STS Manufacturing in China: Mark Hanson Returns from Vacation 1. Is China a market economy? What role have foreign companies played in China’s fast-paced growth since the reform began? How does the Chinese government perceive foreign enterprises operating in China? What has been the history of China’s relation with the outside world and how does this history influence its behavior toward foreign firms on Chinese soil?

Yes, China is a market economy. China now participates extensively in the world market and mostly state owned but also some private sector companies play a major role in the economy.
When China began to resemble a market economy, privatization had not occurred in China on a significant scale. However, since the reform it was relatively easy for them to identify their potential joint-venture partners. The removal of restrictions on investment, relaxation of restrictions on products produced and breakdown of silo meant that potential partners can enter China from any sector. Foreign companies help provide annual double-digit growth rate in the economy and also helped in raising the living standards of the Chinese people. Chinese people are also provided with better quality products and technology. As of now, there are more than 300,000 foreign-owned enterprises have invested in China with more than 25 million employers.

Chinese government does not perceive foreign enterprises very positively. Foreign companies doing business in China are generally required to form joint ventures with Chinese companies instead of wholly owned subsidiaries. Entrance by foreign companies to the Chinese market is often determined by how much technology and know-how the Chinese can get from the foreign company. Many Chinese worry that foreign companies are posed to take over entire sector of the economy.

As history says foreign powers have carved up China into spheres of influences, impose their own legal systems and also imbalance in trade accounts. This history shaped China’s often suspicious and volatile relationship with the outside world and partially accounted for China’s distrustfulness towards foreign investors. At times China have welcomed foreigners and their technology and at times rejected them. Although in 1998, the door for foreign investors was open and market forces were becoming prominent in China’s economy, the Peoples’ Republic of China government tightly control and regulate all the activities of foreign firm operating in China. 2. What is happening to the Chinese automobile industry?
The Chinese automobile industry in early 1997 was suffering from serious overcapacity. More of new investment by General motors, Daimler-Benz, Honda and other firms were quickly growing. Most of the foreign automobile firms in China were struggling. So the Chinese government announced that it would not license any more automobile manufacturing and also revised its projections for future cars. As workers and raw materials cost cheaper in China, more of automobile companies were trying to gain a foothold in China’s market with none of the automakers willing to leave from China.

All of the automobile industry was suffering from loss except Shangai VW; it was the only joint venture to be profitable and only one to achieve viable level of production. It has strong supply and distribution channels and minimal serious competition. Volkswagen had more than $100 million of losses in its second joint venture.

Seen as a big world market with cheap labor and raw materials many automakers came to China to gain a hold in Chinese automobile industry. With more of car companies and excess production of cars Chinese automobile industry was suffering from imbalance.

3. Why was STS manufacturing formed?
STS was formed in 1994 as an equity joint venture between Shanrong Manufacturing of China and Tellsan products of the United States. Tellsan had 60% share and Sharong had 40% in the venture. As Tellsan had a good relationship with Volkswagen, who were their suppliers in Germany, Tellsan was encouraged by Volkswagen to invest in China to support its increased investment and in particular the joint venture between Volkswagen and First auto Works. This let Tellsan join with Sharong to form STS.

STS produced a steering wheel assembly for new VW sedan. The quality standard had to be high but unfortunately problem with quality control had plagued the joint venture from very beginning. Production was behind schedule, finally because of high failure rate in the final inspection and STS was struggling to manufacture several precision components for the steering wheel assembly.

4.1 What is Mr. Hanson job?
Mr. Hanson is the second general manager in the joint venture. His job is to develop relationship with Mr. Who is the host general manager, building relations with the government and resolve the ongoing quality issues. He needs to find a long-term solution to all of the problems and create an environment in which the company operates smoothly and efficiently.

4.2 How is he evaluated?
If Mr. Hanson is evaluated according to western standards then is has done very poorly because he hasn’t been able to perform well, he hasn’t resolved the quality issues & he hasn’t been able to send employees of trained as it was agreed upon. But this is not a fair assessment because in China the business culture is not the same. It is more relationship oriented rather than performance oriented. So Tellsan headquarters should take these things into consideration when evaluating Mr. Hanson’s performance.

4.3 What skills should a JV manager should have in order to do his or her job properly?
The skill which the general manger of a JV are as follows
1. Quality Education Mr. Hanson has master degree from a well-known south western business school
2. Experiences Mr. Hanson has worked with a large automotive supplier before he joined Tellsan.
3. Knowing the local language Mr. Hanson knows how to speak Chinese even if not fluently it is an added advantage.
4. Willingness to adapt and learn the new culture

5.1 Describe Mr. Wu’s Job. Who does he report to?
Mr. Wu is the JV Deputy General manger. His job is to supervise the day to day operations and make most of the decisions. Since he is the Shanrong representative at the JV, he report to the Shanrong executives first and then Mr. Hanson.

6.1 What are the issues that mark Hanson should deal with and why have they arisen?
The issues that Mark Hanson has to deal with are 1. Quality Control
These problems have arisen because there is no concept of quality control system management below-management levels, no notion of continuous improvement, no concept of quality being based on testing on finished products. They have adopted lean manufacturing but it goes against the Chinese notion of Confucian hierarchy and orderliness. 2. Selecting Suppliers
There is are a lot of differences with the local manager when it comes to selecting a local supplier because of Chinese business culture which involves establishing long-term relationship with both internal and external parties and business is based on mutual trust. 3. Training Employees
The training program is getting delayed because of numerous problems such as selecting candidates, travelling issues, costs etc. In essence this is because there isn’t a stable relationship with the JV partners yet. 7.1 What are the most important issues? Where should Mr. Hanson devote most of his energy?
The most important issues on which Mr. Hanson must devote his energy are 1. Understanding the Chinese business culture. 2. Developing Relation with Mr.Wu and the government. 3. Ensuring Tellsan HQ understands the situation.

7.2 What is the appropriate action plan?

The action-plan for dealing with the above mentioned problems are as follow:

1. Understanding the Chinese business culture:
It is of the utmost importance that Mr. Hanson understands and respects the Chinese business culture since he is in China and he won’t get anything done without it.

2. Develop relationship with Mr.Wu and the government:
Mr. Hanson should be more understanding of Mr.Wu’s motives and make his understand how his changes are beneficial to for the company and for his workers.
Since China has different form of government compared to Western democracy. The companies over here with both provincial government and state government so it is very important for Mr. Hanson to develop a relationship which will help in the coming negotiation for the relocation of the plant as Mr. Wu mentioned.

3. Ensuring Tellsan HQ understands the situation:
Mr. Hanson is should ensure the HQ that the reason that this JV is going on a slow pace is because of the Chinese business culture and that they should respect & understand their culture and be patient.