Teradyne, Inc. is an American company that sells automatic test equipment, along with service contracts to cover the downtime and repair of these complex products. Founded in 1960, Teradyne was the leader in automatic test equipment until 2006. The company is structured in four divisions, each one with its own management and internal structure: Broadland Test, Assembly Test, Semiconductor Test and Vehicle Diagnostic Solutions. Although Teradyne’s headquarters are located in Boston, its divisions are headquartered in Illinois and North Reading, in U.S.A., and Manchester in UK.
Over the years the importance of Asia in the electronics industry grew amazingly, especially China, which dominated the industry’s growth at greater than 20 percent of sales in the 2002-2005. While Europe and the Americas were expected to grow 3 percent per year from 2005-2008, it was expected that China would grow 12 percent per year during the same period – China’s importance in the market was expected to grow from less than a tenth in 2002 to over a third in 2008. As a result of this incredible growth, Teradyne built a facility in Shanghai. However, despite the industry’s growth in the Chinese territory, in late 2003 the Teradyne’s market share in China was only one third of what it was in Europe and North America. Jeff Hotchkiss, president of Teradyne’s Assembly Test Division, was sent to Shanghai to find and solve the problem.

I. Recognizing the Problem

There are several problems in Teradyne’s business in China:

- Because local expertise was so difficult to find in the previous years, the Chinese Operation was overseen by parent company nationals (PNC’s). However, these English-speaking Americans expatriates, aside from increasing Teradyne’s overseas costs enormously, had little direct contact with costumers. They did not understand the Chinese culture, and were not able to