Operational Competitiveness of Chinese State-Owned Manufacturing Enterprise in Global Context

Shubin Si and Shudong Sun Department of Industrial Engineering, School of

Mechatronics, Northwestern Polytechnical University Xi’an, China

sisb@nwpu.edu.cn

Yang Liu and Josu Takala Department of Production, University of Vaasa

Vaasa, Finland jot@uwasa.fi

Abstract—The purpose of this paper is to study the operational competitiveness of Chinese state-owned manufacturing enterprises (CSOME) by analyzing the case CSOME and comparing with other global manufacturing companies in a global manufacturing strategies (GMSS) database. Analytical models are used to analyze the operational competitiveness of the case CSOME based on the weights of the multi-criteria manufacturing strategies. The results show quality is most important competitive priority of the case CSOME and the value of flexibility is very low. The ranking of operational competitiveness implies the case CSOME have some advantages competing in prospector group, however it have some gap comparing with top manufacturing companies of the world.

Keywords- Operational competitiveness; Global manufacturing strategies (GMSS); Analytical models; Chinese state-owned manufacturing enterprise.

I. INTRODUCTION With the development of Chinese industries and their

products, the effect of Chinese manufacturing competitiveness is more important than before in the global market. China has become a strong manufacturing country and has influenced the business and manufacturing strategies in many different areas. Chinese state-owned manufacturing enterprises, most of which are in the list of Chinese top 500 enterprises, are the most important parts of the national economy. To study operational competitiveness of Chinese state-owned manufacturing enterprises is an effective approach to understand their positions in global market.

Future competitiveness of manufacturing operations under the dynamic and complex business situations relies on forward-thinking strategies. Companies should typically utilize multi-focus manufacturing strategies in a holistic way based on their business plan and goal. Competitive priorities belong to the first phase of manufacturing strategies, which act as the bridge between business strategy and the manufacturing objectives [1]. Competitive priorities are the crucial decisive variables for managers and decision makers to manage the global manufacturing operations. It indicates a strategy emphasized on developing certain manufacturing capabilities that may improve a plant’s market position. Competitive priorities can answer three

questions: the first is which category of business the companies belong to, how competitive they perform and which category would give them best competitiveness ranking by analyzing the competitive priorities of their manufacturing strategies; the second is what should be developed in the company according to comparisons in global context; the third is whether the manufacturing objective can be achieved.

In this study, the theoretical framework of reference starts from resource based view of a case study for a firm, especially human resource based strategy of an organization [2]. This framework goes on to justification of multi-focused manufacturing strategies[3]. The important achievements have been studied to support and improve the framework mentioned above. Madu et al. presented the concept of strategic groups for different technology and collaboration level[4]. This theory has been improved by Takala et al. to describe the typical development route of global industries[5]. Miles et al. have defined four company’s groups which include prospector, analyzer, defender and reactor[6]. According to Miles et al., on the contrary to the other three strategies, which are prospector, analyzer and defender, the reactor strategy does not lead to a consistent and stable organisation. Hence when an organisation is in this situation, it is advised to change over to one of the other three strategies. Based on this literature, Takala et al. promoted the analytical models to calculate the competitiveness rankings in each group according to the company’s multi-criteria weights of Q(Quality), C(Cost), T(Time) and F(Flexibility)[7].

The structure of this paper is as follows. Section II introduces some methodologies. Section III analyzes the operational competitiveness of the case Chinese state-owned manufacturing enterprise. Section IV discusses some operational strategies of Chinese state-owned manufacturing enterprises and conclusions.

II. RESEARCH METHODOLOGIES

A. Analytic Hierarchy Process (AHP) method Analytic Hierarchy Process (AHP) method [8] is a

multi-attribute decision instrument that allows considering quantitative, qualitative measures and making trade-offs. The AHP is used in this research to deal with the empirical

2008 International Seminar on Business and Information Management

978-0-7695-3560-9/08 $25.00 © 2008 IEEE

DOI 10.1109/ISBIM.2008.59

397

2008 International Seminar on Business and Information Management

978-0-7695-3560-9/08 $25.00 © 2008 IEEE

DOI 10.1109/ISBIM.2008.59

397

2008 International Seminar on Business and Information Management

978-0-7695-3560-9/08 $25.00 © 2008 IEEE

DOI 10.1109/ISBIM.2008.59

397

2008 International Seminar on Business and Information Management

978-0-7695-3560-9/08 $25.00 © 2008 IEEE

DOI 10.1109/ISBIM.2008.59

397

part, which includes analyzing questionnaires and calculating weights of main criteria and sub-criteria. The questionnaires are answered by the interviewees who are experts normally in the top management or specifically in charge of one area, and they really know the operations and strategies of the company. All answers with inconsistence ratio below the limit are accepted, and therefore ensure the internal validity. The steps of AHP are as follow.

The first step is to establish the model of hierarchy structure for operational competitiveness. This study structures the hierarchy model of competitiveness priorities of manufacturing strategy in Figure1 [7]. The main criteria consist of know-how, flexibility, delivery, quality, customer focus and costs. The main criteria are typical items used in evaluating the competitiveness priorities in multi-focused manufacturing strategies. They are formed based on typical case studies and instruments used in interviews. The sub-criteria involve 30 criterions.

Figure1. Competitive priorities of manufacturing strategy.

The second step is the comparison of the alternatives and the criteria. They are compared in pairs with respect to each element of the next higher level.

The last step is connecting the comparisons in order to get the priorities of the alternatives with respect to each criterion and the weights of each criterion with respect to the goal. The local priorities are then multiplied by the

weights of the respective criterion. The results are summed up to get the overall priority of each alternative.

B. Analytical models In this paper, the analytical models are used to calculate

the operational competitiveness rankings of companies in the different groups, which are prospector, analyzer and defender[7]. Among the six main criteria, know-now is more resource related so it servers as lower level, but on the other hand customer focus is more strategically orientated so it severs as higher level compared to the core competence i.e. quality, cost, time (delivery) and flexibility. Therefore only these four key factors which are more effectively affect the operational competitiveness level have been taken into consideration in the analytical models.

In the analytical models [7], the equations to calculate weights of core factors are as follows.

% QQQ C T

=+ +

(1)

% CCQ C T

=+ +

(2)

% TTQ C T

=+ +

(3)

% FFQ C T F

=+ + +

(4)

The analytical models to calculate the competitiveness rankings in each group are given [7].

The analytical model for prospector group: ( )( )1/ 3 1/ 3~ 1 1 % 1 0.9* % (1 0.9* %) * %Q T C Fφ − − − − (5)

The analytical model for analyzer group:

( ) ( ) ( )( )

1/30.95* % 0.285 * 0.95* % 0.285 *

~1 1 %0.95* % 0.285

Q TF ABS

Cλ

⎛ ⎞− −⎛ ⎞⎜ ⎟− − ⎜ ⎟⎜ ⎟⎜ ⎟−⎝ ⎠⎝ ⎠

(6)

The analytical model for defender group: ( )( )1/ 3 1/ 3~ 1 1 % 1 0.9* % (1 0.9* %)* %C T Q Fϕ − − − − (7)

TABLE I. THE VALUES OF OPERATIONAL COMPETITIVENESS OF WXL1, S_ATE AND R3_SM Company Quality Cost Time Flexibility Strategy Group Competitive level Rank WXL1 81.9% 11.3% 6.8% 4.7% Prospector 0.980 1 S_ATE 55.0% 26.0% 19.0% 78.0% Analyzer 0.978 1 R3_SM 10.3% 73.5% 16.2% 3.7% Defender 0.975 1

C. Data collection (1).The data of Chinese state-owned manufacturing

enterprise have been collected by answering questionnaires from 20 senior managers or directors. Firstly, the senior managers or directors were trained to understand the criteria of the questionnaire by email, telephone and interview. Secondly, after they finished the questionnaires, the data was analyzed by AHP tool to get competitiveness priorities of case companies and also the inconsistence ratio. Thirdly, the discussion with managers or directors revealed the results and verified the reliabilities of the data further.

(2).The data of operational competitiveness of others countries come from GMSS database, which consists of operational competitiveness’ data of 100 case studies of

countries and is created to study manufacturing strategies. In GMSS database, WXL1 is the top company of operational competitiveness in prospector group, S_ATE is the top company of operational competitiveness in analyzer group and R3_SM is the top company of operational competitiveness in defender group. The values of operational competitiveness of WXL1, S_ATE and R3_SM are shown in TABLE I.

III. OPERATIONAL COMPETITIVENESS OF THE CASE CHINESE STATE-OWNED MANUFACTURING ENTERPRISE The case Chinese state-owned manufacturing enterprise

consists of 7 subsidiaries, which include 4 high-tech manufacturing companies and 3 research institutes. This

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case company is capable for the full process of large and medium-sized electromechanical equipments from design to maintenance service. The primary market of the products is in China, and some products are exported. The goal of this case company, which is Chinese top 500 companies, is to improve the ability of development in condition of keeping high quality. The number of employees of the case company is about 40,000.

A. operational competitiveness of the case Chinese state-owned manufacturing enterprise (CSOME) The criteria analysis.

The results of main criteria calculated by Expert Choice are shown from questionnaires in Figure2.

Figure2. Competitiveness priorities of main criteria of the case CSOME.

In Figure2, the results of the questionnaires show that quality is the most important factor for the case company to its competitive priorities of manufacturing strategy. The weight of the quality of the case company is 31.3%, which is more important for electromechanical equipment manufacturing company to reduce the defect rate of products, to develop new products and to get new markets. Quality is the most important strategy to keep its leading position among Chinese equipment manufacturing companies. The importance of customer focus (29.5%) ranks the second, which shows that product design, product manufacturing, product maintenance and after sales service

are more important in its sub-criteria. The customers have been the lifeline of development, because of three reasons: (1) the case CSOME must organize to manufacture products according to the orders of customers, because large electromechanical equipments are very expensive; (2) the case CSOME must support good service for the customers to make large electromechanical equipments work in order; (3) the case CSOME must focus on the customer demands and satisfactions to get new orders. The ranking of delivery (12.5%) is the third, the importance of which indicates the time is important factor in operational strategies of the case CSOME. It is basic condition for the case CSOME to keep old customers and attract new customers. The costs (10.4%), know-how (9.6%) and flexibility (6.7%) are secondary factors in the operational strategy with lower importance: (1) the lower percentage of cost indicates that the case CSOME cannot focus on reducing cost of products excessively and meanwhile keeping high quality of products; (2) the know-how is less emphasized because the case CSOME has already attracted many high-tech talents from Chinese key universities, and also from international universities and research institutions; (3) the weight of flexibility is reasonable for the complexity of the product’s structure and the manufacturing process.

Figure3. Weights ranking of sub-criteria of the case CSOME.

TABLE II. THE VALUES OF OPERATIONAL COMPETITIVENESS OF THE CASE CSOME

Prospector Analyzer Defender Company Quality Cost Time Flexibility Competitive

level Rank Competitive

level Rank Competitive

level Rank

CSOME 0.577 0.192 0.231 0.110 0.9474 28 0.8923 40 0.9228 28 Figure3 shows the weights of each sub-criteria of the

case CSOME from the highest to the lowest. The reliability is the most important in sub-criteria. The reliability and the dependable promise (No.2) not only indicate the prestige of the case company is at high level, but also make this company to earn higher competitiveness in global markets. The reliability, low defect rate, the product performance, the certification and the environmental aspects belonging to the main criteria quality are more important, which are the basic characteristics of prospector group. In Figure3, dependable promise, product support, measurement of satisfaction and after sales service consisting of important sub-criteria, cause customer focus to be second ranking in the main criteria.

Ranking of competitiveness. The normalization of Q%, C%, T% and F% can be

calculated by (1), (2), (3) and (4). The results are shown in TABLE II. The operational competitiveness values are calculated by the analytical models and shown in TABLE II. The quality (the value of Q% is 57.7%) is the most important and decisive factor of operational competitiveness in the case Chinese state-owned manufacturing enterprise. The results (Described in TABLE II) of calculation based on the analytical models indicate the case company has some competitive advantages while competing among prospector companies. But, the rankings of operational competitiveness are very similar in defender groups. Figure4 clearly shows the case Chinese state-owned

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manufacturing enterprise has relatively competitive ranking in prospector and defender groups.

Figure4. Ranking of operational competitiveness of the case CSOME in prospector and defender groups (Case studies from GMSS database).

Benchmarking of competitiveness

WXL1 is the top company of prospector group and R3_SM is the top company of defender group. From Figure5, it can be found that the importance of T (Time) and F (Flexibility) are very similar among these companies. The most influential factor in prospector’s strategy is quality. The benchmarking difference of quality between the case CSOME and WXL1 is 24.2% which proves that the case CSOME has somehow advantage in this group. The most important factor in defender strategy is cost. The benchmarking difference of cost between the case CSOME and RS_SM is 54.3%, which shows that the case CSOME has not much advantage in defender group. The results above imply the case CSOME is more competitive in prospector group.

Figure5. Benchmarking of the operational competitiveness among WXL1,

R3_SM and the case CSOME.

IV. THE CASE CSOME OPERATIONAL STRATEGY AND CONCLUSIONS

The case CSOME is a typical Chinese state-owned equipment manufacturing enterprise. The case company has stable market. The main competitors of the case CSOME are famous international equipment manufacturing companies, which master top core technology and hold international market. The case CSOME is not the best innovator in this field of the world comparing with Siemens, Boeing and so on. There are some important characteristics for the case CSOME.

(1) The quality of manufacturing process is the most important for the case CSOME to improve its operational competitiveness in global context. But, it is not enough for it to compete with the global top equipment manufacturing companies. The lower percentage of R&D, creativity and knowledge management have influenced the development of the case CSOME in prospector groups. Know-how is one of dynamic factor to improve the level of quality. So, improve the abilities of creativity and R&D has been national strategy to make China become strong manufacturing country.

(2) The value of the flexibility is very low in operational strategies. Complicated large and medium-sized electromechanical equipment is main critical factor to affect the flexibility of the case CSOME. Many famous equipment companies have adopt many effective methods to improve the flexibility, such as outsourcing, agile manufacturing mode and so on. Boeing is one of successful case to apply outsourcing. The spare parts and components of the Boeing products have been outsourced to the different manufacturing companies, which has enhanced its flexibility level and has reduced the manufacturing cost.

(3) Large number of employees will increase the burden of the enterprise, which include pensions, medical insurance cost and so on.

ACKNOWLEDGEMENT The authors gratefully acknowledge the financial support

for this research from the China National “863” High-Tech Program (Grant No.2007AA40701) and the Hover Star project from Northwestern Polytechnical University, China.

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