Title of Scheme: HFU-MSc
Title of Module: MSc02 - Interculture Management
Kind of Assessment: Essay
Instructions to Candidates:
Please prepare a written essay (2.500 - 4.000 words +/-10%) on the following topic:
Base of the essay is the case study of Waldrich Coburg / Beeing No. 1. Please answer the given six questions about the case study.
In your essay, please concentrate on the following question:
Analyse the key drivers and specify main problem areas. Which precise measures for improvement or further development do you recommend? Please justify your suggestions and critically evaluate them with a link back to theory !
You may choose the focus of your essay about the questions at the end of the case study. In any case, please do consider all three steps:
description, analysis, improvement options and recommendation.
Abbildung in dieser Leseprobe nicht enthalten
Waldrich Coburg and Bejing No. 1 Machine Tool Plant. Change and Perseverance
Waldrich Coburg and Bejing No. 1 Machine Tool Plant.
The machine tools company Adolf Waldrich Coburg GmbH & Co. KG was founded in Coburg in 1920. It initially devoted itself to tools used in the treatment of glass and stone, and later to long planning machines used in metalworking. Since the 1960s the company has been producing large high-precision machine tools. Until 1986 the company was a typically Franconian medium-sized family-owned business, and had the corporate culture one might have expected. In 2005, the company was sold to the new Chinese owner, Beijing No. 1 Machine Tool Plant. This acquisition proved to be beneficial for both sides.
The objectives of this case are: (1) to give students an example of a successful international cooperation between companies of different cultural background, (2) to analyse a strategic approach on how to reconcile diverse corporate cultures; (4) to learn different approaches to human resource management in such a kind of cooperation, and (3) to analyse and identify ways and means of creating a common corporate culture.
History of a Franconian Company
The machine tools company Adolf Waldrich Coburg GmbH & Co. KG was founded by Adolf Waldrich in Coburg in 1920, when it was called Globuswerke. As time went on the company expanded its range of products and in this way adapted to the changing conditions, even during the difficult years of the Great Depression and the Second World War. It initially devoted itself to tools used in the treatment of glass and stone, and later to long planning machines used in metalworking.
Since the 1960s the company has been producing large high-precision machine tools. Shortly before the millennium Waldrich Coburg once again adjusted its range of products. It tried to meet changing customer demands in the machine tools industry by switching to multipurpose machines, modular construction, and customer-specific configurations and units with special features. The company advanced to become the technological market leader and restricted itself to the high-price segment.
The manufacturing systems were often adapted to cope with new challenges. The structure and the culture also changed. Until 1986 the company was a typically Franconian medium-sized family-owned business, and had the corporate culture one might have expected. This changed when it was taken over by Ingersoll International, the American large cutter manufacturer from Rockford, IL. The new parent corporation, which had a similar range of products, gave Waldrich Coburg little room for manoeuvre in adapting the business to the peculiarities of the regional markets and placed strict limits on the evolution of the company. In 2003, when Ingersoll International was forced to file for bankruptcy, this system collapsed completely. Through no fault of its own Waldrich Coburg found itself in a parlous situation. After a year in the possession of Herkules, a machine tools factory in Siegen, the company was sold to the new Chinese owner, Beijing No. 1 Machine Tool Plant.
History of a Chinese Enterprise
Beijing No. 1 Machine Tool Plant was founded in 1949 and is currently owned by Beijing Jingcheng Mechanical & Electrical Holding Co., Ltd., which in turn is owned by the Beijing city government. Beijing No. 1, which had an annual turnover of 100 million euros in 2007, may be a relatively small enterprise, but among Chinese manufactures of machine tools it takes pride of place with regard to profits and comes in third with regard to turnover. Its origins as a typically state-owned enterprise should not deceive us. Whereas it is true that it has burdens from the past, the Chinese management has been trying for some time to make it capable of facing up to free competition. In this area it has made use of its special political connections in order to obtain favourable financing. These modernization efforts were marked by partnerships with foreign manufacturers and the foundation of international joint ventures in China. Within the framework of such cooperation agreements there was an increasingly close relationship with Waldrich Coburg after 1984.
Moving Closer Together Step by Step
Contacts between Beijing No. 1 and Waldrich Coburg were initially restricted to fairly loose cooperation. In fact the Chinese company started out by being a customer. As a result the two companies became acquainted and learned to appreciate each other’s reliability. For a long time the Chinese were primarily interested in technology transfer, and later in cooperation in the area of employee training and exchange of experiences in international management. Behind all this was the strategy of moving ahead with increasingly high-value products, at first on the Chinese and then on the international market.
For their part the Franconians did not see this partnership only as part of their normal business. They seized the opportunity to make some (successful and profitable) headway on the Chinese market, and at the same to acquire intercultural experience in working together with Chinese entrepreneurs. Subsequently this would turn out to be of inestimable value.
The strategies of the two companies gradually began to converge on account of their positive experiences and the external circumstances, especially globalization and the economic rise of China. At this time Beijing No. 1 decided that it would try to achieve technological leadership and access to the global market with the help of a decisive step such as the acquisition of a subsidiary. As early as 2002 the imminent bankruptcy of Ingersoll prompted the management of Beijing No. 1 to toy with the idea of acquisition. A year later it submitted an offer. However, because no one believed that the Chinese could pull off a deal of this magnitude, they were at first rebuffed. The situation changed suddenly when the new owners, the machine manufacturing company Herkules in Siegen, decided that it was no longer interested in Waldrich Coburg. The sale to Beijing No. 1 was concluded on 24 October 2005.
The acquisition of a company by a foreign corporation will always be a dramatic moment in the corporate culture. In this case it was compounded by the fact that a medium-sized Franconian company was joining a Chinese state enterprise. Yet Waldrich Coburg had gone though a “vale of tears” and had not been “pampered” by the developments in the recent past, as Norbert Kastner, the mayor of Coburg put it. On account of the negative experiences of the workforce with the former parent company Herkules, which had wanted to introduce less favourable working conditions after acquiring Waldrich Coburg, the expectations of the workforce were very low indeed. This provided an opportunity to change the mood among the employees by introducing a number of sensible measures.
A step in the right direction, which proved to be a decisive one, was taken by Zhicheng Cui, the managing director of Beijing No. 1. In a speech to the workforce he explained the strategy of his company and guaranteed the continued existence of the Coburg plant with the words “ You cannot transplant a German oak”.
The employees responded in a positive way to the transparent explanation of the reasons for the acquisition and the clear description of what was going to happen in the future. However, promises only begin to sound credible if they are followed up by deeds. A first sign of this was that the new Chinese parent company decided to finance the acquisition using its own financial resources and to plough the profits generated by Waldrich Coburg back into the company in order to increase the equity capital. The new business and budget plans also proved convincing to the banks, which thereupon offered the company very favourable terms for the facilitation of its customer transactions. The decisive factor was the profitability of the factory in Franconia. The banks were unable to assess the real creditworthiness of the Chinese parent company, buy Zhicheng Cui’s candour in the negotiations and the ongoing transparency of the financial model created the trust that was necessary for sustainable financing.
Another important aspect at the time of the takeover was the trust the employees placed in their own abilities. They knew that the difficulties their company had encountered were not home-made, but the result of mismanagement on the part of the previous owners. Furthermore, it was obvious that the real value of the company was not the sum of the equipment and the patents, but the excellent technical and organizational skills of its highly qualified employees.
Any interference by a new owner would destroy the company’s real capital, that is, customers who trusted an “industry brand name” and long-term business relationships, which in this segment had been in existence for decades.
Customers clearly buy with a long-term perspective in mind. They expect comprehensive and speedy service, staff training, long-term quality assurance, and state-of-the-art technological progress in subsequent purchases. An investor who thought he could play down the importance of these fundamentals would simply be doing himself a great disservice. Within a short space of time the German employees began to display a willingness to give the new owner the benefit of the doubt on the basis of the promises he had made and to fulfil his high expectations of them.
Integration and Repositioning of the Company
The management of the Chinese parent company was fully aware of the risks involved when it took over Waldrich Coburg. It had little international experience, and this was compounded by the fact that it had never before mastered such a challenge and possessed neither the organizational structure nor the appropriate human resources for a task of this magnitude. For this reason it commissioned an international management consultancy to accompany the post-merger process. Another important and successful factor was the creation of a new executive structure.
With the selection of three managing directors, Hubert Becker (chairman), Horst Rothhaupt (marketing), and Uwe Herold (financials), Beijing No. 1 placed its bets on “home-grown” Waldrich Coburg executives who enjoyed the complete confidence of the employees (Hubert Becker had started his career as an apprentice in the company), and at the same time had for many years cultivated an excellent relationship with the top Chinese executives. There were no redundancies, and later on the workforce actually once again increased in size. As a result of this the company has witnessed an extremely low fluctuation rate. It guarantees very high quality standards among the employees, and at the same time prevents skills from drifting off elsewhere.
Another important aspect comprises the intentions of the Chinese management. Whereas Waldrich Coburg did not have a say in the actual takeover, the management of the company was co-opted by the new owners to participate in the development of a common strategy. The company continued to apply itself to the international markets, and also increasingly to the Chinese market, where Waldrich regained some freedom on the operational side of the business, the Franconians were subsequently able to concentrate on two crucial points, the market situation and technology.
The product strategies of the companies complemented each other. Waldrich Coburg, a premium manufacturer, and Beijing No. 1, a manufacturer on the lower cost level, now serve the market in two price segments. In Beijing No. 1’s marketing strategy on the Chinese market, the Franconian company now contributes its reputation as a quality manufacturer, so that advertisements can henceforth point to the existence of high technological standards in both price segments. The parent company in Beijing has won the respect of Chinese competitors and customers on account of its successful acquisition in Germany. It first strengthened its strategic position on the domestic market, and subsequently in international terms. The various interests have now been combined, and if one part were to weaken, it would also affect the other parts.
Creation of a Common Corporate Culture
The development of a common corporate culture is always a long-term process, and in this respect Waldrich Coburg was no exception. After the takeover by Beijing No. 1 had been explained to the workforce in positive terms, there was lengthier period during which a greater degree of trust emerged. Visible signs of confidence-building measures were things such as the modernization and enlargement of the company’s buildings. One milestone was the construction of an assembly-line hall in May 2008, which cost 1.75 million euros. Furthermore, Waldrich Coburg kept adding to its workforce, and employees noticed on a daily basis when they came to work the full use of the manufacturing facilities and the burgeoning order book. There was also a positive response among the employees to the fact that their traditional conditions of work such as compensation structure, working hours, further education possibilities, career opportunities, etc. were left largely unchanged. They did not feel that the Chinese were putting pressure on them, and certainly not that they were being dominated and pushed around. As a result of Chinese reticence with regard to operational and strategic management, which was welcomed, especially by the German executives, only a very small number of Chinese employees at the Coburg plant hinted at the new state of affairs. As one of the managing directors of Waldrich Coburg, Xiangjun Qu is on the ground for company coordination purposes and in order to exchange information with corporate headquarters in China. He manages to demonstrate rather credibly that he does not one-sidedly represent Chinese interests, preferring to see himself as a reporter who transmits concerns, problems and facts directly from Coburg to the parent company in Beijing and vice versa. This ongoing transparency forms an important basis for the joint meetings of executives from Coburg and Beijing, which take place on a regular basis in order to evaluate business successes and to define the goals of the company.
There is also a great deal of coming and going in the field of technology. German technicians fly to China on a regular basis in order to up machines, to do routine maintenance, and to train their Chinese colleagues to deal with the service side of the business. Conversely, small groups consisting mainly of young Chinese technicians and managers are sent to Coburg for training. It also gives them an opportunity to experience at first and the highly sophisticated manufacturing organization and to acquire a feeling for the goals the parent company in Beijing is hoping to attain. In the context of this partnership they also become acquainted with German and Chinese employees, which may well turn out to be a valuable experience with implications for the future. At any rate, it constitutes a significant step towards the emergence of a corporate culture. Such measures are backed up by leisure activities for German and Chinese employees, which are designed to promote intercultural progress and mutual understanding.
The management in Coburg also communicate the development of the new corporate culture in a company newspaper, which is published in German and in English. In addition to reports about technological innovation and successful business deals it also communicates the progress in the area of integration and Sino-German cooperation. Thus Hubert Becker is not only able to tell his employees that “we are investing in our plant as never before in the history of the company.” He can also tell them why this is happening. “In Asia, Beijing No. 1 and Waldrich Coburg can secure orders by working together which would not have been possible without joint efforts.”
External Communication and Cooperation
The company newspaper, initially introduced in order to facilitate internal communication at the Coburg plant, and between the subsidiary and the new headquarters, turned out to be of use for Waldrich Coburg in an area that is frequently underestimated, that is, external corporate communication with stakeholders and the social and political environment. The company newspaper is widely influential, especially since the company employees in a medium-sized town such as Coburg are important multipliers. Their personal statements to family members, friends and acquaintances “create the right atmosphere”. On top of this there have been articles in the local papers, and the special nature of Sino-German cooperation has also been the subject of national reports on television. The openness of the management’s communication policy and the positive comments of the employees led to a very favourable media response to the acquisition by Beijing No. 1. This does not happen very often in this context, even though it is so important for the development of a partnership that is equipped for the future. The political environment also contributed to the success of the merger of the two companies. The Coburg town council has welcomed the acquisition and has provided support in the shape of municipal subsidies. It has also displayed an interest in more investment form China. It was this attitude, which encouraged the Chinese to embark on the risk of acquiring Waldrich Coburg, and it led to a positive response in the Chinese media, which depicted Germany as a suitable place for business. Norbert Kastner’s visit to Beijing No. 1 during his trip to China was also commented upon favourably by Chinese politicians.
This was emphasized in his meeting with a deputy minister and the visit by Wanjin Zhu, the head of the Economic Affairs department of the Chinese Embassy in Berlin, to the town hall in Coburg. Other prominent guests followed. And Chinese students have also been greeted receptions give at the town hall. The success of the venture was demonstrated by Sino-German Business Day in Coburg, which elicited a very positive response. Policymakers are not doubt guided by rational considerations and have in mind such things as higher local business tax revenues, secure jobs and votes at the next elections, yet a remark by Huber Becker aptly sums up the basic mood.
“The Franconian and Chinese mentalities go together well.” Both sides are interested in long-term success and not in short-term economic results dictated by the rhythm of quarterly reports.
Technology companies such as Waldrich Coburg need to maintain close contacts with research and educational institutions. For this reason cooperation with Coburg University of Applied Sciences is an integral part of the human resources and forwardlooking economic strategy which will make it possible to recruit highly qualified graduates and to keep generating one success after another. The opportunities inherent in the unique situation have led to academic cooperation between Coburg University of Applied Sciences and the University of Shanghai for Science and Technology, which has developed a special Sino-German course.
The fact that the companies are pursuing a joint educational policy in addition to integration cannot be valued too highly in the framework of the kind of globalization that is being structured in a meaningful way. Thus they are creating both high-value jobs and qualified, motivated and intercultural trained employees.
The Chinese-Franconian Success Story
Since the takeover in 2005 Waldrich Coburg has developed in a very positive manner. As early as 2006 turnover increased from 63 million euros in the preceding year to 75 million euros, and in 2007 to 85 million euros. Furthermore, there are orders on the books amounting to 400 million euros, and the biggest headache of management is how to reduce the long delivery times. This of course has had an effect on the employment situation. Whereas in 2005 there were about 500 employees, the number had risen to 700 in 2007. The acquisition by Beijing No. 1 can be construed not only as a success for the company itself, but for the whole of the Coburg region.
Thus it is hardly surprising that the executive leadership of Beijing No. 1 is very happy about this acquisition. The managing director of the company, Zhicheng Cui, emphasized that he was particularly proud of the fact that Waldrich Coburg had been made profitable and that new jobs had been created. The risk of purchasing a valuable German company as a strategic investment at a high price had been worth it. As reasons for the success of the venture he adduced (1) careful due diligence, (2) good communication, (3) adherence to international practices as well as (4) a competent executive leadership team, and added “I can only advise other companies in a similar situation to give the German managers all the freedom they need to cultivate a reticent leadership style.” Of course the successes notched up so far are not only due to the measures implemented by the management, however target-oriented they may have been.
The economic upturn and in particular the booming market in the machine tools sector have no doubt helped to ensure that the first three years were a triumph. The fact that the profits were ploughed back into the business led to an equity capital quota of about 40 per cent, an excellent figure for accompany of this kind.
At the same time the parent company continues to adhere to the idea that the Franconian plant is and will continue to be a “key point of strategy.” This ensures the future in economic terms, increases the motivation for the employees, and enhances their confidence in the leadership and the extent to which they identify with the company.
There will no doubt be more difficult periods, and provision must be made for them. The give and take between the headquarters in China and the subsidiary in Coburg will be the subject of an ongoing debate about who is profiting of contributing most. And new market situations will call for new strategies, though conflicts of interest compromises and the generation of synergy effects will not always be as easy as they are now.
Thus it is all the more important to have intercultural interfaces, that is, people of committees who or which can mediate credibly when there is conflict. If such mediation is a success on the executive level and reaches the employees in China and Germany, there is a good chance that a home-grown local company with international connections will come out on top. And managing director Zhicheng Cui may be able to keep the promise he gave on 24 October 2005. “Waldrich Coburg will continue to be Waldrich Coburg!”
1. What would be considered as a typical corporate culture of a medium sized German enterprice in the engineering sector?
2. What would be considered as a typical corporate culture of state owned Chinese enterprise?
3. What are the elements of Beeing No. 1 corporate strategy that have contributed to its success with the acquisition of Waldrich Coburg?
4. To what extent were the two corporate cultures unified and a common corporate culture created?
5. In what way and how does Beijing No.1 encourage its management staff to learn about the culture of the partner?
6. How would you describe Beijing No.1 strategic approach regarding the acquisition? Was it a more deliberately planned or more an evolutionary / emergent approach?