Ross BORDELONDiane WEBER

HANOVER PUBLIC SYSTEM: CASE STUDY

Dates: 1996 – 1998

Location: Taiwan

People involved:

OVERVIEW

Howard Wolff, CEO (American)

James Fukuda, Taiwanese subsidiary CEO (Japanese American)

C. Lo, Executive Director (Finance) (Taiwanese)T. Hu, Vice-President of Operations (Taiwanese)H. Lee, Superintendent of Manufacturing (Taiwanese)

Participants

Howard Wolff, President James Fukuda, President Taiwan

Discussion about James Fukuda’s management in Taiwan and the discontentment of the employees.

DIALOGUE

EXHIBIT 1: LETTER FROM LO TO WOLFF

C. Lo is complaining about the drastic measures taken by Fukuda:

- Interruption heating and cooling system manufacturing, resulting in the layoff of 18 workers.

- Introduction of a radically new management organization.

- A new reorganization plan.

EXHIBIT 2: ORGANIZATIONAL CHARTS

Present oraganization in Taiwan.

EXHIBIT 2: ORGANIZATIONAL CHARTS

James Fukuda propozed to shut down the heating and cooling equipment manufactury.

Assets (July 1, 1998)Current Assets

Cash 1610Short-term securities 222

Receivables 1620Inventory 11 830

Prepaid expenses 150Other assets 140

Total Current Assets 15 572

Fixed Assets (at cost)Buildings 4 182

Machinery and equipment 8 021Less depreciation (3 212)

Total Fixed Assets 8 991Other Assets 410

Total Assets 24 973

EXHIBIT 3: TAIWAN BALANCE SHEET

EXHIBIT 3: TAIWAN BALANCE SHEET

Liabilities/Shareholders Equity

Current Liabilities

Accounts payable (trade, usance credit and loans) 11 290

Accounts payable (local) 3 150

Loans and long-term debt 1 130

Other current liabilities 130

Total Current Liabilities 15 700

Long-term debt 3 294

Reserve for depreciation 1 250

Other reserves 120

Duty payable 110

Other liabilities 129

Shareholders' equity 4 370

Total liabilities 24 973

1993 1994 1995 1996 1997 1998

Fans 689 724 867 928 831 789

Elevators 1457 1763 1847 2148 1658 1892

Lighting Systems 1408 1302 1503 1429 1347 1236

Heating and Cooling

Systems

684 992 1280 1564 891 726

Total 4238 4781 5497 6069 4727 4643

Annual growth (%)

— 12.8 15.0 10.4 (-22.1) (-1.8)

EXHIBIT 4: TAIWAN SALES

6 categories: Communication Intercultural differences Ethics Management Finance Production and pricing

Sources of the problems in the company

STRENGTHS AND WEAKNESSES

Strengths Weaknesses

Easy communication between Taiwanese employees and the American top management.

No communication between J. Fukuda and the Taiwanese managers/employees.

Good communication between James Fukuda and Howard Wolff

No communication after resignation of two employees as well as the letter talking about their problems with J. Fukuda’s actions

No trust between all parties in Taiwan

COMMUNICATION

INTERCULTURAL DIFFERENCES

Strengths Weaknesses

J. Fukuda is a second generation Japanese-American.

Basic knowledge of the culture (Mianzi very important).

The company worked while foreigners worked in it (H. Wolff started this subsidiary.

Taiwan and Japan have complicated relationships because of Japanese colonization before and during WWII.

The company has 8 foreign subsidiaries and only 4 domestic plants (they all have growing sales).

ETHICS

Strengths Weaknesses

J. Fukuda did not wait to come to make some changes – especially laying out employees.

J. Fukuda does not care about employees’ ideas and thoughts about his strategy.

MANAGEMENT

Strengths Weaknesses

The management is mainly local (only exception is J. Fukuda).

Bad management of the Taiwanese president. He does not make his colleagues at ease and takes important decisions too quickly.

Easy access to the top management in the US.

Taiwanese managers and employees complain and resign very fast.

American management acts when asked to.

FINANCE

Strengths Weaknesses

They don’t need more money to finance their activities (debts are higher than current assets).

Inventory is higher than the assets

High shareholder’s equity (able to interest investors).

Receivables are as high as the current cash.

PRODUCTION AND PRICE

Strengths Weaknesses

Diversified lines of products. Huge inventory meaning bad demand planning management – too many products come out of the factory every year.

High demand – the sinking sales are due to harsh competition.

Price higher than the competition

Able to lower prices if needed (in order to compete more efficiently).

The company, after 2 ½ years of declining sales, must reconnect with an increase in turnover while managing to restore relationships within the subsidiary company.

PROBLEM STATEMENT

OPTION 1: DO NOTHING

Advantages Inconvenients

The decrease in sales is slowing (only -1.8% in 1998 compared to 1997 with -22%). Eventually the sales might get better.

Bad relationships between J. Fukuda and Taiwanese employees.

If the heating and cooling system is stopped, it will clean the inventory (they will sell their remaining stocks).

Lost of an activity – even if it is declining faster than the others, it still means a source of money.

Stopping this activity also means being able to sell some assets. Disponibilities can be used to invest in other activities.

OPTION 2: DISCUSSION WITH THE TAIWANESE MANAGEMENT

Advantages Inconvenients

Having meetings and general assemblies with employees will make them feel heard and might even be the source of new ideas for the company.

Poor visibility towards the results of the talks: will employees be satisfied? Will J. Fukuda change his point of view? Will the Taiwanese employees accept him as their manager?

J. Fukuda is not aware of the situation of the market. It will be a good opportunity for him to learn the challenges of the Taiwanese subsidiary.

It is very difficult to know if a discussion might change their relationships. Since employees felt not listened at all, the proposition might not even be considered by employees who left.

The company will keep experienced and talented employees that left or might leave if the situation is to worsen.

OPTION 3: LOWER PRODUCTION OUTFLOW AND KEEP THE

MANAGEMENTAdvantages Inconvenients

Significantly drop in terms of inventory (less storage space consumed and cleaner balance sheet).

Poor popularity among workers to be expected.

Lower operation costs due to lower production. Profits will raise since products already manufactured will be sold.

If the market gets back to normal or trends are better than expected, there will be a shortfall.

If production is lowered over a great period of time, assets can be sold in order to invest on some R&D.

OPTION 4: PUT THE FATCORY WORKERS ON ADMINISTRATIVE LEAVE AND SELL THE

INVENTORY

Advantages Inconvenients

Better balance sheet (less inventory).

Employees moral will probably decrease (knowing they are still employed will avoid too many conflicts but it will induce harsh discussions).

Prices can be lowered at short terms to compete with the Japanese firms.

Proof of weakness (the business can not run properly).

Employees will still be employed but less paid (keeps relationships ok and provides less costs).

OPTION 5: LOWER PRICES TO DRIVE COMPETITORS OUT OF BUSINESS

Advantages Inconvenients

Able to sell products at the same price or cheaper than the competition.

High incertitude of this strategy.

Keep the management and employees employed at full time.

Profits unstable (might sink for another year).

Better moral. Highly likeable that this strategy will need another infusion of funds from the headquarters.

Which option do you find the best?

Are cultural diff erences more important in a company than operation profi t when the company is encountering some diffi culties?

DEBATE