an appreciation for what it is like to be a first-time manager
• Recognize variations in international human-resource-management functions
• Support and appreciate the global context in which a business operates
• Examine the challenges and rewards of managing in China
• Provide students with an opportunity to wrestle with managing international
human resource
issues
Timing
The case could be taught near the end of a term to serve as a review of
organizational
behavior; it could also be taught at the close of a global leadership module
focusing on issues of
team-building, growing managers from within, and related talent-management
issues. Discussion
will be enhanced if students have prior exposure to background factors,
leadership philosophy,
organizational design, human-resource management systems, and organizational
culture.
Cases UVA-OB-0978 and UVA-OB-0977 share some core material, but each poses a
unique set of challenges and questions: UVA-OB-0978 on the micro issues of
building a team,
growing internal managers, and related talent-management issues, and UVA-OB0977 on some
of the broader, more macro issues around being a remote site of an American
company,
developing practices that meshed with the intent of the team, and managing
relationships
between San Jose and Shanghai.
Student Assignment
Reading
“Cisco Switches in China: The Year of the Manager” (UVA-OB-0978)
Study questions
1. If you were in Raznjevic’s position, would you promote Jasmine Zhou? Why
or why not?
2. What, if anything, would you do about the blast e-mail? Be specific.
3. How would you coach Ehud Oentung on his first encounter with Cisco’s
ranking system?
Time-Allocation Plan for 90-Minute Class
10 min.
Have any participants had expat assignments? What’s involved with
taking a
foreign assignment at your company or companies?
20 min.
Should Jasmine Zhou be promoted? (Ask for a show of hands.) If
yes, have them
explain why. (Put reasons on the board.) For those who would not, have them
explain why. (Put reasons on the board.) For those who say, “It depends,”
have
them explain why.(Put reasons on the board.)
20 min.
Is the “you are completely incorrect and false in this area” email a problem?
What, if anything, would you do about it? Does the Chinese context change how
you think about taking action?
20 min.
If part of your job is training local management, how would you
advise Ehud
Oentung on Cisco’s ranking system? Does the Cisco reward system reinforce
behaviors that are consistent or inconsistent with Raznjevic and Gronski’s
goals?
What if you disagree with the policy?
20 min.
How easy is it to manage in another country? Can U.S.-based
companies operate
locations outside the United States without changing their approach?
Analysis and Student Responses
1. If you were in Raznjevic’s position, would you promote Jasmine Zhou? Why
or why not?
Start the discussion by writing three categories on the first board—promote,
don’t
promote, and it depends. A case may need to be made “for argument’s sake” as
to why Zhou
should not be promoted. In the it depends category, note questions that need
to be answered
before students are willing to make a choice.
Because most students will probably think promoting Zhou is not a very big
deal, you
may have to press them on their knowledge about testing and development
engineers. Although
both developers and testers generally have similar education backgrounds,
there is inherent
tension between them, which is described in the case: developers often think
testers couldn’t Next, move the discussion to Zhou’s background relatively
quickly. She worked as a developer
for Nortel Canada in the South of China and then moved into another
department as a tester. She
was hired as a test engineer at Cisco and had been there two years. Zhou had
experience as both
a tester and developer and would be highly aware of the hostility between the
two positions.
Students might need to be prodded to consider the effect that promoting Zhou
would have
on the developer who expected to get that position. The face-saving concept
will likely be
familiar to most students, so it may be helpful to share what Ted Curran, who
initially did most
of the technology training at CRDC, said: “We were aware intellectually but
not aware of the
impact of it.” How would Zhou’s promotion be received by the developer-side
engineer who
considered himself in line for the position? What would happen if that person
were promoted
instead of Zhou?
As it turned out, deeply aware of the implications of cultural humiliation,
Curran
approached that individual and explained the long-term investment on the
project—the business
case for why the choice was made. Curran assured that person he would get his
turn at
promotion. From the development engineer’s perspective, the loss of face was
too great, and he quit his job.
2. What, if anything, would you do about the blast e-mail? Be specific.
Perhaps many students will wonder what the big deal is about a candid e-mail
written in
typical engineering style. Indeed, it could be argued that conveying facts in
commanding
language is most efficient. These kinds of e-mails are sent all the time in
the United States. Even
with a nudge, however, students are apt to underestimate the cultural
differences between the
United States and China. Rather than blatantly blame or call out another
person for committing
an error, Chinese employees deal with a problem in a nonthreatening, facesaving manner.
Ask students what they learned from the case about the difference between
workers and
their boss. Members of the management team used different methods
(breakfasts, ping-pong
games, kindergarten) to cultivate relationships and change the traditional
Chinese boss-employee
interaction. Part of Curran’s job was to persuade Chinese engineers to become
more opinionated.
“With a company our size,” he said, “We can’t have all decision making going
through
managers.” Curran offered several suggestions he found effective at drawing
out information
without confronting or embarrassing his direct reports:
If an idea is offered that clearly just doesn’t make sense, try to solicit
other ideas first before commenting.
There is no such thing as a wrong answer. Instead offer a comment such as:
“Thank you for the idea. Are there any other ones?”
Don’t be negative to anyone in public. In private one can be a bit more
forthright, but in public one must be extremely sensitive.
If one is negative to anybody’s ideas in a meeting, that negativity will
distract everyone from the matter at hand and affect the tone of the meeting
from that point forward.
This portion of the discussion will have progressed well if students start to
ask such
questions as: “Could this be a growth experience for the Chinese engineers
and American
managers?” “Might there be costs to ignoring it/highlighting it?” or “How
could the local
organization help foreign managers learn more about the cultural mix?” Here
you might be able
to tap into some of the assumptions that drove students’ earlier
interpretations of the case.
3. How would you coach Ehud Oentung on Cisco’s ranking system?
One of the overarching goals of the CRDC management team was to work through
the
complexities of building a new team together; once they had accomplished
that, the expectation
was that they would move on and leave gracefully. One of them said, “The day
you arrive is the
day you must start to think, ‘What am I going to do to facilitate my leaving?
Who is going to
work out, and who should move up?’”
Many found the biggest difference between managing in the United States and
in China
was how information flowed. Back home at Cisco, engineers volunteered
information. In China
that did not occur. In fact, according to Jerry Chen, no one wanted to stand
out by even asking
questions. “If they don’t understand something they won’t say they don’t
understand,” Chen
said. “They basically hide it and that caused me a lot of trouble.” Chen said
that unlike the
United States, where engineers will openly point out errors to bosses, and
make that fact known,
very few engineers in China would actually stand up and say, “Boss, you are
wrong; tell me why
you are saying that? I don’t get this.”
That difference in style showed in the local managers hired to help build the
CRDC
center. Raznjevic headed up the management training and looked for opinioned,
career-driven
employees. A Taiwanese manager who had experience working in the United
States was hired,
and the testing engineers he hired were passive people who were comfortable
with his decisions.
Although that manager left the company early on, the aftereffects of his
approach were felt all
the way down the line. “The differences were so glaring,” Curran said. “It
took a long time to
change that and caused the biggest heartbreak—decisions were made for the
greater good.”
Unable to find local managers, CRDC leadership had to train their own.
Oentung offers a unique view to discuss because he is not local; he was born
in Indonesia
and moved to the United States during junior high. Most of his education and
work experiences
are American. So he doesn’t represent the difficulties described above.
Instead, Raznjevic must
consider why Oentung finds that particular managerial duty difficult because
he has a different
understanding of the Chinese context.
Students could be asked to role-play the situation. Assign one to be
Raznjevic, the other
to be Oentung, and have Raznjevic start the conversation by giving advice.
You may want to
offer more information about Oentung that he had been at CRDC more than three
years and that his job was to build an engineering team and then leave.
Oentung’s father went to school in
China but left because of the communist takeover. Sixty years later, his
father returned for the
first time to visit his son and was pleased to see how things had changed.
Oentung saw his job in
Shanghai as an outreach to his father’s people. He helped establish hands-on
volunteer work and
organized several CRDC groups to visit seniors and the children’s hospital
and provide other
community outreach.
Oentung understood and spoke some Chinese, but he conducted his staff
meetings in
English. He learned that there were times many members of his team didn’t
know how to express
their opinion in English (which was signaled when an employee put his or her
head down and
didn’t look at him). “In my staff meetings if they can’t explain it, I ask
them to use Chinese,” he
said. “And then I echo it back in English to make sure I understand what they
are saying.” One
on one with engineers, Oentung encouraged them to learn more English. “You
won’t be able to
be successful in Cisco if you don’t improve your English language skills. You
can only go so far.
You would be a programmer your whole life.” He also encouraged innovation
telling his team to
find out from marketing what their customers wanted so they could come up
with new or
redesigned products to reflect Chinese needs. All that information paints a
picture that Oentung
was savvy about cross-cultural issues. Then why might he find Cisco’s reward
system difficult to
manage?
If not already discussed, ask whether students believe Cisco should present
only one face
wherever it does business. Clearly, executives at the CRDC believed that
their organization
needed to operate as a business unit acting on its own—at least in the
beginning. And San Jose
seemed to have agreed when the center was established.
The final questions in the teaching plan should be useful for wrapping up and
takeaways:
How easy is it to manage in another country? To what extent might U.S.-based
companies
operate locations outside the United States without changing their approach?
If you were to ask
Gronski, Raznjevic, or any other executive on the CRDC management team that
question, they
would wholeheartedly agree it is difficult to be a manager outside the United
States (even though
one of them is from Poland and the other Croatia). And they would support the
idea that
multinationals must reconfigure their business models for each business
operating outside the
United States to fit the countries, indeed in large countries, to even fit
regions.
Epilogue
By the time this note was written, the CRDC had undergone several changes.
Perhaps
most surprising was the restructuring San Jose executed. Corporate decided to
be more “hands on.”Instead of Gronski and Raznjevic running the center and
managing growth, control reverted
back to business units in the United States. Exhibit TN1 has an updated
reporting structure that
could be used in class to contrast with case Exhibit 2. There was much
anxiety at the center over
the idea of change. Once the restructuring started, Raznjevic said there was
“less traffic on the
wiki!” Some members of the original team (Puche and Gronski) moved on to
other positions at Cisco. In the spring of 2008, Raznjevic agreed to stay on
for another two years to help with the
reorganization.
_
PART FIVE – INTEGRATING CASE 1
Bamínica Power Plant Project:
What Went Wrong and What Can Be Learned
Synopsis:
This case describes a series of events over an eight-year period involving a
power plant project in the Caribbean. An executive from the project
developer, PowerGen, is looking back over the period and thinking about what
can be learned from the experience. The project experienced issues with site
selection, the joint venture partnership, construction and equipment
contractors, community relations, project financing, a nearby hotel, and
project management. Going forward, what could be done differently in other
projects to prevent similar problems from occurring?
Case Purpose and Objectives
This case shows the breadth of things that can go wrong in any international
project.
The case also raises questions regarding why PowerGen went into the project,
given the circumstance.
Case Discussion Questions
1.
What part did the Bamínican government play in the financing
difficulties encountered on the project? Did PJCLP cause or contribute to any
of this difficulty?
2.
In what ways was Jones not a good choice for partner?
3.
How could PowerGen have avoided all of its problems with Jones?
Analysis
1.
What part did the Bamínican government play in the financing
difficulties encountered on the project? Did PJCLP cause or contribute to any
of this difficulty?
To begin with, Bamínica was acknowledged as a difficult place to get projects
financed because (1) the government had a history of not paying its debts;
(2) there was a thin foreign exchange market; and (3) there were weak banking
laws. Next, problems were compounded with the CBE did not pay even for the
power generated.
Part of the problem may have been that the amount due per invoice changed
from cycle one to cycle two quite dramatically. Cycle one was by contract,
designed to cover only operating costs, while cycle two would provide a
profit and repay capital. The average invoice went from $1 million/month to
$7 million/month, which was quite a substantial change. Buyer remorse may
have set in. When the CBE refused to pay, the bonding company withdrew from
financing, which left PowerGen to make up the difference – PowerGen alone,
and not also Jones.
The partnership agreement between PowerGen and Jones was structured in such a
way that only PowerGen was responsible for obtaining financing. That was why
PowerGen was brought into the project into the first place. But Jones had
absolutely no incentive under the agreement to assist in obtaining funding,
and obstructed PowerGen’s efforts at every turn. PowerGen said that they had
to negotiate not only with the banks, but then with their partner, trying to
persuade him that the financing they could obtain was in the best interests
of the partnership.
2.
In what ways was Jones not a good choice for partner?
There are many ways in which Jones was not a good partner, and many things he
did which had a negative impact on PowerGen and on their partnership. But
utilizing the vocabulary of management to describe his character, he had no
benevolent trust, no commitment trust, and no attitudinal commitment. He was
variously described by PowerGen executives as, “ Another said, “In terms of
experience, slickness, business sophistication, street smarts, and a
willingness not to be constrained by normal ethical standards, Jones had us
at a disadvantage.” Another said, “Richard Jones is an unbelievably crazy
guy,” and also “a wild man who believes his own b.s….” And he was very
litigious, setting up his partner for potential lawsuits over the partnership
agreement. He would write a letter saying, “Richard [Jones] would say in
letters to us that “You will recall in our last meeting that we agreed a, b,
c.” when in fact we agreed x, y, z. We had to respond to everything he did,
almost on a daily basis.
Among the things Jones did to hurt PowerGen and/or the partnership were that
he asked them to sign a confidentiality agreement which was “the most screwed
up agreement you have ever seen.” After the partnership was formed, without
permission from or even notice to PowerGen, his partner, Jones signed a
turnkey construction contract with Western Electric for $117.25 million,
committing PowerGen and the partnership to the deal without any input.
Undoubtedly, students will think of many more examples.
3.
How could PowerGen have avoided all of its problems with Jones?
Reviewing the sequence of events, it is apparent that by the time Jones
called on PowerGen to get involved in the project, it was Jones who needed
PowerGen, and not the other way around. He was faced with several deadlines
he could not meet, including finance and construction deadlines which were
advancing imminently.
For PowerGen to sign on at such a late stage was a significant problem, but
this was compounded by PowerGen’s lack of control over anything to do with
the project. PowerGen had had no input into the PPA or the contract with
Western Electric, nor any of the other ruling documents. It was highly
unlikely that PowerGen could elicit changes to contracts that were already
signed. And by then, PowerGen had an inkling of the sort of fellow Jones
was. So the negatives were stacked high.
The only “positive,” the only inducement at this stage was the possibility of
making money on the project. Given the pros and cons at that time, the better
course of action might have been to decline to go in with Jones, let him miss
his deadlines and fail, and then step back in after that failure to negotiate
with the Bamínican government, write its own PPA, and make its own
arrangements. So many difficulties could have been avoided if PowerGen had
been able to conduct business as it usually did. Instead, it voluntarily took
on the problems created by Jones.
Lessons
Every multinational should be cautious of working with partners who are
unknown quantities.
A carpenter would say, “measure twice, cut once.” Similarly, a business
person should think, “plan twice, sign once.”
Look before you leap.
PART FIVE – INTEGRATING CASE 2
Old Corporate Ways Fade as New Korean Generation Asserts Itself
Synopsis
This case focuses on the specific dilemmas facing South Korean companies as
societal and institutional changes are producing dramatic changes in the work
environment. Traditionally, South Korean corporate culture has emphasized
strict tradition based on their cultural values. South Korea is a very
collectivistic culture and therefore values conformity and preservation of
harmony. Similarly, they rank relatively high on uncertainty avoidance
implying that South Koreans generally prefer structured situations and
generally value and respect seniority. However, pressures on South Korean
companies to become more competitive and creative are producing major changes
in the work environment.
Case Purpose and Objectives
This case effectively illustrates how forces of globalization are producing
major changes in South Korean companies and the work environment. Similar
implications are true for Japanese and Asian companies.
The case also raises challenges when traditional cultures clash with
institutional pressures.
The case raises important motivation issues for different generations of
workers. As multinationals contemplate opening plants or operating in South
Korea, they will need to be aware of such challenges.
Case Discussion Questions
What institutional factors are driving changes in Korean business culture?
How can organizations in a culture that values respect for age differences
manage the changes that occur when organizational necessities require younger
managers to supervise older managers?
How will Korean companies manage more individualistic employees without
losing the competitive advantage of a loyal workforce?
Other Possible Teaching Approaches
Ask students to research South Korean culture and to list some of the main
findings
Ask them to discuss some of the major globalization pressures and whether
such pressures are consistent with values in the culture.
You can also ask for outside research – there is an abundance of practitioner
articles on the subject and provide for interesting discussions.
Analysis
What institutional factors are driving changes in Korean business culture?
Various key issues can be discussed here.
The most important ones include:
Asian economic crisis of the 1990’s where companies started questioning the
benefits of placing high value on seniority and “lifetime employment” culture
Increased globalization pressures on South Korean companies to shift from
low-cost manufacturers to world technological leaders
Concern about the traditional system emphasizing conformity and seniority and
whether that system is well-suited to new environmental conditions requiring
creativity and innovation
More pressures on workers to be lean and creative
The fact that many South Koreans are studying at U.S. universities also means
that they are demanding changes in the work environment. Given that most
U.S. business curriculum typically emphasizes individualism and creativity,
these values are also being adopted as South Koreans return home.
How can organizations in a culture that values respect for age differences
manage the changes that occur when organizational necessities require that
younger managers supervise older managers?
Several things can be done to facilitate such changes:
Communicate to workers the need to be more lean and creative – this will
facilitate the idea that change is necessary
Make changes slowly so that morale is not disrupted – also, such changes will
be easier as older generations retire
Train younger workers to help with such transitions by treating older worker
with respect – it’s not always necessary that such changes should be brutal
Emphasize that younger generations supervising older generations does not
equate to lack of respect. It is simply a matter of placing the proper
resources with the proper skills in the proper place at the right time.
To a large degree, these changes in culture will happen naturally over time.
These changes represent a dramatic shift in their cultural and social norms,
which are deeply rooted in the nation’s history. These changes require a
dramatic shift in thinking – in essence, looking at business through a whole
different set of lenses. The more proactively and carefully these changes
are managed, the better the chance the changes will be accepted by all.
How will Korean companies manage more individualistic employees without
losing the competitive advantage of a loyal workforce?
As more South Koreans study abroad and as globalization pressures companies
to become more creative, there will also be increased pressure on workers to
become more individualistic. Korean companies will need to look at what more
individualistic societies are doing in order to motivate their workforce.
Specifically, these companies can
Find out what motivate these workers – reward based on individual performance
in subtle ways so as not to hurt the preferred harmonious relationships
Again, communicate to workers the need to be creative to succeed – this will
provide an understanding for the need to reward individually
Identify high performers and provide them with the environment to achieve
their goals – for instance, many of the younger South Koreans are extremely
ambitious – provide the environment to fuel the ambition
Lessons
Provides a good understanding of South Korean traditional cultural values
Illustrates that national culture is not always fixed – globalization is
pressuring many traditional cultures to adapt to new environmental conditions
– thus producing cultural/societal changes
Demonstrates some of the challenges South Korean companies are facing as they
face new legions of workers educated in U.S.-based systems
Provides an understanding of some of the challenges of managing older and
younger workers – how do you balance the needs of older and loyal workers
with younger and creative workers?