PART ONE – INTEGRATING CASE 1Royal 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 regionThe opportunities for profit in the oil and gas markets are simply too valuable to walk away fromThere 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 regionNigeria 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. Nigeria would still be facing the same problems.

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 the differences in their roles is to determine and analyze who and what they are responsible for. The multinational corporation has responsibility to the shareholders, whereas the government has a responsibility to the 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.

LessonsThis case depicts many of the complex issues involved for multinational companies when doing business in developing countriesThis case raises the situation of multinationals evaluating whether to remain in a country, or to pull outThe 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

SynopsisThis 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 ObjectivesThis 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 QuestionsWhat 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. They see the necessary hard work as an intrusion on their family life.

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 workersFor 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.

LessonsCase 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 1Tata Motors

SynopsisThis 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 QuestionsWhat 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 GDPIndia’s investment in the transportation infrastructureAn increasing per-capita disposable incomeAn increasing transportation consumption rate

Prepare a SWOT analysis for TATA Motors (TM).

StrengthsStrong R&D skills setsAbility to produce products indigenously at a low costWidest range of product offerings in the Indian market

WeaknessesTM is new into the luxury car market and needs time to learnHas 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?

OpportunitiesWith the purchase of Jaguar and Land Rover, TM will have the opportunity to enter the luxury car marketThe opening of the new plant in KoreaExpanded capacity and new product offeringsThe acquisition of Daewoo in KoreaThe opening of the first plant outside India, in South Korea, which will give that local market access to low cost alternativesAn increasing middle-class population in IndiaCustomers in the two-wheeler market

ThreatsEnvironmental 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. Supplies for auto manufacturing are on the rise.

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 marketExpanded 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 capabilitiesManufacturing remained in India, and products were exported

AcquisitionsAcquired 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 capabilitiesJoint venture with Marcopolo to take advantage of product development and participation in mass transport opportunities in both domestic and international marketsAlliance with Fiat, which gave them access to world-class car engine technology and production capacityJoint venture with Thonburi Thailand, where the eco car project was startedTM 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. As is discussed in the case, customer needs and expectations are vastly different by country. Obviously, this fact does not allow for a one-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.

LessonsTo 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 2The Fleet Sheet

SynopsisThis 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 ObjectivesTo 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 QuestionsWhat 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. What type of operation would most benefit from a business plan?

Other Possible Discussion QuestionsUsing 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; andBanking systems that were experiencing difficulties in moving from state-owned 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; andThe perceived high quality of the product.

WeaknessesLow 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.

OpportunitiesTo 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; andSince 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.

ThreatsThe 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; andThe 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. What type of operation would most benefit from a business plan?

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.

LessonsCase 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

SynopsisThis 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 ObjectivesThis 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 QuestionsWould 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?

AnalysisWould 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.LessonsDepicts 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 1People 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 QuestionsIdentify 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.

LessonsThis 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 2Cisco Switches in China: The Year of the Manager

OverviewThis 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 IvoRaznjevic, engineering director, set out to get the organization up and running. The bulk of thecase describes such steps in the process of building a business as securing an appropriatebuilding, assembling a workforce, seeking appropriate projects, developing managers, buildingteams, 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 peopledifferent from his or her self overcome dramatic cultural differences within a diverseworkgroup? Should a local female employee be promoted from a test engineer to a developmentmanager? How should Raznjevic help his newest manager through his first encounter withCisco’s ranking system? What action, if any, should Raznjevic take regarding a senior engineerwho sent out a controversial e-mail? This material highlights organizational culture and offers anopportunity 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 AreasThis case can be used to explore a variety of issues including the challenges of creating anew 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 thatconfront executive expats, developing management skills and style, leading negotiations, andrecognizing personal leadership models. The material presents the daily trials of managing andleading 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 resourceissues

TimingThe case could be taught near the end of a term to serve as a review of organizationalbehavior; it could also be taught at the close of a global leadership module focusing on issues ofteam-building, growing managers from within, and related talent-management issues. Discussionwill 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 aunique 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-OB-0977 on someof 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 relationshipsbetween San Jose and Shanghai.

Student AssignmentReading“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 aforeign assignment at your company or companies?

20 min. Should Jasmine Zhou be promoted? (Ask for a show of hands.) If yes, have themexplain why. (Put reasons on the board.) For those who would not, have themexplain why. (Put reasons on the board.) For those who say, “It depends,” havethem explain why.(Put reasons on the board.)

20 min. Is the “you are completely incorrect and false in this area” e-mail a problem?What, if anything, would you do about it? Does the Chinese context change howyou think about taking action?

20 min. If part of your job is training local management, how would you advise EhudOentung on Cisco’s ranking system? Does the Cisco reward system reinforcebehaviors 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 operatelocations outside the United States without changing their approach?

Analysis and Student Responses1. 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 Zhoushould not be promoted. In the it depends category, note questions that need to be answeredbefore students are willing to make a choice.

Because most students will probably think promoting Zhou is not a very big deal, youmay have to press them on their knowledge about testing and development engineers. Althoughboth developers and testers generally have similar education backgrounds, there is inherenttension 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 developerfor Nortel Canada in the South of China and then moved into another department as a tester. Shewas hired as a test engineer at Cisco and had been there two years. Zhou had experience as botha 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 haveon the developer who expected to get that position. The face-saving concept will likely befamiliar to most students, so it may be helpful to share what Ted Curran, who initially did mostof the technology training at CRDC, said: “We were aware intellectually but not aware of theimpact of it.” How would Zhou’s promotion be received by the developer-side engineer whoconsidered himself in line for the position? What would happen if that person were promotedinstead of Zhou?

As it turned out, deeply aware of the implications of cultural humiliation, Curranapproached that individual and explained the long-term investment on the project—the businesscase for why the choice was made. Curran assured that person he would get his turn atpromotion. 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 intypical engineering style. Indeed, it could be argued that conveying facts in commandinglanguage is most efficient. These kinds of e-mails are sent all the time in the United States. Evenwith a nudge, however, students are apt to underestimate the cultural differences between theUnited 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, face-saving manner.

Ask students what they learned from the case about the difference between workers andtheir boss. Members of the management team used different methods (breakfasts, ping-ponggames, kindergarten) to cultivate relationships and change the traditional Chinese boss-employeeinteraction. 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 throughmanagers.” Curran offered several suggestions he found effective at drawing out informationwithout 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 suchquestions as: “Could this be a growth experience for the Chinese engineers and Americanmanagers?” “Might there be costs to ignoring it/highlighting it?” or “How could the localorganization help foreign managers learn more about the cultural mix?” Here you might be ableto 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 thecomplexities of building a new team together; once they had accomplished that, the expectationwas that they would move on and leave gracefully. One of them said, “The day you arrive is theday you must start to think, ‘What am I going to do to facilitate my leaving? Who is going towork out, and who should move up?’”

Many found the biggest difference between managing in the United States and in Chinawas how information flowed. Back home at Cisco, engineers volunteered information. In Chinathat did not occur. In fact, according to Jerry Chen, no one wanted to stand out by even askingquestions. “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 theUnited 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 whyyou are saying that? I don’t get this.”

That difference in style showed in the local managers hired to help build the CRDCcenter. Raznjevic headed up the management training and looked for opinioned, career-drivenemployees. 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 allthe way down the line. “The differences were so glaring,” Curran said. “It took a long time tochange 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 Indonesiaand moved to the United States during junior high. Most of his education and work experiencesare American. So he doesn’t represent the difficulties described above. Instead, Raznjevic mustconsider why Oentung finds that particular managerial duty difficult because he has a differentunderstanding of the Chinese context.

Students could be asked to role-play the situation. Assign one to be Raznjevic, the otherto be Oentung, and have Raznjevic start the conversation by giving advice. You may want tooffer 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 inChina but left because of the communist takeover. Sixty years later, his father returned for thefirst time to visit his son and was pleased to see how things had changed. Oentung saw his job inShanghai as an outreach to his father’s people. He helped establish hands-on volunteer work andorganized several CRDC groups to visit seniors and the children’s hospital and provide othercommunity outreach.

Oentung understood and spoke some Chinese, but he conducted his staff meetings inEnglish. He learned that there were times many members of his team didn’t know how to expresstheir 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,” hesaid. “And then I echo it back in English to make sure I understand what they are saying.” Oneon one with engineers, Oentung encouraged them to learn more English. “You won’t be able tobe 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 tofind out from marketing what their customers wanted so they could come up with new orredesigned products to reflect Chinese needs. All that information paints a picture that Oentungwas savvy about cross-cultural issues. Then why might he find Cisco’s reward system difficult tomanage?

If not already discussed, ask whether students believe Cisco should present only one facewherever it does business. Clearly, executives at the CRDC believed that their organizationneeded to operate as a business unit acting on its own—at least in the beginning. And San Joseseemed 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 companiesoperate locations outside the United States without changing their approach? If you were to askGronski, Raznjevic, or any other executive on the CRDC management team that question, theywould wholeheartedly agree it is difficult to be a manager outside the United States (even thoughone of them is from Poland and the other Croatia). And they would support the idea thatmultinationals must reconfigure their business models for each business operating outside theUnited States to fit the countries, indeed in large countries, to even fit regions.EpilogueBy the time this note was written, the CRDC had undergone several changes. Perhapsmost 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 revertedback to business units in the United States. Exhibit TN1 has an updated reporting structure thatcould be used in class to contrast with case Exhibit 2. There was much anxiety at the center overthe idea of change. Once the restructuring started, Raznjevic said there was “less traffic on thewiki!” 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 1Bamínica 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 ObjectivesThis 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 Questions1. 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?

Analysis1. 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 2Old Corporate Ways Fade as New Korean Generation Asserts Itself

SynopsisThis 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 ObjectivesThis 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 QuestionsWhat 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 ApproachesAsk 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.

AnalysisWhat 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

LessonsProvides a good understanding of South Korean traditional cultural valuesIllustrates that national culture is not always fixed – globalization is pressuring many traditional cultures to adapt to new environmental conditions – thus producing cultural/societal changesDemonstrates some of the challenges South Korean companies are facing as they face new legions of workers educated in U.S.-based systemsProvides 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?