Raymond Kim, the General Manger of AccuForm, a joint venture company created by German based DynaCoat and CreaseFree a Hong Kong based OEM company, is dealing with a numerous issues within his organization that has now contributed to the hospitalization of children that have used his products. Local customs of guanxi and other attitudes have influenced Kim to a laissez-faire management style and he did not do his due diligence with hiring and other crucial management reviews. The hospitalizations enabled AccuForm to identify issues within their company that must be addressed. This paper will outline the social, ethical and legal challenges that AccuForm had faced with operating the joint venture in China. In addition, there are guidelines that should be taken in order to realign AccuForm within the community and industry.

AccuForm was a joint venture company, based out of China, between a German coating producer, DynaCoat, and a Hong Kong OEM, CreaseFree. AccuForm specialized in the production of high-tech coatings for use on wrinkle-free fabrics. The company targeted the large market of children’s apparel and the ability to apply stain resistant coatings to produce a higher quality of clothing. This joint venture was viewed by both CreaseFree and DynaCoat as mutually beneficial and a strategic move as it enable DynaCoat to further penetrate into the Greater China market. Every garment manufactured with AccuForm coating had the AccuForm label, which was a registered trademark in China, attached to the inside as a sign of quality assurance. Raymond Kim, an American-born Korean, was chosen to head the German-Hong Kong joint venture due to his background, tenure and successes with DynaCoat. Kim’s two major responsibilities were to develop an AccuForm chemical supplier network in Asia to complement DynaCoat’s existing European network and also for AccuForm’s R&D in Asia. In 2005 a series of reports were made that children in China had been hospitalized due to a rash caused by the clothes which had used his company’s coating material. An unauthorized manufacturer in China had illegally obtained the experimental coating and used AccuForm’s trademark to promote their products. Further investigations had identified money laundering, misappropriation of assets, illegitimate rebates and bribes within the company. Along with these issues, AccuForm is faced with a number of social, ethical and legal challenges when working together with manufacturing and R&D in China. According to Daniels, et al. (2011), Over the past quarter century, no country has prospered more from globalization than China and there has been compelling incentives to attract investment to China. The corporate culture in China has produced a number of social and ethical issues that AccuForm is challenged with.
Kim directly faced challenges with the workforce and social norms that became issues. It was stated that Kim also had a laissez-faire management style and did not review many of the reports for accuracy and it was suggested that Kim adapt to the Chinese way of doing business and learn to be flexible when dealing with written rules. They pointed out that there was not always a right or wrong decision, instead the correct decision was usually the one selected according to the circumstances surrounding the incident. Even though Kim had disagreed with these practices, it seems like much of his management style fit right in with this mindset. When doing business in China, Corporate Social Responsibility (CSR) is not common practice. According to prlog.org, China is the world’s worst polluter and existing management from CreaseFree only contributed to this ideal by disliking the idea of having to report on their social and environmental commitment as they perceived that their organization did not have an environmental impact. CreaseFree also did not have ethical codes of conduct and an effective waste treatment system was yet to be installed in the factory and mainland China was also given looser legislative control of these environmental issues. They were also not active in other voluntary social and environmental commitments, such as community project, employees’ training and energy conservation. The lack of CSR and social norms became major issues when operating the joint venture in China because DynaCoat had in place a very strict quality assurance system while protecting the natural environment. DynaCoat also was dedicated to giving back to the community and protecting environment, winning several awards for their attention to the environment with R&D and was ISO 14001 certified which meant they were committed to environmental protection. These differences in their attitude and processes impacted the joint venture negatively.
The joint venture operation also faced a number of ethical issues that impacted the ideals of each company. CreaseFree had a traditional Chinese workforce culture with informal systems that made it adaptable to China’s business environment. Much of the business was created by close personal connections which the Chinese refer to it as guanxi. Improvement of guanxi is not limited to gifts in money, luxury goods, job arrangements for children or relatives of officials, or exchange of favors are offered and taken. It was also not uncommon for those bidding to do business in the country to offer kickback to potential customers or suppliers. DynaCoat did not work on this principle of guanxi and their employees had an extremely high code of conduct that was strictly enforced to ensure the professional integrity of their workforce. We see how this becomes an issue for DynaCoat and CreaseFree when Kim decides to hire Albert Ching, the son of a local client. Using the practice of guanxi, Kim allowed Ching to also hire from those he knew which compounded these ethical issues.
In addition to the social and ethical issues, the joint venture also faced a number of legal issues that impacted their operations. According to Daniels, etc al. China’s unique legal systems make business operations a complex and often frustrating process. The country currently practices a system of state capitalism whereby the government manipulates market activities to achieve political purposes. DynaCoat operates on the traditional Western approach which allows you to create a business “for any valid purpose” and this does not exist in China and also with CreaseFree. Ching had committed a number of illegal actions yet; many of them were not illegal within the ideals of Chinese culture. These legal issues became compounded and impacted the joint venture because DynaCoat abided by the “Western” rules of engagement and CreaseFree did not.
Albert Ching had perpetrated a numerous crimes against AccuForm. He had been hired through referral from a top client of AccuForm, which was in line with the guanxi system. Unfortunately, Raymond Kim was the manager in charge of his hiring. Kim did not do his due diligence in checking the background of Albert Ching. In addition, Kim afforded the management team a higher level of leeway with their ability to come and go within the R&D laboratory as they chose and his laissez-faire management style contributed to the misappropriations of Ching. Since Ching was afforded the ability to make crucial decisions, he was able to take advantage of the trust that was given to him from Kim. Although Kim had placed this trust into Ching, he did not review his policies to ensure that this employee was indeed trustworthy. Therefore, as the corruption exploded with AccuForm, all upper management is responsible for the inappropriate actions by the minority. If Kim had followed up with Ching’s past employer, he may have found his past deficiencies. This lack of investigation on Kim’s part was a major reason for the corruption. Unfortunately, Kim got caught up in Chinese way of business and his desire to continue to build and grow the business within China trumped his decisions. All top managers that had a hand in the direct dealings with Ching and his cohorts should be responsible for these issues.
Now that these issues have come to light, Kim must enact an ethics, compliance program or a CSR program to re-establish AccuForm’s reputation and to build its corporate culture for the long term benefit for the company. According to Daniels et al. (2011), there should be a focus on eight different areas that will help a company enact social, cultural, or behavioral changes all of which would be needed within AccuForm. They are:
1. Value systems-the more something contradicts our value system, the more difficult it is to accept. AccuForm must accept their responsibility to the people and environment.
2. Cost-benefit analysis of change-AccuForm must weigh the expected cost benefit relationship of what it does within China. These decisions can improve sales and production and the changes made will ensure future security and improved sales.
3. Resistance to too much change-change too quickly can have adverse effects. AccuForm should slowly enact personnel, policy and management changes. This resistance will be a greater issue for those who subscribe “Chinese” way of business.
4. Participation-change must be embraced by all and they must make a concerted effort to enact these changes. This will allow AccuForm to have a higher level of CSR and ownership of success.
5. Reward sharing-reward is given to those who support the change. Kim had attempted to buy his employees with the competition he created within R&D. This should be continued without the heated results that sometimes arose.
6. Opinion leadership-local channels of influence may facilitate the acceptance of change. AccuForm should rely on the Chinese production workers because of the creditability they bring to the table.
7. Timing-timing of change is crucial to the success of the change proposed. In AccuForm’s case, crisis precipitates the acceptance of change.
8. Learning abroad-companies gain more experience in overseas operations. AccuForm must understand that this was a learning experience and had broadened their resume. They will enact those changes where they see fit in order to minimize future issues.

Unfortunately the actions of a few have created a need for a major change within AccuForm. The acceptance of “pay offs” or “referral money” as a manager of a foreign subsidiary of a U.S. based company would not be allowed or encouraged. If policies have been enacted, starting with the value system of the hiring process, employees will have a clear understanding of the rules. In addition, the ability for employees to participate in a “reward sharing” program can help those who seek further gratification through monetary rewards. Having a strong CSR program will also provide the company and their employees the ability to “reward” the community involved. Laws of U.S. corporations are of the highest quality and carrying these regulations to the country where business is conducted is crucial. Some modifications must be made for religion and other cultural norms and it would be prudent to have a cross cultural management team identify major issues and create steadfast policies regarding those that are in question. In addition, a lawyer versed in international law should be a close advisor and should be able to identify potential concerns within the organization.
As a future manager of an international organization or company it is important to rely on the rules, ethics and policies that have enabled me to get there. I should not be caught up in the way that business is done internationally and complete all checks and balances that may identify deficiencies within my team.
In conclusion, DynaCoat and CreaseFree created a joint venture company that was considered a mutually beneficial and strategic move that enabled DynaCoat to further penetrate into the Chinese market. The cultural differences and the way that each organization conduct business created unforeseen issues that should have been addressed prior to the creation of the joint venture. Raymond Kim’s management style and desire to conform to local customs enabled these issues to compound and grow. A complete change of AccuForm’s CSR and management responsibility track is a must in order to minimize future issues.