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Chiba International, Inc. is establishing a manufacturing plant in Georgia and is focused on integrating Japanese corporate philosophy into its American workforce. Ken Morikawa, the general manager, is concerned about how to effectively communicate this philosophy to employees who may not understand it. The company has successfully implemented a gradual approach to employee training and morale-building, emphasizing communication and teamwork to enhance productivity.
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0% found this document useful (0 votes)
69 views31 pagesFinal GGG
Chiba International, Inc. is establishing a manufacturing plant in Georgia and is focused on integrating Japanese corporate philosophy into its American workforce. Ken Morikawa, the general manager, is concerned about how to effectively communicate this philosophy to employees who may not understand it. The company has successfully implemented a gradual approach to employee training and morale-building, emphasizing communication and teamwork to enhance productivity.
Uploaded by
Ashita SavsaniCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
13
Chiba International, Inc.*
Vladimir Paci and Nina Hatvany
en Morikawa, the general manager for administation of « Japanese
tanuficruring plane under constuction in eural Georgia, was roubled
lier that morning, his American personnel manages Jahn Sil, ad waked
eagerly across che temporary, open-plan office and announced, "Ive found 2
profesor of Japanese at Georgia State Univesigy who it wilng to help crane
‘our corporate philosophy. Tike to hire him forthe ob” He Fle presuted. In
tis mind, Sinai, lke many Ameticans, wis expecting oo much of Japanese
companies. The company philosophy that he, Ken, had letned to ive by in
“oly would consinue to guide him, but he did not fel that Americans would
welcome or even undentand a Japsnee company philosophy.
Ken ha avery lag tk in supervising the ulding of plane that might one
day provide jobs for up 02.000 employees, in regan whee very Kw workers had
say industri experience, He wanted to show them that his company care sbout
the welfue of wok and thi job sci and could be esta to teat them
‘ay and noe ro ying them of He bled tha ach philosophy ic could be
prope explained ro workers and cacy implemented, would hep build high
‘morale among the eplayes renting in improving producti.
Se a
Sh Py hme ot
‘rete Bp ne Stan so ot aed ne ot
‘Sieg ae pr Ken also wanted o ensure thar high morale be msntsind while dhe worlore
cxpanded to fall cpaciy. Aside fom the uct of exe of ranporation end
isution, the characteris ofthe local workorce—maily thee "apanee”
work ethio—had been one ofthe primary resins for exablshing the plant here.
He belied thar the raining cos iveled in ransorming very “gen” workers
ere wel woth ic. With tsining, you could avo people who had picked «p
"bad habits" or theie morale lowered in prior indus jabs In Japan, Ken
knew, teaching company philosophy wat an importane pare of the companys
inoductory taining progeam. But would i work in rel Georgia?
Ken wondered iPhis new adminisraive dies were lweting hie concen for
pentonnel maces, Ber since he rad Aled Sloan's My Yer with Genel Man
uring the company taining program and had writen cvew that foased on
human resource sues, he had eld potions in HR. Eventhough he ad majored
in mathematical economics in college, his first astignment ad been in the
personnel "design center" which contllederaining and salary administration
for whiter employees. After two year, he wat Sent toa dit office as +
salesman, He reuroed afer 13 months tothe employee welfe section ofthe
pesonnel deparment a he ead offs, adminierng such programs as house
leans and recreational actives, Bight years with the company bal pase by the
time he was sent co an American college to uly personne eae subjects and
improve his Engl
After receiving his MBA, he serene the head office. His most recent
‘esignment before coming to Georgia war in peronne development research,
panning new wages stems In tht row jb in Georgia ie was expeced thet he
‘would eventually hand the ris over oan Amin general manager and remain
conly in an advisory capacity. However at thi vital stage, he felt chat the
‘corporation dependat on his human rlson epee to sex the sene for fate
ces, Was he melting an are in which he had bon esd to be sense?
He broughs the subject up a lunch with John Sinclaz. “Let me tll you
something, John havea hunch why the Japanese ate mote succes in achieving
high quality and produciiey than Americans have been rece e has to do
ith application, ether than ideas. Many reat ideas have come from the United
Sates, bur the Japanese concentrate on applying them very easily. Americans
~~
‘emphasize creating someting new and then moving on. The Japanese meticulouy
analyze 2 problem fom al angles and sce how asluton might be implemented.
wove John a hey ay, Rave waz bili dy Tm noe sure out American
workers will understand what i eally means to ive a company philosophy.
Lets take i slowly and Se what kind of people we hte and then see what bee
rece their needs”
John, who had worked ata esther ronal US company for 11 years and
tad become increasingly inceresed in how Japanese companies managed thee
US employes, ad been eager to join Japanese company, He wanted tose in
‘action such “Japanese” srategies a long-term employment, the expression oft
‘company philosophy, and earl aenton to ineraing the employes igo the
‘company. He answered comfortingly, "Ken, I know you bate conflict, But you
also think ics important ro gather information. One of our purchasing agents
Billy cold me shout a Japanese company he ese vied, Chiba Internatio
Apparently, che have ale filly implemented che company pilsophy, and
understand sae heyte doing very well wth it Why dot we go out wo California
sd cll with ther management and ty and understand how and why they
concentrated on communicating chee philosophy to eheie American workforce,”
“An soak up some sun, coo,” beamed Ken “You on
‘The Company
(Chiba International, In. in San Jore, California, makes high-precision,
sophisticated electronics parts used in the final axtembly of customized and
semicustomiaed integrated cue, parca the expensive memory chips wed
in computers and military hardware In such products, esl i everything
(pric is leser consideration). The similar, bu cheaper, pat hat manufacturers
We once a product reaches high Ylume are le for oer o make,
(Chiba lsratonl is a ubiiary of Chiba Herons Company Nien Kia!
Simbu, Japan's preeminent busines paper cece rank Chiba Electronic 2
‘eof the fremast companies in Japan onthe bs of ite management earings
subiliy and performance, ahead of suck bewernowa ans as Sony, Massie
ecxg, and Toya Moor. Chiba Eleni hae 70 erent ofthe $350 milion ‘year wold mate for is produc. Chiba Imermational likewise has a 70 percent
share ofthe $250 millon year US maker
CChibsInerasonal sated with «smal sles office inthe United States 12
years ago. A manufcering plant chat had ben losing $100,000 to $200,000 2
‘month was aquied from an American compet The American management
svas replaced by 2 team of Japanese headed by a Canadian-born Japan reared
ecutive. They suceeded in erning i around in ewo yes.
“Tay, 14 out of he 24 op execsves and 65 out of 70 salesmen a Chis ate
Americans, All the employes in oter categories ae aio American
CChibs’s Philosophy
‘As che sun sist blll in the hy
Revealing the sizeof the mountain, che maker,
Ob shi is our gosh
‘With the higher decree of mision fn our heat we serve our industry
Meeting the sic dete of custome requirement
‘Weare the lade in his indurry and our re path
Is ever so bright and sing,
“Thats ranslaton four company rong” sid a high-ranking Japanese cxcutve
cone ofthe fpoup of Jpunee and American manages who had wpe to cet
‘with Ken and John, "Buc we hase’ introduced cro our employes yet. Thats
typical ofthe way we brought the company plilosophy ro our employees
slowly and carefully. Every lie wotker ges leaflec explaining our company
‘hilosophy when he or she sare work We dont have specifi ening sein
fon ie and we dowt force chem eo evallow it f+ up to chem to digest and
sundrstand ic”
"What about when you aque company, as you have done over the pas
few year” asked Jo,
"The same thing: Fes very gradual, IF we force it auses nothing but
Indigestion. Here ic has been easy: The work is very labor intensive, eepetine,
tedious sembly: In other places, the sii diferent, Aton, Fr example, almost
all the employees ate slated. They understand che philosophy, but won't
necessary goby i. Engines and technical people alo acm tobe le receive
than people in sales, personnel and adminirton. In oer sis, though, where
the ecology is more simile ro this on, we have had problems at al
(One ofthe other managers presen inthe group, an American, interrupted to
show Ken and John a copy of the eft. was quite sheorcl in tone ad fw
paragraphs suck them at pariculaly intresting.
‘The Leaflet
‘Managemen pila: Ou goa ito sive roward bah the teil dsp
falfilleene of all employees in the Company, and through this successful
fallen, serve mankind in te progres and prowesg.
Managemen: poy Out purpose fly sty he needs of our customers and
in return gain jure profc for ouneves, We ae fall united in common
‘bonds and singular goals. One of thee bonds is che respect and support we fe
for our Kalow Emily coworkers
(Other exhrations: When there ea ned, we all lly to mee ic and consider no
tak too menial or demeaning all chat materi hati should be done! We ate
all ready o sweep Hors, sre parts, tke inventory, clean machine, inspect pare
lead tucks, carry boxes wash windows, le papers, run furnaces, and do jut
shout anything that hare be done.
Meetings
“Daily meeings athe beginning ofeach shia held inthe courtyard” explained
manage.“ he workers stad in ines Gndicated by metal dos inthe spl).
Each day, diflzent member of management speak for about five minut. On
Monday, executives speak: on Tuerdays, pertonnel and administation are
represented: Wedneday ae about san concerns and on Thuraday and Friday,
members of production and sales speak. They ae al Fee to say whatever they like. The shift workers tend to develop favorites, especialy among the more
crtroverted sles manages
“Then a personnel coordinator delivers news about sport event and so on,
and peshaps « motivational mesg, and goes on to lead the group in execs
for one minute, Thee calisthenics are vluntary, but mos of the employee join
Jn After that the lg group brea up for bi departmental meting.
"Agtin, inthe deparemental meetings. = speaker ischoten for the day and
speaks fr about five minutes Even people a the lowest exempt alaid) level
speak Then the department manager discus yererdays esformance, codays
schedule and any other messages such a hic housekeeping inadequate or that
cera aw materi at in shore supp
‘Once a month, thee isan announcement of total company performance
‘ers plans. This is important, a ll company employee share atthe same rate
inthe annual company bonus, which is based on proabilry and usually equals
about one months salty or wages”
Another Japanese manger coninud: “Years ago, there wee complints about
‘having so many meetings, but have herd any for lang ine now The employes
like tear importane announcements and even les important ons such 8 wh
selling chester ches, bowling league report, and tennis match dates.”
The American personnel manager chimed in "I wat the one who came up
withthe idea of exercises awit on my vit Japan, They ae jus a part of he
tials and symbols that you aed in onder 10 gt beter mutual understanding
‘The stmosphere wa ight andthe iming was good. Evens, bec they were
‘mandatory, i ook about one-and-a-half year unl everyone joined i, Now
‘most people undersand she meaning bchind it. If we were to stop it now, wed
get comphine,
"Besides che moring mectng, we have served eter mesings, On Monday
we havea very large ison meeting fo information sharing. Al the executives
sstend sles managers and saff managers, the plane manage andthe aint
plant manager. On Tuesdays, we have production meeting attended by the
production manages and any staff involved with thes problems. On Monday at
Four lock every second week we haves superior? mesting, main for one
way communication to them. On the alermating weeks, we have taining
meting, The whole personnel department also meets eve week
Les fxmally we have many sles metings about, for example, new products
We have combination sls and production meetings, which are cll on as an
s-neded bss, Team meetings on the production lines ae lio cll whenever
needed
“ALI shee formal meetings are supplemented by many company sponsored
sctvices. We have 2 company bowling lagu, tenis mashes, softball fishing,
and sing. We often organize discount sicker Were planing the Chrismas
patty, Each employee can bring 2 guet,s0 i cots us about $40,000. Our
‘company picnic costs $29,000."
“Tesounds very wel- worked out forthe non-exempt." sid Joho, “What about
for the exempa™
Sales Force
‘Thecompany sarc with che largely American les fore, “Theyre very diferent
species. They have uemendous professions pide. Mose ofthe American sles
engines have a very arogan keer leave attiude. Our atude i almost
the complete opposite. We uy to serve or customers needs, Almost ike eta
el, who makes her customer fel habe the only ae served by hen explained
one ofthe Chiba managers
“We try to communicate the flowing mono to them:
BS] incsiy
Abily
Love
| ney
levee “Sine is the asc ata you have to havea wll the abil convince
the customer. You must lve the product tha you allo ou cane convince the
customer You must hae energy because, athe end of the day if always the
‘ase tat you could have done one more hing or made one moe sles il Fly,
the menaliy of serving the euomer i the mos important.
"We communicate tha to out ale force and they like i expecially when they
dont have oll witli to curator put up with armen rom customer.
‘We also want them wo be honer with us, even about thst mses, Quite often,
we depend on input from the slespeople fr our undereanding of estome, 0
an objective daily report by telex or phone is vey important tows
“Noone in our company works on a commision basis, ot even sleimen, We
‘would lose market share For products that are dificult ro promote. Also, the
ature of diferent sales terres would make commissions unfit
‘Ahough we pay on ssight sry only, we dont just have 2 unilatersales
‘quot. The salespeople discs tage with thee Bost. Thy te purpose high,
so god performance against goal i grounds fora mei incre the next Jer
“We done ely havea matetng department. We el thi it san expensive
luxury. We have a vice president in charge of maskting, but hi is almost a
corporate le staf Function.”
US Management
John was curios about how American line manages reacted to working Japanese
company. A Japanese manager explined. "When Americas join us, thy expect
the uu grat deal of intemal polcking. They scan people in metings looking
for those with real power: looking toate our expression, for whose apple they
should pol. l takes ime for them to ele tht its unnecesry.
"When we imerview American executives for ajo, we doi collectively #9
fet en iterviews ae held. Tat usually pales the ineviewes. They wonder
whom chey will report to. We reply that they wil be hited y che company
lehough they may report co one individual. A in Japan, the company wil eke
{ate of them, 50 does ot depend on hee lop one individu.”
"What about your company criteria Fr hing manager” asked Joba,
"We focus on a manage’ way of thinking ot neces on aii. Although
1 Harvard MBA is welcomed, ie not esentilIn fcr noone ete hs one, We
ont provide an eegae fic his ber sca elite There ae no priate offi
Salary and beefs are upto pr forthe location (and inde), but not epcily
igh. We wor lng hours
"Were looking for devovon and dedication as walla an agree atid
‘We conduct vo or dhe lng interviews for an important position. We ale
questions ike ‘wht your min shortcoming” Wee interested notin the answer
ielf bt inthe kind of chinking behind i. We do make mistake sometimes, but
cour bang average i good
“Sometimes there's a very deep communication gap between Japancie
‘management and US managemenc because we blee in daicaion and devotion
to the company. They do to, but only up t0 certain pint. We ofen ll hem
thac the joy of working forthe company canbe identical to personal heppine
‘withthe fai ask my wife for her undersanding ofthat, and I wor xx das
«wea fom even lock to ten dock, Ther wives place demands on tem 0
‘ome home at six belek, US exceutves uc esonal and family happnes fs.
om not elling you which eight. Bait is second nature for me to hin sbout
the Faure ofthe company, So long as [have challenging assignments and job
‘opportunites, I will pac the company before ny peonal happiness”
"What do American interviewees feel about ll his” inquired John
“One problem i hat dey atk, ‘Whats my sa frre? Can I be considered
for president?” Theres no real anawer becaute ie probably will be a Japanese
However, we don keto core tore door oa ely capable American
“The isue of communication beoweenJapanete and Americans is sll
problem, Air the Americans go home, che Japanese get tgeter at seven of
tighe 6 clock and talkin Japanese about problems and make decisions without
the Americans present: Natraly his makes she Americans el very apprehensive
Were ering to recy ie by aking the Jpanene manages otto make decions
alone sd by asking the Americans co say ar le s posible "More imporant if we could ely have ou philosophy permeate the American
managers, we Japenese could all go back o Japan and not worry about it, Our
rmision is eo expedite thar day by eduction and taining.
Sofi, however here isa gap. Americans ate more inetd in individu
accomplishment, eemuneration, and power. When they are given more
responsibly, they dot felis heavy weigh, ether they Feel that extends
‘hei soverip area so that they have moe ofa whip Tha crete poner conflict
among US managers.”
“Lee me ell you, though," sumasied the American pertonnel manage, I
like ic Iwas reeraited by 2 heauner Now, Te been wth the company five
years and the diference fom my former employer is aounding I do have ro
fe ou there and be ewotaeed, aging to keep the union ou, hedging forthe
buck, In general ifs hard to find an American employer that relly, sincerely
cares forthe well ofthe low-level employes This company went lst too ar
in the opposite direction at fs. They wanted to do 0 mach for the employees
too qui, without their ering it. That way, you don gt ei ep.”
Financial Principles
“Oar financial people thoughout the company are proud because of our
limpresive company performance,” sid one ofthe Chia eam. “Only 20 pescent
of our financing through debe, in contrast 0 many Japanese companies. We
als havea eather unique way of sting ome of our rw matrilineal. We
ey «expense everything out. Is derived fom out Founders very conservative
‘management. We ask the question ‘If we dosed dowa tomorrow, what would
‘our igi asset be" Inline wich ha, For example, internally we pur ou inventory
“We fallow the noodle paler theory” The noodle pede an enreprenea
He bart borow hi cat, hit serving dishes and his panto make ramen. He as
to be a good marketer to know whete coal He hat ro be a good purchasing
Alec and nr overbuy noodles, incase tains. He could buy 2 figs, bu Be
would need 2 le of capt, the rate ofthe noodles would dei, and be
would need addvonsl manpower to kesp an inventory of the content of the
fidge. The succesfl noodle peer puts dallas side tte end ofthe day for
depreciation and caw mats for tomocrom. Only then does he count prof
‘Thats alo why we don havea marketing department. The succewfl peddler
oes have ime examine opportunities inthe next town
“This isthe way 2 division manager has co operate In order to maximize
‘urput with minimum expends every effort ie made to keep tack on a daily
boss of sale. reruns, ner shipment cont and expenses”
Open Communication
"understand ll dat youve sid 0 fi" mused Joho, “but how exactly do you
take all these absacephilocophicl ides and make hem sel
“Oh, open communications the ey We ave aly homogencous wore
Mose at imteliget, some are even college grates, Most ae alo very sable
'ypes with dependens or eldely parents they snd money
“We lucky, but of cous, nor as homogenous in Japa, where everyone
as experienced one culture. So here, the plilosophy ha 10 be backed up by 2
ext del of communication
"We mentioned he menting. We alo have a suggeon bor, and we answer all
«the suggestions in prin inthe company aewspapr Aso one eon fom personel
‘ours the ple al day, al desis, once a week, jut cating nd geting in
‘ouch wih any potential problems 2s they ase. Is Kind of secondary reance
systems. Were nt unionized and I gets wed rather ty that way at help ws 0
such with feb and job changes among our workores
“Io the fl, when work alow, weave many Kompas You ny nt know
about his, Jbn. A fompa ia all uering off prem afer work Eight ©
tighten people participate, andthe company pays for their ime and for
rrshment There aly oi: They have an csv, For xample if 0
departments doi ge along and ye thy need to werk together hey igh
bela konpa A oma ca ke pl a al lee af he company. Thow gO
tha doi more eucnly tend vo move of rom king about production
robles to more plwophicl se” Appraisal and Reward Systems
"eal sounds grea sighed Ken “js gpd a Japan, But rel me, how doe it
‘ie with wages and salaries, Beaute people ere are wad o such diferent systems?”
"Wal, we dont hive lime employment, but we do have an explici no-yofF
‘ommicment. We ae responsible for our employees. This means thar employes
lho hive wo ake responsibly and ave broad jb etgois, so we doit hae to
redo paperworkall he time, We hve tid to ace the mbes of job csifations
to the raw minimum, so we have swo pay grades covering 700 worker. At the
Iigher levels, we have thre pay grades Fr erfamen and owo for echnicins”
Joho ventured: “I guess an example of your jb Rexbility inaction is she
mechanic you mendoned when we tured the plan.”
“Yes the pion you spoke with was a dry pst mechani, He's doing menial
labor tis week bur his pay hast been cut and he knows he would be taken
of is job if ie werent importan.”
"We dont hire ouside, if we can avoid i,” added the personnel manage,
“only ifthe sl sno available in-house. The blk of our taining son the ob.
‘We don tlie ob posting. We promote when person sills are ripe or when
there 2 need
“The job of elo tam leader ie the stepping-stone to superior. ht noe a
separate jo sams within our stem, bu the edi ven 2 ew ens an hour ext
snd wears pink, nt ll, smock. Leads ae crf goome for thee peson,
and although ead might be demoved because a apecife ned or them no longer
cited, lead would aly be demoted for lick of lor leadership abil
"Rewards are for sevice and performance, Plane workers, ansiled and
Semis, ae reviewed every six months, The lead completes the eration
form ce Exhibic I]. This i checked of confirmed by the supervisor and the
‘overall pon oe translates inc cems pet hour There aze wo copies, one Ft
the superior and one forthe employe. Depending on the supervisor, sme
employees ge copy, some done
‘Semiannual Performance Review
veri vont rnd
ed
tarts _| ety
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aman sere eas do youthin yee the mst porto? Wy?
Soetaleber mans an
{Gina wud you mpc Chose eet EEO ese
“The ofce ceric staf ae all teviewed on April Ist and October tet The
review foc for manages [se Exhibit 2 i se to determin overall lett cores
All dhe scores are posted on a sprsd set and compared serous deparnent,
tdvough numerous meetings of managers and personnel people uni the snes
sre consistent with one another Then the sort ae edt dll Some naagers
provide feedback, some don
"Salted sf are reviewed on Apel Is and, a eprate process, che spi
procedure jst outline i cated out. Atle two manages feview any camp
‘employe, bus fedback is usually minimal. The ceaon is that me encourage
fecdbac all es. IF there are no surprises for your subordinate st evew time,
then you've managed wel
“Agreements on reviews fr exempt pertonnel ake plac in many mestngs a
‘aris levels, The procs i very thorough and etceponally fai, and contribute
to the levels of performance we get”
Quality and Service
‘A question fom John att how Chiba Inerationl was doing a a eu ofall
this elicited much pride
“Turnover i 2-1/2 percent a month, which is very sisictory for our kind of
labor given a transient sci. We rarely hive to advertise for new employees,
‘ow. The community knows about it But we do slat exeill, The personnel
Aepactment does the iil screening and chen the production manages and
supervisors ex tgether and interview people
“The lack of availble, echnical esd people used co be big problem,
but over the years, we've developed che expen nterally, Our productive i
row almost a high tin Japan
‘Ken and John asked what other aspect of the company they had not yet
sscused. They wee told that quali, and hence customer sevice, wat another
ental pare of the philosophy. "Our Found, Me. Amino, ily bees im ro
defect theory, Doctor Deming eaught us the concept of quality control
Unfortunately, many American companies dd nok emphasize thi. During World War Ue concep of acrpable quay eel was developed inthe Unie Set
‘The idea war tha, with max producion, there wil be sme defects. Rather than
paying for more inspecos on the prodacio line, cel problems, for example,
vith cars, coud be identifi bythe consumer in the eld and eepsited inthe el
"We dont allow chat. We have 100 percent visu inspection ofall our tiny
‘puts, which only cos $50 per 1,000 unis. We inspect every Fished package
under microscope, 20 we have 130 inspectors, which about one sixth of out
production staf.
"Mr. Amano, has sid 10 us "We ey to develop every item our customers,
want. Being latecomers, we never #27 90, we never say we cane! Older
manufactures would evaluate a proposal ona ost bass and sry no. Yer we have
been profitable fom the wart”
‘As the imervew drew to 3 close, one Japanee manager reflected, "Me, Amano
has a saying
Abily philosophy x sal» performance
“Ifthe philosophy is negative, performance is negative because is a
rmukiplicave telaionship.
"But in our company, which now numbers 2,000, we mus also sat to have
Aiferent nds of thinking. The Japanese sword ie ong because ii made of ll
Aiffeene kinds of steel wrapped around one another. The Chinese sword i aso
‘ery song, but because ie all one material és vlneabe to cei kind of
shock, We muse bear that in ind so that we have diferences within a shared
phllonopy.
“Were thinking of writings book on ou pilooply, adding uch ies
as what loyal is, by piecing together evens and tres fim ou company history
“This would be a book chat would ast us in ening”
Ken and John walked out into the pking lt. “Whew!” sighed John, “Is
‘more complicated than I choughe”
"Oh ys You nd a great del of pation” seponded Ken paternally
vel ® pa =e pe
a
"So wed boner gt started quick” sid John, ends, "Whee shall we
begin? Pethas I should call the ransaton”
Ken wast sure what hit anewer shoud bs
(ldimir Puc ic Prosar of Iternatinal Haman Resources and Sratgy et
{IMD ~ Intemational Insite far Menagement Delmont, Lansanne He rived
1 marr’ dere in incerasional afr ~ peilzing in East ia ~ and PD. in
Iusnes adminirton fom Columbia Univeity
‘Nina Hassany was a Profesor atthe Graduate School of Batines t Columbia
Unive and ater the Graduate Schl of Buns at Berke, Cabiforvia. She ols
28M. A. and PhD. fom Senfrd in Pyebolog and is widely rengiced sone of
‘the bead mgt: inte busns. Sb tone of ofthe vr be Sen Francia
reat) 14
The Road to Hell
Gareth Boars
“The Road to Hel” isa case study which discusses expatriate
12s, employee relations, racial prejudices and cross
‘ultra communication issues in global firms and also deals
with he problems of developing indigenous personnel take
‘over expatriate postions. The case provides an example as
‘to how expatriates had obe deat with so that here remains
‘no room for misunderstanding between employees with racial
Aiferences and with employee from across various cultural
backgrounds.
eke West Indies, wat making his final prepurations to leave the island. His
Promotion to production manager of Kero Mining Corporation nest Winnipeg—
fone of Continental Ores fasvexpanding Canadian enterprises—had been
announced ¢ month before, and now everything had been tidied up except the
las vital iverview with his suecesor, the able young Baracaian, Mathew
Renal, Ie was eracal tha tht iverviw be succes and that Renal lave
his fice uplified and encourage to ice the challenge ofa new jab, A touch on
the bell would fave brought Rens walking into the room, but Baer delayed
Fores ee cotton Com of enn
Sw Sp pci Gr wy gels end Amar dS
‘ae Cpr Sy Se Pes Ro pce oe Ps
r%
‘he moment and gated choughllydhrough the window, considering just exacy
what he was going te say and, more particulary, how he wat going ro sy i
John Bake, an English expat, was 45 yar old and had served 23 years
With Continental Ore in Ea Asis, ect Alia countis, Europe, and forthe
base 2 years, the West Indies. He ad cred much for hit previous assignment
in Hamburg and was dlighted when the West Indian appointment came though
‘Climate was not the ony aration, Baker ha always prefered working overseas
{in what were termed “the developing counties), because he fle he had an
Jnateknack—beter chan mort other expatriates working for Coninental re—
of knowing just how eo ge along with che regional stall. After 24 hours in
Baracania, however, he realized that he would need ll this “inate knack” 10
deal eecively with the problems that anaied him inthis ld
‘At hie fist imerview with Hutchia, dhe production manager, the problem of
Renna and his fur was discussed. Thre and then i war made quite cet to
Baker dat one of hit mos important tasks would be “groming” Renal s his
suceasor Hutchins had pointed ov chat no only wie Rennalls one ofthe bright
Baracanian prospects onthe sa of Caribbean Bauite—at Landon Universi he
Jad ken falas honors in the BSc engnetingdeges—but being the sm of
‘he minister of finance and economic planing he also had no sl pli pl
‘The company had been parculay pleased when Reals decided to work
fori rater than the government in which his fisher had sacha prominent pos.
‘The company ascribed his action to the effect of it vigorous and liberal
‘eplnalization program, which since Wodd War Il hd produced 18 Barscnians
2 mid-management evel and given Cavibbean Bout good led inthis espoct
‘ve all ther incernational ences opening in Baracania. The ricci of tht
timely regionalization policy led to excelent elatons withthe government.
“This celaonahip was given an add importance when Barracanis, 3 yar
lates, became independent—snaceation thc encouraged crt and challenging
srciude towards dhe role cat Foreign interes would play in the new Baran.
Therefore, Hutchins had lie dic in convincing Baker thatthe success
carer development of Renzlle was of primary impor. ‘The imervew with Hutchins was now 2 year old and Bakr, aig back in
his office char, reviewed his succes in gloming Renna, What aspects ofthe
lace?’ character had helped and what ad hindered? What about his own
sonal? How had thar helped or hindered? The fit itm to go onthe cet
side would, without queion, be the ably of Rentals master the echnical
aspects of the job. From the sare, he had shown keenest and ents and
‘fen impresed Bakr with i abil in racing new assignment at well 2 he
constructive comments he invaably made in departmental dicusions. He was
popular with ll ans of Barracanian sf and hal an et f manner that placed
him in good stead when dealing with hi xpi senor, These wee all set
be what about the debi ide?
Frc and foremose, cere was hi ail conciousness. His 4 yeas at London
University had accentuated thi eling and made him sense to any sign of|
condescension on the pat f expats. I may have been to give expression fo
‘his sentiment tata soon ashe rerurned from London, he ere himself into
politics on behalf the Unita son Pry, which ater won th reindependence
tletons and provided the country with it fis prime minis
The ambitions of Rennalland he certnly wat ambiiows—did not ein
polis, because staunch national ha be was, estat he could sere himself
and his county befor bauxite wat reponsible for ealy ha the value of
Barracania’s export eade—by puting hie engineering talent to che best we
posible, On this account, Hutchine found that he had an unexpectedly easy
‘ask in persnding Rennalls co give up his polical work before entering the
production deparment a an asian engineer,
Baker knew tht it was Renna! well-epreed sent of rie consciousness
that ha prevented cher relationship fom being at coe a sould ave ben
(On the surfsce, noting could have seemed more agresble. Formals between
the two men was ata minimum. Baker war delighted co find that his sistant
shared his own peculiar “shaggy dog" sens of amor 1 thajokes wee continually
‘being exchanged they entertained each other a thei hous and often played
tennis cogether—and yer the bucer remained invisible, indfinable, but ever
present. The existence ofthis “seren” berween them was « constant source af
fusraion to Baker, because ie indiatad a weaknes tha he wat lath co ace.
Whe was succesful with ll ether nasionalies, why aoc with Renna?
a»
At leat he had managed to “breakthrough” to Renna: more suceslly
than any other expatriate, In fact it wit the young Barracaniansantade-
sometimes overbearing, sometimes cyical—roward other company expatriates
that ad been one ofthe subjects Baker had razed ax year when he duced
Reanall’xaff report with him, He knew, 100, athe would have to raise the
same subject again in ce forthcoming interview, because Jackin, the senior
draspeson, had complained only yererday about the rudeness of Renal.
With this hough in mind, Baker leaned forward and spoke int the intercom,
"Would you come in, Mat plese? I ke a woed with you” Ax Renal ecred
the oom, Baker id, "Do sit down,” and offred a cigar, He paused while he
held ou his lighter, hen went on
"As you know, Mat Il be of to Cana in a fw day time and before Ig,
Though ie would be wif if we could hive a ins chat together I is indeed
vith some deference that I suggest I can be of help, You wll hordy be sting in
‘his ear doing the jb 12m aow doing, but I, 0 ee ocr hand, am 10 yes
colder, so perhaps you can accep the idea that I may be able to give you the
enc of my longer experience”
Bake sw Renal fen slighty ins char as hemade tipo Comequentdy,
headed in explanation, "You and I have attended enough company couric (0
remember shove repeted requests by the personnel manages to tell people how
they ae geting on a offen athe convenient moment aise and ot jus he
utomacc ‘once 3 yea? when, by rpulation, sa repors have ro be discus,”
Rennals nodded his grecment, and Baker went on. “I shall always remember
the ls jb performance dscusin I had with my previous bos back in Germany.
He used what he elled the ‘plus and minus technique Mis firm bei was tae
when a senior, by discussion, seks eo improve che work performance of his af,
his prime objective should be to make sure chat te later lates the interview
encouraged and inspired o improve Any ct ms, therefore be conseucive
‘and helpful He sid thar one very good way to encourage a peion—end I fll
2p with him—is ell him about his good poins—ehe ps fos a8 wel a
his weak onesche minus fictor I thought, Mat, it would be 2 good Kea to
run our dscsion along thes ines.” Rennalls fered no comment, so Baker continued, “Let me sy therefore,
‘igh away, that 25 fr as your ova work performance is concerned, the pls fat
‘oumeighs the minus. Ihave been mot imprest, for instance, with the way
you have adaped your considerile theoreti knowlege to mane the paced
‘cchniqus of your job—thatingeniout method you ued to get ait down eo the
Fifth hfe evel isa sfiiene cate in pinta ax deparcental mecings have
{nvarably found your comments wellaken and helpful. Infact you wll be
imerested o now thar only at weck I reported co Me Hutchins chat, fom the
techni poin of view he eould not wish fr a more able man to cco tothe
Postion of che engineer”
“Tha very good indeed of you, John.”
"My only wory now is how to lve upto sucha high ccommendaion,
OF thac Lam quite sure" turned Baker, “specially Ifyou an overcome the
‘minus fctor which I would like now co discus with you. Ie sone that Ihave
talked abou before, 50 TU come sesight wo the point I have noticed hat you ae
‘more fiend and get on bee with your fellow Batrcanians thn you do with
Europeans. In point of fit, had «complaint only yesenday from Me. Jackon,
who id you had been rade ro him—and not forthe fis ime either.
“There i, Ma, 1am sur, no eed forme ttl you ow neces twill be
fr you to get on well with expres, beauie until the company ha tained
suliciene people of your calibre, Europeans ae bound to eceupy senior postions
Fer in Baracana. Al this is vial to your Future interes, 50 can I help you in
say way”
‘While Baker was speaking on this theme, Renal sensed in his haiesand
‘wat some seconds before he cele, “It quite extraordinary, ia how one
«2 convey an impression ro others so at variance with what one intends? ean
‘only assure you once agin that my diaper with ackson—and you may remember
alto, Gedon—have had noching ata © do with the color oftheir skins.
promise you tha if a Barracanian had behaved in an equally peremptory manner
‘woul have reacted in pecily che ame way. And again, i may sy i within
these four wall, Lam sure Tam not the only one who has found Jackson and
Godton dificult. I could mention the names of evel expatriates wh have fle
the same, Howers am ely sory to have created his impression of nor being
she to ge along with Europeans —it isan ently filze one—and I quite teie
‘that | must do all I can eo coat ita quickly as posible. On your lt poin
repuding Europeans holding senior positions inthe company for some time 10
come, I quite acepe the situation, I know chat Caribbean Bauxite—as thas
been doing for many yeaes now—will promote Bartacanians a soon at thee
experince waren ie Aad, Sally L would Uke to assure you, John-—and my
father thinks the same too—tha Lam very happy in my work ete and hope to
stay with the company for many years to come
Renmalls had spoken earenty, Although not convinced by what he heard,
Baker dd nothin he could pursue the mace Frter exept co sa, ‘All ight,
‘Mart, ny impreton maybe wrong, but I would ike to rind you about the
‘rath ofthe old saying, "Wha i important is aor wha i trve bur what ie
Talis Lee i eta ha”
But suddenly Baker knew he dideit want to “let it rest 2¢ dha” He was
Alssppoined once agin at not being able ro breakthrough to Rennlls and
having ye again co Tisten to hit blind denial chat dere was any rail pjudice
in his makeup. Bake, who had intended to end the interview a this pot,
decided to try another ei
“To een fora moment to the ‘plas and minus echnigue Iwas tlig you
bout jas aom, cher is another pl fcr I forgot wo mention. 1 would ike
ongralte you nor only onthe calibre of your work bur also on the abiliy you
have shown in overcoming a challenge which 1, «European, have never had o
anest. Continental Ore iy at you know, a plea commercial exterprie—
‘amid a big one—which isa product of the economic and social environment
‘ofthe United Sates and Western Europe, My ancestors have all ben brought up
in this environment For the past 200 oF 300 years, and Ihave, therefore, bees
abl to live in a world in which commerce (as we know ic oday has ben pat
‘nd parcel of my being It snot been someting revelutonry and new tha hae
suddenly entered my hie” Baker wen on, "In your ene, the seution is ire,
because you and your forebears have had only some 50 or 60 yats i this
‘commercial environment. You have had face the callenge of brideing he ap
‘between 50 and 200 or 300 yeas. Again, Mat, let me congratulate youd people ike you-once again on having 29 suceflly overcome thi particule
hud. leis for this very reason tha chink the oulok for Batecanis—and
purely Caibbean Bauiee—is 0 brig”
‘There war 2 pate, and for + moment, Baker though hopeilly that he was
shout to achieve his longawaited breakthrough, but Rennalls merely smiled
buck The bare remained unbriched, Tete remained some 5 inte of chef
convertion abou the coctat between the Caribbean and Canadian climate
and whether the Wet Indies had any hope of beating England in the ith Tet
before Baker drew the inerviw toa cle. Although he was at fa eve fom
knowing the eal Renal, he nevertheless was glad thatthe inveviw had ran
along inthis friendly manner and, particulary, chat i had ended on such 2
cheerfl ne
‘This fling, however, lasted only uni the fllowing moun Baker had
some feel to ake 20 be arived atthe office considers ater than sa
He had no sooner down a his desta his secretary walked into the room
‘with a wortid frown on her fice. Her words came ft, “When Lasved this
morning, [found Me. Rennall aleady wating ae my door. He seemed ery
ange and cold nein quite» pesemptory manne tht be had a vital eter eo
crate that must be ene of without anyday. He was so worked up them he
‘couldn keep sill and kept pacing about the room, whichis most unlike him.
He wouldnt even wait co ead what he had dictate Just sgne the page where
the thought the Iter would end. I has been dirbuted, and your copy isin
your ea”
Puzaled and fesing vaguely uneasy. Baker opened the conidenial envelope
and read the following leer
Frome Aniaant Engineer
To: Chit Engineer,
Caribbean Bait Limited
M August
Assessment af Incrview berween Baker and Renal
Teas abe be ey pacsice fo rept the advice gen me by tendo, 00
afer our nevi, I decided to give crf ehoughe once gun to ies main pints
and so make sure tha I had understood all that ad been id. As promis you
ac the time, [had every intention of ping you advice wo the bes fet.
Ie war nos, therefore, until [had sae down guiedy in my home yesterday
‘tenng to consider che ineviw objectively that is main purport became cle
(Only then did the fall enormity of what you sid dawn on me. The mote I
‘thought abou ity che more convinced Twas that I ha hie upon the eal rah —
and che more futious I Became. With afc in che English language which I
' poor Buricanan,cannor hope t© match, you had the audacity to insule me
(and hough me very Baracanian worth hi sl) by himing dat or knowledge
‘of modem living sols plery 30 year ld whereas yours goes back 200 or 300
ys, Asif our materia commercial environment could possibly be compared
with the spiral values of our eure. I'l hve you koow tha if much of what
1 sain London ie representative of your most boasted cular, I hope fervently
thac ic will ever come to Baracania. By what ight do you have the effonery ©
‘ondescend eo us At heat all you Europeans think us barbarians as you ay
amongst youre, we ae "jst down from the tes”
Far ino the night [issued sie mar with ny father, and hes disgusted
281 He agrees with me tht any company whos senior a chinks you d is no
lice for any Baracanian pro of his culture and race—so much for all she
company “clap-tap” and specious propaganda sbout regionalization and
Baraca forthe Baracanians
| el ashamed and betrayed Please accep hit eer a my resignation, which
1 with uo come efetve immedi.
‘= Production Manager
Managing Ditecor
1. What mistake did John Baker me? Why did be not rez his isa
when ic occurred?
2, What would you recommend tha Baker do now? Espn
3. What doe shi ae ilsteate about human resource management inthe
incemational environment? Be complete in your answes 1d
High Technology, Incorporated:
The International Benefits Problem
ae Andre
‘This ease study temps to provide the recommendations tthe
‘benefits policy for emplyees on international asignents by
demonsirating some of the salary dilemmas faced by personnel
‘administrator global ompanes. It deals with the ses such
‘providing employee with home country benefits under the life
insurance, sabi pension and socal security plans daring
‘emparary eration assignments. Ic highlght he difcuies
Jaced by employees working abroad with respect to fair
‘compensation and emphasizes the need for fori poly towards
employee compensation.
Part A
‘Ac High Technology Incorporated (HT, che benefits policy for imenatonal
‘ssigament eater thar
Wherever legally pouible, HTL wll ape ro provide dhe employee with
Home Councry benefits under the Life Insurance, Disbily Pension and Soi
Secury Plans duving temporary international assignments
HIT employes pialy spend one cote, and sometimes along as fur
yeas overseas, Mistrial, during tht cime, many employees have received
benefis equaling or surpassing shoe of the home country. Recemly, company.
policy has shifted toward equalising benefits across counties. The sytem has
licen lest han perfec however, with some employee finding that thir say
overseas has reduced thelr benefits. At = 1984 conference for the corporate
pesionnel managers of local companies, Jack Cooke, HT Corporate Intemational
Benefits Manager, commented on HTT diffs in fiely compensating is
US employees abroud. During hit ditcustion, he made the following pots
Home Country Coverage
In 1984 FTI cari out an adic of employees and inventoried people forthe
purposes of determining ofthe benefits given to overseas employes offet
lou of home county coverages for pensions, insurance, and similar benef, The
ine was to examine ofletng benefit determine (1) if chere was enough
funding and (2) ifthe funding war allocated tothe appropriate aes
HIT gathered pension and benefice data for cach employee on overseas
sisignment. A benefits book was published for each individual. The ai
‘evel that there was 2 considerable smoune of overfunding (in the plans of
foue courier) and some underfunding-people with no plans a ll. Cooke
lelived chat HTT as not fling its promise to provide equitable contacts
‘0 employes sent overseas. The audit pointed up the fac that wheres HTH
‘was providing adequate Funding, che money wat being put in the wrong,
buckesic wat not beng wel distributed among the counties and individuals
who needed it
Cooke noted thatthe employee? min fet concerns the secuiy of their
coverage, He vividly rclle the old saying “Don't worry. but dot die or gst
sick on asigament” and how i applied to « Canadian employee in Sedan.
‘The employee died on the le night of his assignment. When his wife was
‘questioned by Seowish authorities shorly afer the death, i was discovered
thatthe man had been covered by Canadian Social Insurance (deral social
security), and 20 was ineligible fr death bene in Scotland. The Seoaish social security agency refuted to pay 2 death benefic and eeurned all TI
contributions tothe wif, saying he employee should not have ben coveted ia
the firs place
The Scott cae highlights the nesd 9 review the current loal policy to
»
16
ABB: Truly Global
Senthil Ganecan
‘Mos global companies started as domestic companies and
expanded globally. ABB stated as a global company and
‘modified its organizational sructure bated on emerging
‘pportanities and continuously consolidated the Business
areas. This isan organization that fowters sharing and
collaboration between its operations globally and links
closely with elem, suppliers and the countries where is
resent, ts combination of mult-domestc local presence
‘and coordination by means of a lobal matrix organization
is @ unique response 10 the think-global, act loc
Imperative.
We area prime example of what a slobal company i about, Mot global
companies ward as dome companies and expanded gall Wertared es
bal company
~ Perey Barnvik, former Charman and CEO, ABB
Sie GC oma Ea Ps Ag a their book, ABB-The Dancing Giant: Ciatng the Globally Connecad
‘Corporation, authors Kevin Barkim and Claudia Heimer wie
“This iam ongenzation tht foes sharing and collaboration beween is
prin in difrens pars ofthe ward and line clay wth lens mpplion
fd te countries where it pret et combinton of maicdamete cal
proeee and coordination by meas of global mati renization is unique
repo the think glbal, ct sl imperative"
‘The phrase “multi-domestc local presence” aptly explains she business
‘methodology at ABB. While most companies believed that globalization would
‘exase national dif
ies and homogenize customer tates, ABB sought to
iferensate is by “acting loa in lle markets The company’s objective
ast be a “conglomerate diverse enough to respond to loa culture and tates
bur united enough eo amoune ro more than the sum ofits pat”
‘The success of ABB asa global company wat largely cei to the efor of|
its former chairman and CEO, Percy Barnevk To champion loaliation,Barnevik
inodued the concept of male-domesticiy thnk globally, act lea") and
‘repeatedly communicated eo his group companies that they were to fanetion at
local company with greater commitment tothe individual counties and ota +
‘ransnaionl company fom Switzerland. Under his lederhip, ABB succesally
cotcheraed more than 100 acquisitions and join ventures and expanded into
several emerging masks in Asia and Cental & Eastern Europe
Based in Swiczertnd, ABB operated mote than 800 subidiniespreadacoss
five continents and employed coc 148,000 people. Although the company
‘vas headquartered in Zvich held the epson of ing a "sates? compen,
ith is executive management decentralized throughout the worldwide operation
De toi “satel” status, the company had been succes in entering newer
makes much quicker than its competitors
Birth of ABB
[ABB was born in 1987 trough the merger of Sweden's Asca(ounded in 1883)
and Swicacland’s Brown, Boveri & Cie (founded in 1891), leading clecteal
cquipment makers and competiors ofthat time. ery Barevik, the CEO of
‘Aca was naried the CEO of the combined en.
Acca
In 1883, Ludwig Fredholm founded the Elekriska Akcbolagee company in
Stockholm forthe manuficre of det lghing and generators Seven yeas
Excerpts rom the lnerviews with Petey Barnevik
er area in ay ies aren aed abou eso bation, hla
‘atemi igen aseningelret ane omogent) cep Ron
‘One clenge ofa aba campany- To many epi tink oxen saceditbe
‘engralstyeorng ton Aner oaupe bones exahahyoane ated
ome reap sie ndresan rnin ie oo oot edo oN eg
Denybutyounestonareny became Hae sg ete Tye Coben
“imgtag compete sage er ioe ti, WS Moss COMPU
Sohne one Oaing abl compen ea eo oP
nthe ned tl ney Gal mangers a de, 4h Thi
es ee my ig you Osyth wa.
‘hereon be rte expeteceln ett testo ees dP.
‘Woo ence people wok sed aly ns oaoethem eae poNa
Ions acs be whi nes tote tern nin 9
tine oxctnovlte car tence who boing panied fem or eam
Seed ma bik visit on Faktori act ee
‘San at scan pnoenen Strate Sus denprene ASw ets
‘Store ie rec iw dow nda aces ing nao ESO
nthe edt consol compen sgn Mae nd recone at
sce he ae o develop tis tases anttin f gobaeudaa.The Wt
‘neran campus eo haves donee ao aera ion, cote ot
‘muon yong. or drs rouse oe
freee Te wake neming fbonEconenicr regs timmy Wek
Tomatnghr nds, tom ot ata ise a reer an an compa ae
‘reset Spmsth conga woe an np pick ey peretong ha eh
"ort heck Pine Mth ber ye ing hi at we wer ech,
tego, eon toe ea nb
‘ro won a ene corte.
1A es Reh of ey ari ni ol a Inter he merged with Wenstroms & Grantroms Elektika to frm Allmanna
Stenska Eletrisha Akibolaget, later abbrevated as Asx, Ase’ business was
broadly defined ar “he generation and aplication of elecie power” Over the
ears, manuficutd divere product like powerful seam turbines for power
Plant and highspeal ccrc locomotives for pasengsr roads. By the 1930,
‘Asa was producing elec locomotives and rl equipment for Sweden's atonal
railway yem and had eablihed subsidiaries in mor Buropean counts. By
the mid 1960s, Asca presence was extended 2 the US, when i won sgnifiant
‘o1des to supply equipment fo he owe plants onthe US west coast. Fom the
1970s, Ase experienced stegnane gronth but fling prof. Though the compsny
wa technologically dominant, ic was seen a iesponsive ro es markets, offen
seling 2 los and having to suppor = huge bureaucracy atthe headquarters
Mired with such problems, the company management, in 1980, hired Prey
Barneik as the CEO (See box), Shorty therefe,Barnevikinstuted a major
‘vey retvcrsing pln
1+ Reduce loses by divesting
+ Growth by sequin and expres
+ Sic financial goss and conls
+ Dsesaistion of operations,
Under the ew pla, che head office bureaucracy was cut back and wat
made just a holding company. Operational esponsibiliry was delegated ro over
30 divisions, which in euen, war broken into independent profi centers
Barnevi aio cut down the numberof staf a the corporate headquarter from
2500 to 100 in less than ewo yore The eeu ofthis restructuring effort wa
phenomenal and by 1985, sls incresed fourfld and profs eafld. During
‘his period, « numberof small and large aequisiions accelerated Ass growth
sd in 1986 the company decided to expand ies engncering and manufacrring
operations beyond Sweden,
‘Brown, Boveri & Cie (BBC)
Founded in 1890 in Switesland by Charles Brown and Waker Bove, BBC was
‘he thin arget company in che country air Nerle and Ciba-Geigy. Over the
years, BBC enjoyed tremendous sic and quickly esblsed leading maker
presence in power generation and distribution, electrical equipments for
locomotives, electrial and contol equipment fr broad range of induce,
lecronics Like Ase, BBC grew gui by eabishing subsidiaries in many
European countie. BBC was charactetiod by unique organizational sructure—
the parent company operation wat ele small in compariton tite freign
country operations,
By 1970, BBC had a worldwide presence and wat divided into five
geographical operating groups with each group having five product divisions
During the late 19705, BBC experienced Aatenng sles with profi growth,
Its engineers were accustomed (0 designing innovative engineering solutions
bur by using ineficiene proeses. Thi resulted in constan turnover of designs,
lack of shared components across products, poor reliability and high cout,
“Most of es manuficrarng operstions wee located in Switeland and Germany,
to counties with some ofthe world highent wages and strongest curencie.
“The company alo lacked a market orientation, BBC wat characterized by 2
trong local autonomy inl its subsidiaries andi encouraged the local manages
to pursue loeal contract and develop relationships withthe local governments,
supplies and customers. Ti ed eo proliferation of product vtietiereach
local uni nor only manufactured s broad line of produc, but alo developed
different solutions for the same customers need. Dr. Fritz Leutweler, the
‘hitman ofthe company, ied to improve profe margins by revamping the
organizational rate, phasing out unproductive product lines and reducing
the dependence on cers core business segments. BBC alo looked for growth
‘opportunities through parnerthips or acquisitions,
‘The Merger
1 1987, Asa and BBC were identi in several apects—equa in ze in ee
of annual sls, act worth, umber of employees and global reach. Berween
themelves, the evo companies operated 850 subsidiary companies in 140
countries, employing 180,000 people, In spite of the huge organizational
structure. Barnevik and Dr Leutweerarongly belived tha dere were several
‘specs of synergy beeen there companies hat could make i bigger payer
to compete more efetvely wih the then indus leaders like General Elec, Westinghouse, Mitsubishi, ec In dhe etimte, the combined company could
‘contol as mucha thd of Europe’ busines and more chan 20% of he wld
market. Many believed thatthe merger would combine Aves management
stvength and BBC’ techni and enginering experi. The new company, called
[ABB (Aes Brown Boveri Led) etablted ie headquarters in Switzerland with
‘equal ownership by che rwo merging companies. The parent companies seo
Imaincaned their individual stack lings on thei espcive national markets
snd acted 2 holding compan for ABB. Thit 64.9 bn merger erated Europe's
larges ew cecil indus company and war regarded atone ofthe angst
seznmatonal merges of Europe
Before the merger, BBC headquarters had 4000 people in Switeland and
‘Ass had about 2000 in Sweden, Barnevik strongly fel dhe need fora decentralized
management sje and immediatly announced to reduce the workforce atthe
headquaeers—30%6 were ied, 30% were ceased to subsidiaries, 3096 were
‘employed by new busines units and 10% remained atthe eadguarers, ABB
rapidly began to expand its global each by acquiing 55 companies worldwide
in 1988-89. The prominent companies ncaded Fike AB of Sweden, Side!
Cogepi of ley Scandie-Randets of Denmask, ete Inthe same period, it
cablshed 2 sgiieane presence in the US markt by acquiring Combustion
Engineting Group. 1 alo acquire Wetinghouss woldwide power tamsion|
nd dssibuion operations vo become a formidable iva to GE in the US.
In the ely 1990, ABB looked to comida ts operations and ciminaed
‘housands of bs and divested non-pofc business, Simultaneous, che company
‘ented new sea of busines and expanded fist outside Westen Europe
(Over 30,000 new jobs were cued in Cental pd Eastern Europe and over 20
smanulicering and service companies were created in Ait. BY 1993, ABB's
‘employe suength in Asia was more than 30,000, spread serous more than 100
rmanuficaring operations and service, matketing and engineering centers. By
the mid-19905, the company had grow large enough ro necesate separate
divisions to look afer the tice geographic regions—Asia the Ametias and
Europe. By 1996, ABB revenues reached $36 bn ($18 bn in 1987) through
‘more than 160 acqisions worldwide and implemented matrix rgaization
ith 4 global business segments and over $000 profi enters in 140 counties,
11997, ABB compleed the merge of is board members by integrating ics
parents company bourds int che ABB group bord. Goran Lindahl was named
President and CEO, succeeding Perey Barnevik, who became non-executive
‘hitman ofthe ABB Bourd of Directors, This management changs, howeve did
not change che companys sim zo atin global statu. During this poids the
‘company fced increased competion and slowing indutal demand and hence
[ABB went through 2 cost cutting spee, sing down under-performing ass
‘nd fring 13000 employes, In an efor to increase revenves, Linda expanded
the business porlio of che company by cquitng interests in ol, gas and
petrochemicals, automation and servicerlated actives, He aleo restuctured
the company by realigning the busines segments into four industrial divisions
snd lminaing the regional organizacons for Europe, Americ and Ai. Lindahl
set revere gol of $50 ba by 2001, ageing emerging mathe suchas Sothese
‘Asin, where ABB had wanseed blk of manufirring capaci frm Western
Europe and US (early 1998 Lindahl admined that ABB was unlkly to meet
its 2001 revenue target) Ar ars ofthe rexrctuing efor, neatly 2000,
ABB reported 22496 incrase in at income to $1.6 bn, and 24% increase in
revenues to $247 bm in 1999 (however fr ery Fom the 1996 lee)
In 2001, Jorgen Centerman replaced Lindab at the CEO and quickly
‘organized ABB into ewo product sepments and four customer segments—
‘Automation, Power Technology Usliss, Process Indies, Manufciring 8
‘Consumer Industries and Oil, Gas & Pevochemieal. This serie wat Further
organized inc its utten form-—Power Technologie, Automation Tecnologie,
Oil, Gas & Petrochemicals and Financial Services Each of thee segments had
several business ates within it In September 2002, Jrgen Centra resigned
afer losing the boar’ suppors and Juergen Dorman took over,
‘The Mule: Domestic Company
Since taking contol ofthe combined company, Percy Baravik had insu
significant changes to esablsh ABB as 2 eral global company: He moved the
headquarters vo Zvich 1 chat the merger di not lok ik a Swedish akeover.
He kept the headquarters tf smal (afew hundred people fom at many a 19,
