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Thomas, David C., and Mila B. Lazarova. Essentials of International Human Resource Management : Managing People Globally, SAGE Publications, 2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=4733102. Created from curtin on 2018-07-17 00:25:02.

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Case 1 Footwear International R. William Blake

John Carlson frowned as he studied the translation of the front page story from the afternoon’s edition of the Meillat, a fundamentalist newspaper with close ties to an opposition political party. The story, titled “Footwear’s Unpardonable Audacity,” sug- gested that the company was knowingly insulting Islam by including the name of Allah in a design used on the insoles of sandals it was manufacturing. To compound the problem, the paper had run a photograph of one of the offending sandals on the front page. As a result student groups were calling for public demonstrations against Footwear the next day. As Managing Director of Footwear Bangladesh Carlson knew he would have to act quickly to defuse a potentially explosive situation.

Footwear International

Footwear International is a multinational manufacturer and marketer of footwear. Operations span the globe and include more than 83 companies in 70 countries. These include shoe factories, tanneries, engineering plants producing shoe machinery and moulds, product development studios, hosiery factories, quality control laboratories and approximately 6300 retail stores and 50,000 independent retailers.

Footwear employs more than 67,000 people and produces and sells in excess of 270,000,000 pairs of shoes every year. Head office acts as a service center and is staffed with specialists drawn from all over the world. These specialists, in areas such as mar- keting, retailing, product development, communications, store design, electronic data processing and business administration, travel for much of the year to share their expertise with the various companies. Training and technical education, offered through company run colleges and the training facility at headquarters, provide the latest skills to employees from around the world.

Although Footwear requires standardization in technology and the design of facil- ities it also encourages a high degree of decentralization and autonomy in its opera- tions. The companies are virtually self-governing, which means their allegiance

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belongs to the countries in which they operate. Each is answerable to a board of direc- tors which includes representatives from the local business community. The concept of “partnership” at the local level has made the company welcome internationally and has allowed it to operate successfully in countries where other multinationals have been unable to survive.

Bangladesh

With a population approaching 110,000,000 in an area of 143,998 square kilometres (Figure 1),Bangladesh is the most densely populated country in the world. It is also among the most impoverished with a 1987 per capita Gross National Product of $160 US and a high reliance on foreign aid. Over 40% of the Gross Domestic Product is generated by agriculture and more than 60% of its economically active population works in the agriculture sector. Although the land in Bangladesh is fertile, the country has a tropical monsoon climate and suffers from the ravages of periodic cyclones. In 1988 the country experienced the worst floods in recorded history.

The population of Bangladesh is 85% Moslem and Islam was made the official state religion in 1988. Approximately 95% of the population speaks Bengali with most of the remainder speaking tribal dialects.

Bangladesh has had a turbulent history in the 20th century. Most of the country was part of the British ruled East Bengal until 1947. In that year it joined with Assam to become East Pakistan, a province of the newly created country of Pakistan. East Pakistan was separated from the four provinces of West Pakistan by 1600 kilometres of Indian territory and, although the East was more populous, the national capital was established in West Pakistan. Over the following years widespread discontent built in the East whose people felt that they received a disproportionately small amount of development funding and were under-represented in government.

Following a period of unrest starting in 1969 the Awami League, the leading polit- ical party in East Pakistan, won an overwhelming victory in local elections held in 1970. The victory promised to give the league, which was pro independence, control in the National Assembly. To prevent that happening the national government sus- pended the convening of the Assembly indefinitely. On March 26th, 1971, the Awami League proclaimed the independence of the Peoples republic of Bangladesh and civil war quickly followed. In the ensuing conflict hundreds of thousands of refugees fled to safety across the border in India. In December India, which supported the indepen- dence of Bangladesh, declared war and twelve days later Pakistan surrendered. Bangladesh had won its independence and the capital of the new country was estab- lished at Dhaka. In the years immediately following independence industrial output declined in major industries as the result of the departure of many of the largely non-Bengali financier and managerial class.

Source: Previously published in International Management Behavior (2000), edited by H. Lane, J. J. DiStefano, and Maznevski (pp. 165-172). Blackwell Business. Reprinted with permission.

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Throughout the subsequent years political stability proved elusive for Bangladesh. Although elections were held, stability was threatened by the terrorist tactics resorted to by opposition groups from both political extremes. Coups and counter coups, assas- sinations and suspension of civil liberties became regular occurrences.

Since 1983 Bangladesh had been ruled by the self proclaimed President General H.M. Ershad. Despite demonstrations in 1987, that led to a state of emergency being declared, Ershad managed to retain power in elections held the following year. The country remains politically volatile, however. Dozens of political parties continually manoeuvre for position and alliances and coalitions are the order of the day. The prin- cipal opposition party is the Awami League, an alliance of eight political parties. Many of the parties are closely linked with so called “opposition newspapers” which promote their political positions. Strikes and demonstrations are frequent and often result from co-operation among opposition political parties, student groups and unions.

Footwear Bangladesh

Footwear became active in what was then East Bengal in the 1930’s. In 1962 the first major investment took place with the construction of a footwear manufacturing facil- ity at Tongi, an industrial town located 30 kilometres north of Dhaka. During the fol- lowing years the company expanded its presence in both conventional and unconventional ways. In 1971 the then Managing Director became a freedom fighter while continuing to oversee operations. He subsequently became the only foreigner to be decorated by the government with the “Bir Protik” in recognition of both his and the company’s contribution to the independence of Bangladesh.

In 1985 Footwear Bangladesh went public and two years later spearheaded the largest private sector foreign investment in the country, a tannery and footwear factory at Dhamrai. The new tannery produced leather for local Footwear needs and the export market while the factory produced a variety of footwear for the local market.

By 1988 Footwear Bangladesh employed 1800 employees and sold through 81 stores and 54 agencies. The company introduced approximately 300 new products a year to the market using their in house design and development capability. Footwear managers were particularly proud of the capability of the personnel in these depart- ments, all of whom were Bangladeshi.

Annual sales in excess of 10,000,000 pairs of footwear gave the company 15% of the national market in 1988. Revenues exceeded $30 million US and after tax profit was approximately $1 million. Financially, the company was considered a medium contributor within the Footwear organization. With a population approaching 110,000,000, and per capita consumption of one pair of shoes every two years, Bangladesh was perceived as offering Footwear enormous potential for growth both through consumer education and competitive pressure.

The Managing Director of Footwear Bangladesh was John Carlson, one of only four foreigners working for the company. The others were the managers of production, marketing and sales. All had extensive and varied experience within the Footwear organization.

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The Incident

On Thursday, June 22nd 1989, John Carlson was shown a copy of that day’s Meillat, a well known opposition newspaper with pro Libyan leanings. Under the headline “Footwear’s Unpardonable Audacity,” the writer suggested that the design on the insole of one model of sandal produced by the company included the Arabic spelling of the word “Allah” (Figure 2). The story went on to suggest that Footwear was under Jewish ownership and to link the alleged offense with the gunning down of many people in Palestine by Jews. The story highlighted the fact that the design was on the insole of the sandal and, therefore, next to the foot, a sign of great disrespect to Moslems.

Carlson immediately contacted the supervisor of the design department and asked for any information he could provide on the design on the sandals. He already knew that they were from a mediumpriced line of women’s footwear known as “Chappels” which had the design on the insole changed often as a marketing feature. Following his investigation the supervisor reported that the design had been based on a set of Chinese temple bells that the designer had purchased in the local market. Pleased by the appearance of the bells she had used them as the basis for a stylized design which she submitted to her supervisor for consideration and approval (Figure 3).

All of the employees in the development and marketing department were Moslems. The supervisor reported that the woman who had produced the offending design was a devout Bengali Moslem who spoke and read no Arabic. The same was true of almost all of the employees in the department. The supervisor confirmed to Carlson that numerous people in the department had seen the new design prior to its approval and no one had seen any problem or raised any objection to it. Following the conversation Carlson compared the design to the word Allah which he had arranged to have written in Arabic (Figure 4).

Carlson was perplexed by the article and its timing. The sandals in question were not new to the market and had not been subject to prior complaints. As he reread the transla- tion of the Meillat article he wondered why the Jewish reference had been made when the family that owned Footwear International were Christian. He also wondered if the fact that students from the university had taken the sandals to the paper was significant.

As the day progressed the situation got worse. Carlson was shown a translation of a proclamation that had been circulated by two youth groups calling for demonstrations against Footwear to be held the next day (Figure 5). The proclamation linked Footwear, Salman Rushdie and the Jewish community and, ominously, stated that “even at the cost of our lives we have to protest against this conspiracy.” More bad news followed. Calls had been made for charges to be laid against Carlson and four others under a section of the criminal code that forbade “deliberate and malicious acts intended to outrage feel- ings of any class by insulting its religion or religious believers” (Figure 6). A short time later Carlson received a copy of a statement that had been filed by a local lawyer, although no warrants were immediately forthcoming (Figure 7).

While he was reviewing the situation Carlson was interrupted by his secretary. In an excited voice she informed him that the Prime Minister was being quoted as calling the sandal incident an “unforgivable crime.” The seriousness of the incident seemed to be esca- lating rapidly and Carlson wondered what he should do to try to minimize the damage.

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Figure 1 Bangladesh

UNPARDONABLE AUDACITY OF FOOTWEAR

In Bangladesh a Sandal with Allah as Footwear trade mark in Arabic designed in calligraphy has been marketed although last year Islam was made the State Religion in Bangladesh. The Sandal in black and white contains Allah in black. Prima facie it appears it has been designed and the Alif “the first letter in Arabic” has been jointly written. Excluding Alif it reads LILLAH. In Bangladesh after the Salman Rushdies2 Satanic Verses which has brought unprecendented demonstration and innumerable strikes (Hartels). This International shoe manufacturing organization under Jewish ownership with the design of Allah has made religious offence. Where for sanctity of Islam one million people of Afganistan have sacrificed their lives and wherein occupied Palestine many people have been gunned down by Jews for sanctity of Islam in this country the word Allah under this guise has been put under feet.

Last night a group of students from Dhaka university came to Meillat office with a couple of pairs of Sandal. The management staff of Footwear was not available over telephone. This sandal has got two straps made of foam.

1. The translation is identical to that which Carlson was given to work with.

2. Salman Rushdie was the author of the controversial book, “The Satanic Verses.” The author had been sentenced to death, in absentia, by Ayatollah Khomenei, the leader of Iran, for crimes against Islam.

Figure 2 Translation of the Meillat Story1

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Figure 3 The Temple Bells and the Design Used on the Sandal

Source: Redrawn from a facsimile sent to headquarters by John Carlson.

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Figure 4 The Arabic Spelling of Allah

Source: Redrawn from a facsimile sent to headquarters by John Carlson.

The audacity through the use of the name “Allah” in a sandal

Let Rushdies Jewish Footwear Company be prohibited in Bangladesh.

Dear people who believe in one God It is announced in the holy Quran Allahs name is above everything but shoe manufacturing Jewish Footwear Shoe Company has used the name Allah and shown disrespect of unprecedented nature and also unpardonable audacity. After the failure of Rushdies efforts to destroy the beliefs of Moslems in the Quran, Islam and the prophet (SM) who is the writer of Satanic verses the Jewish People have started offending the Moslems. This time it is a fight against Allah. In fact Daud Haider, Salman Rushdie Viking Penguin and Footwear Shoe Company all are supported and financed by Jewish community. Therefore no compromise with them. Even at the cost of our lives we have to protest against this conspiracy.

For this procession and demonstration will be held on 23rd. June Friday after Jumma prayer from Baitul Mukarram Mosque south gate. Please join this procession and announce we will not pardon Footwear Shoe Companys audacity. Footwear Shoe Company has to be prohibited, don’t buy Jewish products and Footwear shoes. Be aware Rushdies partner.

Issued by Bangladesh Islamie Jubashibir (Youth Student Forum) and Bangladesh Islamic Satrashbir (Student Forum)

1. The translation is identical to that which Carlson was given to work with.

Figure 5 Translation of the Student Groups Proclamation1

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[295-A. Deliberate and malicious acts intended to outrage religious feelings of any class by insulting its religion or religious believers. Whoever, with deliberate and malicious intention of outraging the religious feelings of any class of [the citizens . . . .], by words, either spoken or written, or by visible representations insults or attempts to insult the religion or religious beliefs of that class, shall be punished with imprisonment. . . .

. . . In order to bring a matter under S. 295-A it is not the mere matter of discourse or the written expression but also the manner of it which has to be looked to. In other words the expressions should be such as are bound to be regarded by any reasonable man as grossly offensive and provocative and maliciously and deliberately intended to outrage the feelings of any class of citizens. . . . If the injurious act was done voluntarily without a lawful excuse, malice may be presumed.

Figure 6 Section 295 of the Criminal Code

The plaintiff most respectfully states that:

1) The plaintiff is a lawyer, and a Bangladeshi Citizen and his religion is Islam. He is basically a devout Moslem. According to Islamic tradition he regularly performs his daily work.

2) The first accused of this . . . is the Managing Director of Footwear Shoe Company, the second accused is the Production Manager of the said company, the third accused is the Marketing Manager, the fourth accused is the Calligrapher of the said company and last accused is the Sales Manager of the said company. The said company is an international organization having shoe business in different countries.

3) The accused persons deliberately wanted to outrage the religion of Muslims by engraving the calligraphy of “Allah” in Arabic on a sandal thereby to offend the Religion of majority this Muslim Country. By marketing this sandal with the calligraphy of “Allah” they have offended the religious feelings of millions of Muslims. It is the solemn religious duty and responsibility of every devout Muslim to protect the sanctity of “Allah.” The plaintiff first saw the sandal with this calligraphy on 22nd June 1989 at Elephant road shop.

The accused persons collectively and deliberately wanted this calligraphy under the feet thereby to offend the religion of mine and many other Muslims and have committed a crime under provisions of section 295A of the Penal Code. At the time of hearing the evidence will be provided. Therefore under the provisions of section 295A of the Penal Code the accused persons be issued with warrant of arrest and be brought to court for justice. The names of the Witnesses

Figure 7 The Statement of the Plaintiff

Source: Blake, R. W. (2000). Footwear international. In H. W. Lane, J. J. DiStefano, & M. L. Maxnevski (Eds.), International management behavior: Text, readings and cases (4th ed. pp. 165–172). Malden, MA: Blackwell.

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Case 2 Computex Corporation Martin Hilb

Goteborg, May 30, 1985 Mr Peter Jones Vice President—Europe Computex Corporation San Francisco USA The writers of this letter are the headcount of the Sales Department of Computex Swe- den, AS, except for the Sales Manager.

We have decided to bring to your attention a problem, which, unsolved, probably will lead to a situation where the majority among us will leave the company within a rather short period of time. None of us want to be in this situation, and we are approaching you purely as an attempt to save the team for the benefit of ourselves as well as Computex Corporation.

We consider ourselves an experienced, professional, and sales-oriented group of people. Computex Corporation is a company that we are proud to work for. The majority among us have been employed for several years. Consequently, a great num- ber of key customers in different areas of Sweden see us as representatives of Computex Corporation. It is correct to say that the many excellent contacts we have made have been established over years; many of them are friends of ours.

These traits give a very short background because we have never met you. What kind of problem forces us to such a serious step as to contact you?

Problems arise as a result of character traits and behavior of our General Manager, Mr Miller.

First, we are more and more convinced that we are tools that he is utilizing in order to “climb the ladder.” In meetings with us individually, or as a group, he gives visions about the future, how he values us, how he wants to delegate and involve us in business,

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the importance of cooperation and communication, etc. When it comes to the point, these phrases turn out to be only words.

Mr Miller loses his temper almost daily, and his outbursts and reactions are not equivalent to the possible error. His mood and views can change almost from hour to hour. This fact causes a situation where we feel uncertain when facing him, and con- sequently are reluctant to do so. Regarding human relationships, his behavior is not acceptable, especially for a manager.

The extent of the experience of this varies within the group due to our location. Some of us are seldom in the office.

Second, we have experienced clearly that he has various means of suppressing and discouraging people within the organization.

The new “victim” now is our Sales Manager, Mr Johansson. Because he is our boss, it is obvious that we regret such a situation, which to a considerable extent influences our working conditions.

There are also other victims among us. It is indeed very difficult to carry through what is stated in our job descriptions.

We feel terribly sorry and wonder how it can be possible for one person almost to ruin a whole organization.

If this group consisted of people less mature, many of us would have left Computex Corporation already. So far, only one has left the company due to the above reasons.

From September 1, two new Sales Representatives are joining the company. We regret very much that new employees get their first contact with the company under the present circumstances. An immediate action is therefore required.

It is not our objective to get rid of Mr Miller as General Manager. Without going into details, we are thankful for what he has done to the company from a business point of view. If he could control his mood, show some respect for his colleagues, keep words, and stick to plans, we believe that we can succeed under his leadership.

We are fully aware of the seriousness of contacting you, and we have been in doubt whether or not to contact you directly before talking to Mr Miller.

After serious discussions and considerations, we have reached the conclusion that a problem of this nature unfortunately cannot be solved without some sort of action from the superior. If possible, direct confrontation must be avoided. It can only make things worse.

We are hoping for a positive solution. Six of Your Sales Representatives in Sweden

Peter Jones let out a long sigh as he gazed over the letter from Sweden. “What do I do now?” he thought, and began to reflect on the problem, He wondered who was right and who was wrong in this squabble, and he questioned whether he would ever get all the information necessary to make a wise decision. He didn’t know much about the Swedes, and was unsure whether this was strictly a work problem or a “cross-cultural” problem. “How can I tease those two issues apart?” he asked himself, as he locked his office and made his way down the hallway to the elevator.

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As Peter pulled out of the parking garage and on to the street, he began to devise a plan to deal with the problem. “This will be a test of my conflict management skills,” he thought, “no doubt about it!” As he merged into the freeway traffic from the on-ramp and began his commute home, he began to wish that he had never sent Miller to Sweden in the first place. “But would Gonzalez or Harris have done any better? Would I have done any better?” Few answers seemed to come to him as he plodded along in the bumper-to-bumper traffic on Interstate 440.

Source: Hilb, M. (2012). Computex corporation. In G. K. Stahl, M. E. Mendenhall, & G. R. Oddou (Eds.), Readings and cases in international human resource management and organizational behavior (5th ed., pp. 185–187). New York, NY: Routledge.

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Case 3 Common Bond Values at the New Zealand Office of AT&T Deborah Shepherd

Una Diver, Human Resources, AT&T GIS, New Zealand

How would the “down-to-earth,” practical Kiwis working in the New Zealand offices respond to these types of ideas? The reason Una Diver, from Human Resources in AT&T GIS NZ, was contemplating these issues was that in a couple of days, she would be hosting Kim Rose, a visiting Australian AT&T trainer. Rose was coming to New Zealand to intro- duce and implement a host of ideas from Corporate Office in America. Specifically during this visit he was going to facilitate workshops on the values called ”Our Common Bond” and the new ”Vision and Direction” workshops that everyone in AT&T GIS throughout the world were required to attend. This included both employees and everyone in a man- agement position although interesting at AT&T the terms managers and employees had been replaced with the terms “coaches” and “associates” respectively.

This was May 1994. As Una pondered on the upcoming workshops, she also reflected on her brief time with the company since joining in October 1993. Una had joined when AT&T GIS was still called NCR as the Human Resource assistant. In the 8 months until the following May she had witnessed and been part of a huge number of changes as NCR was integrated into the AT&T stable of businesses.

Development of a Values Set at AT&T

In answering some of these critical questions, it was decided that there was a need for a shared value set that would guide behaviour, decision-making, internal and external interactions and essentially govern the way AT&T people conducted business with both their internal and external customers. As a result of the many organisational changes, Bob Allen perceived a sense of confusion around what the company stood for amongst

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associates and was concerned that people in AT&T were struggling to adjust. He had hearing through his network that some associates had concerns about the company. He then began reflecting on the question: “If everyone is working fairly independently in their customer-focused teams (CFTs) then what is the glue that holds the company together?” In response to this, and other similar questions, Allen and members from the US Quality Council began work on what he called “The Common Bond.”

However, recognising the importance of getting people’s input, Bob Allen didn’t develop AT&T’s values alone. He encouraged and received plenty of assistance. From meetings that spawned the original ideas, through surveys and then focus groups, hundreds of associates, mainly Americans, helped produce what later became ”Our Common Bond” — a set of five values for AT&T world-wide.

The process began with senior executives out-lining seven values upon which associates from many different offices were asked to comment. It was associates who suggested that one of the original values, citizenship, not be a separate value. Similarly, while many associates acknowledged the importance of shareowners receiving a com- petitive return on investment, they successfully argued that if AT&T people behaved in accordance with all of the other values, benefits to the shareholders would accrue automatically. Both of these changes were accepted.

It was Bob Allen’s intention that the values would reflect what critical success elements for AT&T, what differentiates AT&T from its competitors, what would make AT&T a superior place to work, and a set of statements that AT&T people around the globe would embrace. By the end of the process, 16 groups of associates at all job levels, from 8 states and 4 countries (the United States, the Netherlands, the United Kingdom, and Singapore), representing all parts of the business, had voiced their views in focus groups. Following these discussions, the list of values was reduced to the “final five” and the last alteration was to change the title from “The Common Bond” to “Our Common Bond.”

“Our Common Bond”

The following values and brief description now make up “Our Common Bond”:

Respect for Individuals

“We treat each other with respect and dignity, valuing individual and cultural dif- ferences. We communicate frequently and with candor, listening to each other regard- less of level or position.”

Dedication to Helping Customers

“We truly care for each customer. We build enduring relationships by understand- ing and anticipating our customers’ needs and by serving them better each time than the time before.”

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Highest Standards of Integrity

“We are honest and ethical in all our business dealings, starting with how we treat each other. We keep our promises and admit our mistakes. Our personal conduct ensures that AT&T’s name is always worthy of trust.”

Innovation

“We believe innovation is the engine that will keep us vital and growing. Our cul- ture embraces creativity, seeks different perspectives and risks pursuing new opportu- nities.”

Teamwork

“We encourage and reward both individual and team achievements. We freely join with colleagues across organizational boundaries to advance the interests of customers and shareowners.”

During the workshop in which the values were introduced and their meaning and implications discussed, every AT&T member was given a foldout business/informa- tion card that included the values and summaries as above. Under the heading ”Our Common Bond” is the following statement: ”We commit to these values to guide our decisions and behavior.”

After the five value descriptions the concluding statement is: “By living these val- ues, AT&T aspires to set a standard of excellence world-wide that will reward our shar- eowners, our customers, and all AT&T people.”

Responses to the Values

Una recalls the first time she saw the values and their descriptions. There was no way that you could disagree with their intention, there was no doubt that the values were admirable and worth pursuing but Una wondered whether the values might be “too idealistic to make practical and be of use in the everyday workplace?” Particularly she questioned how New Zealand associates would cope with the very American style of the values and the idea of having them written down and displayed to the public.

Prior to launching the value set to associates across the entire company, sixty senior officers from Corporate devoted a full day to understanding the values and the connections between the values and behaviour and desired business results. These officers engaged in a lively discussion of corporate versus business unit and division values. Should there be a single value set for all AT&T people who represent an extremely diverse group of people around the world, or should different groups of people develop or continue to endorse the values that are meaningful to them? One side argued the need for a common bond across all of AT&T, the other argued to maintain other values that some people had worked long and hard to embrace and personally commit to their group’s values.

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It was Bob Allen who made the final call. He stated that “while we must respect and honour the work already done on values by AT&T people in their business units and divisions, ”Our Common Bond” must become the core, the corporation’s ‘glue.’” Bob Allen believed that with these values, “we preserve the best of our past and define the framework for our future success.”

Now, almost one year since the values were introduced to NZ, along with many other directives from America, Una considers if Bob Allen was right in his decision. Una could only reflect on the implications for the NZ office, but certainly she had experienced some resistance and difficulty implementing US directives amongst the strong-minded and independent NZ associates. “Are HR coaches in other countries experiencing similar resistance?” wondered Una.

Values Workshops

The values were introduced to every associate of AT&T via training sessions by specially trained facilitators for this role from within AT&T. Each workshop discussed the five values in detail, including what behaviours reflected the spirit of each value and which behaviours violated the underlying meaning and intention of each value. Issues such as harassment, acknowledging and valuing diversity in the workplace, managing change, giving and receiving feedback and personal development were addressed during these sessions. In New Zealand Kim Rose and Una Diver facilitated these workshops during the first six months of 1994. All NZ associates attended a two-day workshop that not only addressed ”Our Common Bond” values but also included sessions on Opportunity and Change, and Vision and Direction.

Interestingly, the people least committed to these sessions were senior management personnel, the senior coaches. During one workshop, one of the NZ quality council members was never seated for more than 15 minutes without leaving to take or make telephone calls on a cellular phone. Another was required to give part of a seminar and, seemingly, from nonchalance and a lack of preparation, read straight from the man- ual and seemed totally disinterested and, perhaps, even cynical about the material. Yet another coach was part of a discussion group during the workshop and said something derogatory to one of the other discussants. When the offended individual chastised the manager by saying that the remark was “a common bond violation” the manager replied with “tell someone who cares.”

Kim Rose saw many incidents that indicated that it was frequently more difficult getting people in senior positions to adopt the values and align their behaviour to them than peo- ple further down the organisational hierarchy. Rose pondered that “perhaps the values were more threatening for senior people if associates under them could challenge their behaviour.”

The 1994 “Values Fest”

Una’s concerns about how applicable the American “way” of operating for the NZ division were heightened again in recent times as the latest Corporate Office initiative landed on her desk. This time it was for a Common Bond celebration called a “Values

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Fest.” A directive came from Dayton, Ohio outlining the “Values Fest” to be held on the 7th of November. As usual, the material only arrived on her desk a few days before the actual required action date—the celebration day. The timeframe and her imme- diate and strong reservations about the content of the directive forced her to make a decision at short notice. The manuals instructed her to show a video, to get associates to complete a quiz and some written exercises, to get involved in discussion groups on the values, to make a “call to action” in relation to each of the five values outlined in the Common Bond, and to get people to sign a Common Bond poster as a celebration of the values. All of this would have taken half a day. Una knew that such sessions just would not go down very well with the NZ associates because they would see it as both a waste of time and, more importantly, that the content and style was just not relevant to them in the New Zealand office. Instead, she chose the 45 minute option for compa- nies that “did not have sufficient time for the full agenda and who could give Corporate Office a serious reason for adopting this option.” Una felt she had a very definite reason. She describes her decision for the short version as “a cultural decision.” The material and session exercises and activities outlined in the manual from the United States were not appropriate for AT&T’s New Zealand associates. It appeared to Una that following the 45 minutes of formality, everyone gathered around for refreshments and food and seemed to thoroughly enjoy themselves.

Appropriateness of American Directives for the NZ Division

This Common Bond Celebration again raised the issue of how and when does the NZ office need to adapt Corporate directives to suit the NZ working style. Following the celebrations, Una believed that she had made the right decision to alter the American format and use the shortest possible version for the NZ organisation. As the Human Resources manager she knew she had to make a judgement decision and she decided in this case that if all of the material was taken and used literally from the documentation she received, “it would go down like a lead balloon.”

The telephone rings in the Human Resources reception area. Enough daydreaming thinks Una. She chuckles her notorious laugh that has helped her and others keep these issues in perspective. It is time to get back to work and deal with the mounting ‘in-tray’ of work. She knows the company will get through the difficult times and that change is now just an inevitable and constant part of life. Although that makes her HR role difficult at times, there is no denying that this is a dynamic, well-known, ambitious and successful company which makes her life at AT&T interesting, rewarding and above all challenging.

Source: Shepherd, D. (2003). Common bond values at the New Zealand office of AT&T. In D. C. Thomas (Ed.), Readings and cases in international management (pp. 92–100). Thousand Oaks, CA: Sage.

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Case 4 Peter Hanson: Building a World-Class Product Development Centre for Hi Tech Systems in China Ingmar Björkman

Introduction

Peter Hanson, the Head of the Product Development Centre (PDC) of Hi Tech Systems in Shanghai had been in China for five months. He was the first person in the Product Development Centre when he arrived in Shanghai in April 2000. Thinking back at the period he had spent in China so far, he felt that things had gone quite well. The PDC was now up and running and today, on September 12, 2000, Peter welcomed its six- teenth employee.

Nonetheless, Peter still had a number of concerns. The PDC was still rather small and it was possible for him to interact with and influence all employees. As the PDC would grow significantly over the next year, he wanted to make sure to create a healthy and positive atmosphere and orientation towards work. His vision was to create a world-class PDC in Shanghai, but how to do that in a country that mainly was a recipient of technological know-how from abroad, and what measures should be taken to convince other parts of Hi Tech Systems to engage in joint devel- opment projects with his PDC? And even if he managed to develop the competen- cies needed to build a world-class PDC through careful recruitment and selection as well as good investments in training and development, how were they to retain the employees in a market where job hopping was common, money apparently an important reason why people switched jobs, and well-educated people had ample opportunities in other companies? Basically, his question was: would lessons on now to manage human resources obtained in North America and Europe apply also on the People’s Republic of China?

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Product Development in Hi Tech Systems

Hi Tech Systems was established in Stockholm, Sweden, in 1976. By the late 1980s, it had become known as one of Europe’s most innovative firms in its industry. The growth continued in the 1990s, with firm profitability remaining healthy. The company is cur- rently one of the three largest firms in its industry. Hi Tech Systems’ global manufac- turing comprises six production facilitates in five different countries on three different continents. Approximately 45 percent of sales come from Europe, but Japan, China and, in particular, the United States have become important markets.

Product development is seen as key to the success of Hi Tech Systems. Almost 20 percent of Hi Tech Systems’ employees are working in research and development. Hi Tech Systems has Product Development Centres (PDCs) in Sweden, the UK, the US, Japan, Hong Kong (China) and, most recently, mainland China. There is a global PDC management group headed by Johan Lind that consists of all the PDC heads, which convenes once a month. Johan Lind reports to the head of global product development in Hi Tech Systems, Anders Jonsson.

The responsibility for product development programs resides with the global busi- ness lines and the “platforms” (such as Japanese user interface). Research programs within the business lines that lead to actual products also draw on the work being done within the platforms. In each PDC, people work on projects related to both Hi Tech Systems business lines and platforms.

A full-grown PDC has some 400–500 employees, a variety of competencies, and is expected to have the capability needed to develop an entire new product. There are several reasons why the company has established a whole portfolio of PDCs. First, dif- ferent areas differ in terms of technologies and standards relevant for the business. Therefore, it makes sense to locate research and development activities in locations where the technologies reside. Second, by dispersing PDCs to different parts of the world, the company can move product creation activities in response to environmental and market changes. Third, it enables Hi Tech Systems to draw on human resources not available in one location. Hi Tech Systems has traditionally done most of its product creation in Sweden, but as a result of growth there are not enough engineering students in the whole country to satisfy its needs. Fourth, products need to be local-adapted and this is easier to carry out locally than in a distant PDC.

In a typical research program, most of the work on the key components of a new product is done within one single “core” PDC. Within each project, there is a fairly clear distribution of responsibilities across the PDCs involved. Other ‘peripheral’ PDCs are typically involved in developing locally adapted variances of the product. Most of the work has typically already been done in the core PDC before the other PDCs get involved (although, in order to ensure that the necessary local adaptations of the final product can be made at a later stage, people from each of the geographical regions are involved in steering groups during the conceptualization stage). The knowledge trans- fer mostly takes place through people from the PDCs who visit the core PDC for 1–3 months to work with the product development people before they return to their own units. At the point when the project has been established in the peripheral PDCs, the

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focal project leader reports to the global head of the focal product development project and to the head of their own PDC. Heavy emphasis is put on establishing and following up project milestones.

Hi Tech Systems in China

The People’s Republic of China started opening up to the outside world in 1979. In 1992, the Hi Tech Systems group established a representative office in Shanghai and, in 1995, a first joint venture was established. By the beginning of 2000, Hi Tech Systems already had four joint ventures and wholly owned subsidiaries in China. Hi Tech Systems had become a significant player in the rapidly growing Chinese market, where it was competing with other Western, Japanese, and also increasingly strong local com- petitors. China had become one of Hi Tech Systems’ most important markets. Most of the products sold in China were produced in the firm’s local factories.

However, Hi Tech Systems had so far no Product Development Centre in China. Towards the end of the 1990s, there was growing consensus that this neglect had to be rectified. A decision to establish a PDC in Shanghai was made by Hi Tech Systems’ management board in January 2000. Peter Hanson was chosen to head the PDC.

Peter Hanson

Peter Hanson was born in California in 1962. After graduating from college with a major in management, his first job was with a major US industrial firm. As a part of his job, in 1989–90 he spent 6 months in Hong Kong. During his assignment in Hong Kong, he fell in love with Asia and China. Since that moment he knew that he was going to return to Asia. Peter also met his future wife, who moved with him to the US. In 19991–93, Peter did an MBA and then started to work in a small start-up company. In late 1997, Peter was persuaded by one of his previous colleagues to join Hi Tech Systems. When joining Hi Tech Systems, Peter was appointed operations man- ager. After some months, he was asked to head the engineering unit of the new Product Development Centre that was built up in Philadelphia. Peter accepted the job, which meant that he would be responsible for the largest unit of the PDC. Peter and his new boss, Curtis O’Neill, soon became very close, with Peter acting as the second in charge of the PDC. Peter recalls,

I learnt a lot from Curtis. He was very people-oriented. He would make sure that you get an opportunity to get into an environment where you either learn or you don’t. He gave people lots of challenges, lots of learning opportunities, where they could prove themselves. He would also quite directly point to areas of improvement. He also underlined the importance of networking, how to build networks of people that you can draw on.

One of the things that Peter learned soon after joining Hi Tech Systems was the importance of having good personal contacts within the company. The Hi Tech Systems global product development worked, to a significant extent, through informal contacts

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across units and it was crucial to be well connected. His choice of the five product line managers in his department reflected this view. While people in the Philadelphia unit expected and pressured him to choose local people for the positions, he selected three expatriates and only two local employees:

People thought I was taking promotions away from Philadelphia. I had my own views in mind—we needed to be connected to the other centers. If you’re well connected people trust you to do a good job within a research program, and it is also easier to get technical help if needed. I then used lots of interviews with the candidates to convince people about their capabilities and to get some buy-in from the other managers. I also made sure to tell people that the objective was to fill the positions with local people in two-three years. In fact, the line managers had as an explicit objective to develop a local replacement of them- selves.

During the next 18 months, Peter visited Sweden several times. He often took part in the global PDC group meetings as O’Neill’s stand-in. The global PDC management also knew that he was interested in returning to Asia, something Peter had mentioned from the outset in his performance management discussions.

Establishing the Product Development Centre

During the summer of 1999, the global PDC management group decided that a feasi- bility study on the possible creation of a PDC in the People’s Republic of China should be carried out. In October 1999, Peter was asked to become involved in the project. His task was to examine the data and write a report on whether or not a PDC should be established and, if so, where in China it should be located. By that time, Peter also knew that he would be the preferred candidate as head of the PDC (if approved). In January 2000, the HI Tech Systems global management board approved the establishment of a PDC in Shanghai. One of the advantages of Shanghai was that the PDC would be able to use the existing Hi Tech Systems organization in the city. It would be easier to learn from the experiences of Hi Tech Systems’ largest Chinese production and its China headquarters, both of which were located in Shanghai. In February, Peter went to China on a pre-visit mainly to meet with people in the Hi Tech Systems organization.

When it became clear that the PDC would be established, Peter started to look for people. There was no established policy for people management within the global product creation organization, but Peter was told to draw on the HR department at the Hi Tech Systems group in China for support. He thought he would initially need approximately ten positions for expatriates, and it would be of crucial importance to find suitable people for the key positions:

It was networking all the way—the social networks were very important! There were many people who knew that I would do it and some of them contacted me. I contacted and spoke to lots of people in all parts of the Hi Tech Systems organization. I wanted the candidates to have experience in launching Hi Tech Systems products in China. They should know the Chinese environment and culture. This meant that there were only a very small number of

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people who fulfilled my criteria. And they had to commit to staying at least two or even three years, which is not usual in Hi Tech Systems. Towards the end of the period they start hunting for another job anyhow.

Peter finally identified four people that he wanted: one Swede, and three persons from the People’s Republic of China who had studied and worked for several years abroad (two in the United States one in Sweden). One of them he already knew in advance, the others he had identified through his networking activities. All the Chinese had a strong educational background, with degrees from top Chinese universities before leaving the country for overseas graduate studies. Everybody had at least some experience in leading their own teams:

I talked a lot to them. Have they thought about living in China? Were they (the Chinese) conscious about the challenges involved in going back to China? For instance, people may be jealous of them making much more money, travelling abroad and having much higher posi- tions than they themselves had? Have they realized that it’s going to be a start-up operation, and that it may be difficult to get things started and people on board?

To persuade the people he wanted to accept relocating to China, Peter tried to create a positive and challenging vision for the PDC. To date, Hi Tech Systems had probably not done enough to meet the needs of the Chinese-speaking countries. Did they want to become a part of the process of creating a world-class PDC in China? The PDC would become responsible for the Chinese user interface platform—did they want to participate in the challenge of its development? Being restricted by the company’s expatriate compensation policy, which was built on a standardized job grading system, he was able to offer competitive but not exceptional salaries. He finally managed to persuade all four candidates to accept a job in his PDC. They all knew each other from their previous jobs. During the late spring of 2000, he found some additional people in the global Hi Tech Systems organization who also agreed to taking up jobs in Shanghai:

A part of my strategy was to get people from different Product Development Centers. By having these people in my organization we are able to easily reach into the other PDCs, which is particularly important in the beginning as we are dependent on doing parts of larger projects in collaboration with other centers. If we have good people who have credibility from each of the other PDCs, we will be recognized and seen as trustworthy.

But Peter did not see technical competence as the only important criterion. In his view:

80 percent is attitude. It doesn’t matter what you can do, if you lack drive. With drive you can always fill in the gaps . . . Perhaps it has something to do with my own background. I have had to manage without an engineering education in an organization and industry that are extremely technology-intensive.

The PDC was to report to the Global PDC management and to the Hi Tech Systems China country management. As agreed upon with the Global PDC management group,

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PDC Shanghai would be responsible for product creation in the Chinese language area, including mainland China, Hong Kong, Singapore, and Taiwan. In the beginning, it would mostly do limited parts of larger products in collaboration with other global PDCs, working, for example, on software and on Chinese-specific applications. The long-term vision was eventually to have the competencies to be able to build new products in China.

The Start of the Product Development Centre

Peter and his family finally arrived in Shanghai on April 12, 2000. The next employee arrived from overseas in May, and by September the unit had 16 employees, half of whom had been recruited from abroad. Peter’s estimate was that, long term, 15–20 percent of the employees would be from overseas but that it would take 3–4 years to decrease the proportion of expatriates to that level:

When you build a home, first you build the foundations. You need to make sure that the foundations are in place—the recruitment process, human resources management, finance. Then you need key managers to build the organization around.

In the recruitment of local employees, the PDC was collaborating closely with Hi Tech Systems’ human resources (HR) department. After job descriptions and job grade levels had been determined by the PDC, the HR department would announce the position using both advertisements and the Hi Tech System home page, receive CVs, do a first screening of the candidates, and arrange for interviews and assessment of the applicants. The interviews were done by a minimum of two PDC managers, who also acted as observers in the assessment centers organized by the HR department. For the assessment of applicants in China, Hi Tech Systems used “The Space Shuttle.” The Space Shuttle was a game where the applicants worked together in a group with the objective of reaching an agreement on how to build a space shuttle. By observing the applicants involved in a problem-solving situation where they also interacted with each other, the observers could draw their own conclusions about the applicants. Recruitment and selection of local employees largely resembled practices used elsewhere in the global Hi Tech Systems organization.

Some other Western firms had apparently made larger adjustments in their selection practices in China. For instance, Peter had heard that Shell had changed its selection practices based on an in-depth study of its existing Chinese managers and entry-level management trainees. Traditionally Shell focused on analytical and prob- lem-solving abilities. However, when, for example, applicants were asked to identify the strengths and weakness of the Chinese educational system and then say what they would do to remedy deficiencies if they were the Minister of Education, if there were any responses at all they tended to be uniformly bland. It was also found that the kind of “Who would you throw out of the airplane?” question commonly used in the West also tended to engender a “learned helplessness effect” on the part of Chinese univer- sity graduates, who have excelled at clearly defined tasks in a familiar environment and

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who had “learnt” to respond to the unfamiliar by simple freezing. Shell’s system identi- fied the Chinese education system as the chief culprit. The educational system is hier- archical, extremely competitive and almost exclusively based on examination of rote learning. Problem-oriented interaction among strangers is unnatural and problematic for most Chinese. Therefore, to evaluate the decision-making skills, communication skills, analytical problem-solving abilities, and leadership capabilities of the applicants based on hypothetical cases solved in assessment situations may be very difficult. As a result, Shell’s study recommended the use of real case studies rather than hypothetical questions.1

Competence development would probably be key to the success of the PDC, both in terms of localizing its operations and in producing good results. By mid- September, the new employees had mostly worked on small projects, such as setting up the IT system. A couple of people had also been sent to Hong Kong to work in the field with experienced engineers for 3 weeks. Formal training would be important, and the PDC would need to collaborate with Hi Tech Systems’ HR unit on the course program offered to the PDC employees. To what extent should the Chinese employees receive the same content and delivery as Hi Tech Systems employees elsewhere? In China, the Confucian- and communist-influenced Chinese educational system in which the learner is a mostly passive receiver who is obedient to instructor tends to create linear rather than lateral thinking and precedent-based problem-solving where the focus in on getting the “right” answer.

Nonetheless, hands-on on-the-job coaching would be even more important for the development of the new employees. Most of the responsibility for coaching would obviously be on the experienced Hi Tech Systems employees but also important would be to bring in people from other PDCs for visits in Shanghai. Coaching on the part of the expatriates would be extremely important, Peter thought. He had already been dis- cussing it at length with the managers that he had hired, but he was not sure whether or not that was enough, especially not when the unit would grow over the next couple of years. He certainly would not be able to coach all expatriates by himself.

In Hi Tech Systems’ globally standardized performance management system, all employees should carry out performance management discussions with their superiors. Within this system, individual objectives are established and followed up. According to company policy, the individual’s objectives must be specific and, if possible, measur- able; key activities for how to reach the objectives shall be specified; criteria for how to evaluate the performance agreed upon; and finally, development plans decided upon. Peter’s aim was that every new employee would do their first performance manage- ment discussion within a month after they joined the organization. All Hi Tech Systems superiors in China were trained in how to use the system but there was still a question of how the “Western” system would be implemented in the Chinese culture character- ized by respect for hierarchy, face, and harmonious personal relationships.

Peter had also given the question of the relationship between employee compe- tence development and career progress quite a lot of thought. In Hi Tech Systems worldwide, people achieved high status by having excellent technological knowledge and skills rather than having made a successful career as a manager. However:

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In China especially the young people expect to get a new title every year; otherwise they had better start looking for another company. The speed of expected career progression clearly differs from the West. To develop the level of competence required for the next career step will be a challenge. Can they achieve it once a year? I think very few will.

The compensation of employees would follow the Hi Tech Systems policies. Managers and team leaders were compensated based on both business and individual performance. High-level executives and senior managers had a large business performance component in their bonus system, while the compensation of lower-level employees was mostly based on their individual performance. In the Shanghai PDC, individual performance would be evaluated based on 4–5 objectives. Peter required that the objectives had to be measurable on a ten-point scale. For instance, a manager’s performance could be evaluated based on the manager’s ability to fill positions in his/ her group, employee satisfaction (as measured in company-wide surveys), employee turnover, the team’s ability to stay within the budget, and some measure of quality (to be determined in discussions between the person and Peter). Each person’s performance was evaluated every 6 months, and bonuses paid accordingly. The target bonus was 10 percent of the person’s base salary, with 20 percent as maximum. People working on a specific development project were evaluated not every 6 months but the evaluation rather followed the milestones of the project. The bonus element was also somewhat larger for people working on projects than for other PDC members.

Peter believed that the compensation system would work well in China. Having clear objectives and rewards linked with their fulfillment would help send a clear mes- sage to the employees: your performance equals what you deliver—not the personal connections, or “guanxi,” that you have! Nonetheless, at least in the start-up phase of the PDC it might be somewhat difficult to establish feasible objectives for the employ- ees. Additionally, there had been reports from other foreign firms that there was a ten- dency among local employees to set objectives so that they would be reached by the subordinates.

Looking Towards the Future

Analyzing the start-up phase of PDC, Peter found that many things had gone quite smoothly. For instance, the two Chinese “returnees” who had joined PDC so far (the third was still in Sweden but would relocate next month) seemed to do well. Although China had changed a lot since they left the country some 10 years ago, their interaction with the local employees seemed to go well.

Managing the growth would certainly be a challenge in the next couple of years, Peter thought. For instance, local employees would have to be taught to manage themselves and to take responsibility—behaviors not automatically understood and accepted in the Chinese environment. While the Hi Tech Systems culture was non- hierarchical and meritocratic, the Chinese culture is hierarchical, and the “face” of superiors could be at stake if subordinates made their own initiatives rather than wait- ing for orders from their superiors. Furthermore, since the communist regime from

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1949, the Chinese have been discouraged from engaging in competitive and entrepre- neurial behavior. The Chinese proverb “the early bird gets shot” aptly illustrates the reluctance on the part of Chinese employees to engage in the kind of innovative behav- ior that Peter wanted to see in the PDC. On the order hand, Peter had seen several Chinese changing their behavior significantly abroad. What should they do to promote this behavior also in the Shanghai PDC?

Peter was also looking for somebody to work closely with Hi Tech Systems’ HR function. This person would work closely with him and the line managers to define future competence needs and how they could be met. “So far I guess I have fulfilled this role, but I’m afraid that neither me nor line managers will have time enough to pay sufficient attention to this issue in the future.”

Finally, Peter was concerned about retention. “I have also been told by [a human resources expert] that a 1 renminbi salary difference may make a person switch job.” Peter believed that money would not be key to retaining the employees, though. To create a positive, family-like atmosphere might help. Peter had started a tradition of everyone in his unit meeting for a snack on Monday mornings. He also made a con- scious effort to spend time talking to people in the department. Furthermore, he had invited people out for lunch and dinner. To maintain a positive relationship between the foreign and local employees, he tried to coach the expatriates not to mention how much money they made, how they lived, and how cheap they found most things to be in Shanghai (say “reasonable” instead, was his advice). All this had apparently con- tributed to there starting to circulate rumors that “things are done a bit differently in PDC.” He was now thinking of whether to involve the employees’ families in some way. Formal team-building exercises should probably also be done.

There were so many things to do . . . Peter looked out of his window in one of the many new multistory buildings in the Pudong area of Shanghai—where should he start?

Note

1. The Economist Intelligence Unit (1998, September 28) China on the Couch, 3–4.

Source: Björkman, I. (2012). Peter Hanson: Building a world-class product development centre for hi tech systems in China. In G. K. Stahl, M. E. Mendenhall, & G. R. Oddou (Eds.), Readings and cases in interna- tional human resource management and organizational behavior (5th ed., pp. 62–70). New York, NY: Routledge.

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Case 5 Lenovo-IBM: Bridging Cultures, Languages, and Time Zones Kathrin Köster and Günter K. Stahl

(A) An Audacious Deal

“Cultural integration is still one of the biggest challenges . . . We face the com- bined effect of different corporate cultures and the difference between the cultures of the East and the West.”

Orr and King, 20071

On Tuesday, December 20, 2005, the public learned of the departure of Steve Ward, the CEO of Lenovo. He had lasted just eight months in the position before he was replaced by William Amelio, a former Dell executive.2 The move came as China’s Lenovo, despite its difficult start, seemed poised to become the world’s leading PC maker.

Just 23 months prior, on December 8, 2004, Yang Yuanqing, who was then Lenovo’s CEO, announced his intention to purchase IBM’s PC division for US $1.75 billion—an unprecedented move for a company based in an emerging market (for a timeline of the deal, see Appendix A1). The radical deal would transform Lenovo from a company that sold exclusively in China into a major global player. Furthermore, IBM’s PC division accounted for three times the sales that Lenovo earned, so the announcement seemed less like a merger and more like David was trying to swallow Goliath.

The Long March from Legend to Lenovo

Prior to 2004, Lenovo had been known as Legend, a company established by Liu Chuanzhi, a graduate from Xi’an Military Communications Engineering College. In 1984, he and a few colleagues spun off Legend from the state-owned Chinese Academy of Sciences, which provided seed money of US $25,000 that the young entrepreneurs

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used to set up shop in a ramshackle building in “Swindler’s Alley,” Beijing’s electronics black market. Very quickly, Liu Chuanzhi realized that differentiation through innova- tion was the only way forward. The Legend brand thus developed an add-on card that allowed Chinese applications to run on English-language operating systems; it capitu- lated China into the PC age. For this innovation, Legend received one of China’s high- est honors, a National Science Technology Progress Award.

In contrast with its main competitor, Great Wall, Legend was not well connected to or protected by government authorities. For example, the company was refused a license to manufacture in China. But with innovation as its watchword, Legend came up with the idea of entering into a joint venture in Hong Kong, in which capacity it would also build motherboards and PCs and thereby outmaneuver its better- connected Chinese rivals. It was not until 1990 that Liu Chuanzhi could realize his dream to build PCs in his home country, though.

In 1994, Legend went public to raise capital in Hong Kong and thus be able to compete with foreign computer manufacturers, whose products had been flooding the Chinese markets since the beginning of the 1990s. Before its competitors, Legend introduced a Pentium PC in China; this first-mover advantage contributed greatly to its status as the leading PC maker in the Chinese market.

Although Legend diversified into a few non-core businesses, such as IT services, the PC business remained the center of its operations. During the mid-1990s, a young man- ager, Yang Yuanqing, stood out for his work in this division. An unusually bright engi- neer with a strong desire for clarity and precision, Yang had been promoted at a very young age. A forceful personality and firm believer in discipline and centralized decision- making, the young Yang Yuanqing prompted descriptions such as acutely intelligent, touch and decisive3 as well as autocratic in his leadership and abrasive. Yet Yang also proved a visionary, with a sharp eye for promising innovations and new business oppor- tunities. In retrospect, observers noted that his arrival at the company was a true turning point in Legend’s history (Appendix A2 provides a description of Yang Yuanqing).

With Liu, Yang shared the conviction that to achieve ambitious goals, Legend needed to attract China’s best and brightest and then imbue them with the Legend spirit. Newcomers had to “fit the mold,” and the company went to great lengths to instill the right mindset, values, and work ethic.

Legend’s vice president Du Jianhua described the desired corporate culture, as well as required changes in management practices and individual behavior, using the “1-2- 3-4-5 formula:”4

1. Adopt one common culture and vision that all Legend employees and managers share.

2. Require dual attitudes from employees. That is, Legend employees were expected to treat customers with the utmost respect and care, in line with the motto, “the customer is the emperor,” and go the extra mile to meet customers’ needs. Legend’s definition of “customers” included internal customers, suppliers, dealers, and distributors, so employees also were warned not to offend or exploit these members of the extended Legend family. The second employee characteristic the company prioritized was frugal- ity. Every employee needed to be aware that Legend was a profit-maximizing organiza- tion, with the motto “Save money, save energy, save time.”

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3. Concentrate on three fundamental leadership tasks: build the management team, deter- mine the strategy, and lead the troops. These tasks, reflecting the philosophy of Sunzi, constituted not only the capabilities that leaders needed to possess but also the recom- mended approach to managing people. Thus, management was to instill the discipline and obedience in the rank-and-file staff and ensure employees strictly adhered to com- pany rules and policies. Only in case of an emergency or crisis that might cause severe damage to the company could employees act according to their own judgment.

4. Adhere to four commandments: (1) don’t abuse your position to line your own pockets; (s) don’t accept bribes; (3) don’t take any second job outside the company; and (4) don’t discuss your salary with anybody in the company. These rules defined minimum requirements; employees also were expected to meet additional standards of conduct. In a management meeting in August 1997, Yang described the ideal Legend employee as follows: accurate, careful, and meticulous when it comes to details; able to analyze the root causes of problems and come up with practical solutions; able to effectively com- municate and cooperate with others; and marked by relentless self-discipline. At Legend, such military-like discipline as strictly enforced and backed by stiff penalties for misbehavior. Only under pressure and with clear rules and accountabilities, Yang was convinced, would employees perform and thrive. Employees had to clock in and out; if they came late to a meeting, they had to stand for one minute behind their chair. If they were seen outside the office building without a plausible explanation, they had to accept a pay deduction.

5. Consider five changes. As the twentieth century drew to a close, Legend’s top manage- ment perceived a need to move away from hierarchical control toward a more participa- tive style of leadership that encouraged people to take ownership and responsibility for their performance. Strict lines of authority and top-down control, Yang and Liu came to realize, would prevent Legend from responding to market needs and trends and achieving international significance. Thus the company faced the significant challenge of delegating responsibility broadly and promoting an entrepreneurial spirit, as well as leadership at all levels. Five changes in behavior and skills would be needed to imple- ment Legend’s new management model, which Yang introduced in 1998. Specifically, managers were expected to:

i. work toward meeting goals and objectives rather than blindly following a supervi- sor’s instructions;

ii. develop from a people-oriented into a task-oriented manager;

iii. do what needs to be done to respond to the needs of the customer;

iv. think in terms of numbers and specify concrete, quantifiable objectives to be achieved; and

v. become more inquisitive and open-minded.

These management principles and rules aimed to impart a greater performance orientation and cultivate a culture of accountability throughout the company. They also were designed to reflect the company’s core values: customer service, innova- tive and entrepreneurial spirit, accuracy and truth-seeking, trustworthiness, and integrity.

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To instill these values, Legend’s top managers decided to adopt Western-style per- formance management and human resource (HR) practices. It was among the first Chinese companies to introduce a stock option program for managers. It also imple- mented a forced ranking, or “rank and yank,” system that required managers to iden- tify the top and bottom 10% of performers, similar to the appraisal system introduced by Jack Welch at General Electric. This prompted some observers to conclude that Legend was not a “typical” Asian company.5

In 2001, when Yang was appointed CEO and Liu took on the chairman role, Legend also began globalizing. Yang and Liu had become convinced that growth opportunities in China were limited by the increasingly fierce competition in the Chinese market. To pursue opportunities outside China, they established a new vision for Legend, names, to join the Fortune 500 and become the first global Chinese player. But the name Legend was already copyright-protected outside of China, so the company renamed itself Lenovo—“Le” from Legend and “novo” to indicate a new start. Also, in 2004, Lenovo announced its decision to become the worldwide partner of the International Olympic Committee, as the computer equipment provider for the 2006 Winter Olympics in Turin, Italy, and the 2008 Beijing Olympic Games.

The IBM Opportunity: Acquiring an American Icon

IBM, an icon of corporate America, was founded in 1911 as The Computer- Tabulating-Recording Company. After its geographical expansion into Europe, South America, Asia, and Australia, the company took the new name International Business Machines, or IBM, under the leadership of Sir Thomas J. Watson Sr., the head of the organization from 1915 to 1956. A self-made man with no higher-level education, he reportedly stated: “The trouble with every one of us is that we don’t think enough. We don’t get paid for working with our feet; we get paid for working with our heads” (Forbes, 1948).6 The slogan “THINK” was thus a mantra for IBM; it was also the motto above the door of the IBM schoolhouse where all new hires, usually fresh from college, had to undergo 12 weeks of education and orientation.7

The beliefs of Sir Watson not only prompted the company’s innovativeness but also had long-term impacts on the attitudes and behaviors of its workforce. Watson emphasized impeccable customer service and insisted on dark-suited, white-shirted, alcohol-abstinent salesmen. With fervor, he instilled company pride and loyalty through job security for every worker, company sports teams, family outings, and a company band. Employees received comprehensive benefits and were convinced of their own superior knowledge and skills.8

IBM also prided itself on shaping the entire computer industry. With the advent of high-performing integrated circuits, “Big Blue”—a corporate nickname that recog- nized IBM’s army of blues-suited salesmen and blue logo—could launch the System/360 processors that enabled it to lead the market with high profit margins and few compet- itive threats for decades. This position changed with the rise of UNIX and the age of personal computing, though. In 1986, IBM developed the first laptop, which weighed

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12 pounds; by 1992, it was promoting the ThinkPad, the first notebook computer with 10.4-inch color display that used Thin Film transistor technology.

Despite its pioneering entries into the PC market, IBM did not make its PC busi- ness a top priority and surrendered control of its highest-value components, namely, the operating system and the microprocessor, to Microsoft and Intel, respectively. Critics widely attributed IBM’s decline in the late 1980s and early 1990s to its failure to protect its technological lead; it became a follower rather than an innovator.9 The once-dominant giant came close to collapse when its mainframe computer business, the primary growth engine of the 1970s and 1980s, ground to a halt.

But the CEO in what were arguably IBM’s darkest hours brought the company back from the brink. When he took over in 1993, Luis Gerstner recognized that IBM’s cherished values—customer service, excellence, and respect—had become a sort of rigor mortis, which turned them from strengths to liabilities. “Superior customer ser- vice” had come to mean servicing machines on the customer’s premises; “excellence had mutated into an obsession with perfectionism. The numerous required checks, approvals, and validations nearly paralyzed the decision-making process. Even the belief in respect for the individual had turned into an entitlement, such that employees could reap rich benefits without earning them.10

Under Gerstner’s leadership, the company was recentralized and structured around processes. He introduced global customer relationship management, a com- plex web of processes, roles, and IT tools that affected tens of thousands of employees. It took IBM nearly a decade to remake itself into a comprehensive software, hardware, and services provider, but Big Blue’s successful strategic repositioning increased the “we feeling” and strengthened what has been described as an almost cult-like culture.11

Thus, when Sam Palmisano took over as CEO in 2002, his challenge was to come up with a mandate for the next stage in the company’s transformation. His primary aim was to get different parts of the company to work together so IBM could offer a bundle of “integrated solutions”—hardware, software, services, financing—at a single price. A set of shared values supported the change in a strategy and ensured consistency across the globe:

1. Dedication to every client’s success.

2. Innovation that matters—for our company and for the world.

3. Trust and personal responsibility in all relationships.12

These core values provided the basis for IBM’s management system and a crucial orientation frame for its diverse workforce, which serves clients in more than 170 countries.

Along with these changes to the company’s orientations and values, in 2004, it made another sharp break with its history: IBM would sell off its PC business. The move would affect 10,000 IBMers working in the PC business, which was part of the company’s Personal Systems Group. Although this division contributed 13 percent of the company’s overall turnover of US $96.3 billion in 2004, it also incurred losses from the PC business.13

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The Great Leap Forward

When IBM announced its interest in selling its PC division, Lenovo jumped at the chance; for Lenovo, the IBM deal was a giant leap forward. It gave Lenovo access to the computer giant’s technology and expertise, a foothold into the lucrative US and European markets, and worldwide brand recognition.

As a well-established brand worth an estimated US $53 billion,14 IBM was glob- ally present and enjoyed a reputation for high quality, innovation, and reliability. As part of the deal, Lenovo obtained the right to use the IBM brand name for five years. This agreement would help maintain customer loyalty and avoid the risk that cus- tomers would notice any major changes. IBM also committed to continuing to pro- vide service for its PCs and laptops, a move aimed to dispel customers’ service concerns. Moreover, Lenovo hoped to benefit from IBM’s long experience in global marketing and sales. Lenovo’s own sales channels were limited to China, where it maintained excellent relations with major distributors, mainly due to the organiza- tion’s transparent rules and procedures. But IBM had sales, support, and delivery operations all around the world.

In addition, IBMs huge sales volume would help lower the company’s component costs. In the PC industry, 70-80 percent of total revenues go to components, so econ- omies of scale are key contributors to keeping costs low. Lenovo expected to realize annual savings of US $200 million just through larger purchasing volumes. The “new Lenovo” thus could tackle price-sensitive markets, such as India, and appeal more to small- and medium-sized enterprises around the world. Lenovo estimated that these markets offered growth opportunities of about US $1 billion.15 Finally, Lenovo extended its product portfolio overnight, immediately offering a broad range of prod- ucts and services to diverse customers.

The deal also seemed to make sense for IBM. Since its reinvention in the 1990s, IBM had been moving constantly toward becoming a software and integrated ser- vices provider. In 1993, revenues from the hardware business represented more than half of IBM’s total revenues; by 2004, they were less than one-third.16 With this strategic reorientation, the low-margin hardware business lost importance. In addi- tion, IBM’s PC division continued to be a source of ongoing profit drains. From 2001 to mid-2004, the unit accumulated losses of US $965 million, which imposed a major burden to the overall organization.17 The Lenovo deal promised to stop this profit drain and pave the way into the lucrative Chinese market. Lenovo’s well-de- veloped distribution network provided inroads into China, especially those leading to new corporate customers of IBM’s software and service solutions. Lenovo’s exist- ing relationships with regulatory bodies and potential corporate customers, as well as its well-established brand name, could help IBM gain footing and expand quickly into mainland China.

Thus, Lenovo-IBM would obtain a competitive advantage that its closest compet- itors, Hewlett-Packard and Dell, could not match. As one Lenovo executive recalled: “On paper this was pretty much a match made in heaven.”18 The challenge was to make it work in practice.

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Appendix A1: Timeline for the Lenovo-IBM Merger

Summer 2004: Secret talks between Yang and Palmisano. agreement on Strat Alliance

Announcement of merger by Yang in Beijing

Transition team meets in Raleigh

New management team announced

Deal Closure

Summer 2004 May 200507/12/04 07/02/05 30/09/05 20/12/0521/12/04

Integration and centralization

Ward replaced by Amelio

Appendix A2: Yang Yuanqing: A Portrait

Yang’s colleagues thought himself both strict with others and immodest about himself. For sure, he was honest and straightforward to the point of being blunt. Sometimes people were afraid to enter his office. Yang would eventually have to learn a more co-operative management style but for the moment there was no time.

—Shan Feng and Janet Elfring, The Legend Behind Lenovo, unofficial corporate history

As chairman Yang centralized decision-making authority—in himself. He took full control of strategy, procurement, manufacturing, and marketing, which meant he was breaking virtually every management philosophy rule in the book. Yet it worked, per- haps because, as Yang himself recalled, “I could make quick decisions because I could look through all the functions. I knew the supply chain very well. I knew which com- ponents were in short supply. I knew when new [micro ]processors were available. We could change our products, change our prices, respond quickly.”

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This agility combined with a willingness to make long-term investments. In 1997, Legend became the first Chinese company to implement an enterprise resource plan- ning system provided by SAP, the German software company. Yang was determined to give his company a technology platform that at least equaled those of its global rivals. Thus, by the late 1990s, Legend was the best-selling PC brand in China. In 1999, it took 20 percent of the Chinese market. The combination of operational efficiency with PCs that had been designed specifically for the Chinese market proved difficult for its com- petitors to match.

In 2001, the distribution side of the business became Digital China, managed by Guo Wei, another young protégé of Liu. Yang became chief executive of the PC arm.

Sources

Sull, Donald N. (2005). Made in China: What Western Managers Can Learn From Trailblazing Chinese Entrepreneurs, Cambridge, MA: Harvard Business School Press.

Feng, Shan and Elfring, Janet. (2000). The Legend Behind Lenovo: The Chinese IT Company that Dares to Succeed, Hong Kong: Asia Publishing.

(B) Integration Challenges

Post-Merger Integration

While the synergies between Lenovo and IBM looked great on paper, the road- blocks to making Lenovo-IBM the PC industry’s world leader remained formidable. Not only would the process need to merge two companies with vastly different busi- ness models and cultures across 12 time zones, but the combined company needed to stay constantly competitive in the fast-paced PC industry. Michael Dell, the chairman of Lenovo’s main rival, asserted: “It won’t work.”19 Most observers agreed.

But Lenovo’s top executives vowed to prove these skeptics wrong. Their vision for the new Lenovo was to create a computer powerhouse that would combine the best of both worlds and thereby reinvent the entire global PC industry. As Lenovo executives stated, “What Lenovo brings to the table is the best from East and West. From the original Lenovo we have the understanding of emerging markets, excellent efficiency and a focus on long-term strategy. From IBM we have deep insights into world- wide-markets and best practices from Western companies.”20

This best-of-both-worlds integration approach could work if the combination repre- sented a partnership rather than a takeover. Lenovo’s CEO repeatedly stressed his percep- tion of the IBM deal as a “marriage of equals,” based on trust, respect, and compromise. Yang demonstrated his willingness to compromise right from the start: he stepped down as CEO to make way for IBM’s Steve Ward, while he became chairman. Yang also accepted Ward’s proposal to locate the new headquarters in New York, rather than establishing dual headquarters in the US and China. Lenovo’s new global headquarters took up the top floor of a nondescript office building outside the city; the IBM PC division’s staff mainly con- tinued to work out of their existing site in Raleigh, North Carolina.

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Despite the seeming friendliness of the deal, cross-border problems soon emerged. Simple geographical distance was a major barrier: the flight from Beijing to New York took 13 hours and crossed 12 time zones. Without any direct flights from Beijing to North Carolina, that trip took an additional few hours. Making the trip, in either direc- tion, for a day of meetings or workshops was not possible, and any gathering or infor- mation exchange had to be planned weeks in advance to make the trip worthwhile. The thousands of miles separating the company’s main locations made exchanging infor- mation about best practices incredibly difficult. The regular business hours of New York and Beijing overlap only for three to four hours each day; if the company needed to include European colleagues, the operation became nearly impossible—or required employees to arrive at the office at very odd hours.

Even as they racked up miles of travel and readjusted alarm clocks, the man- agement teams on both sides continued to view the deal as an opportunity to learn. They displayed a genuine and remarkable willingness to set aside their own egos and make decisions in the best interest of the combined company. As one former IBM executive recalled: “Where the Chinese approach worked best, we borrowed it, and where the IBM approach worked best, we borrowed that. Or maybe an out- side approach. The point was to do the right thing . . . because the fundamental mission [was] to be seen as a global corporation, not a Western and not a Chinese company. And wherever we could get ideas or implement tools that advance that idea, we did.”

This pragmatic and learning-oriented approach also featured what appeared to be an honest enthusiasm for creating something new and better. Ravi Marwaha, the Indian-Australian in charge of running Lenovo’s worldwide sales, admitted, “I spent 36 years in IBM. I could easily have retired. Why am I here? Because it is exciting.”21 Another senior Lenovo executive explained, “We are the first of this kind in the world, and I think people are authentically and genuinely excited about being in a place that is very fresh, and young, and new . . . It is an experiment and something that has never been done before, and there is no company like us in the world.”

Such enthusiasm might have been expected from Lenovo, given that it was Lenovo that had acquired IBM’s PC business. But the general sense of excitement also seemed shared among the IBM PC executives, who had for years felt like the unpopular step- sister in their former company. That is, IBM considered hardware a peripheral business and thus made few investments in the PC division. With the merger, the PC division became a core business again, if for Lenovo.

This positive attitude spanned various levels of the organization. In the first days of the new Lenovo, people took creative steps to bridge the geographical distance. IBM sent camera teams to Raleigh and Beijing, to enable video greetings to various coun- terparts around the globe. In the call center in Raleigh, employees filmed themselves throwing their IBM badges in the trash. Frances O’Sullivan, the COO of Lenovo International, initiated a program called the “Trash Bin Project,” which encouraged ex-IBMers to submit examples of what they had done in their previous work life but did not want to do in the new Lenovo.22

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Creating a Structure

The new Lenovo started with three separate business units: China PCs, China Cell Phones, and International Operations (former IBM PC division). In this sense, busi- ness continued much as usual for the IBMers, except that project teams formed to support different functions, such as sales, finance, and order management. The project teams consisted of former Lenovo and IBM managers and took the responsibility of preparing the further integration of the functions.

Yang Yuanqing announced a managerial restructuring on September 30, 2005. Top management jobs would be split approximately evenly between the Chinese and Western sides (see Appendix B1 for an overview). One-third of the board members would be from Hong Kong (where Lenovo is registered); another one-third would come from the US and Europe; and the rest would be from China.23 This restructuring aimed to provide a framework for further integration, but it also was designed in accordance with Lenovo’s goal of joining the league of global technology powerhouses, in that it provided a multinational management team spread across national boundar- ies and several time zones.

The new management structure then led to closer integration in functions such as supply chain management, planning and control, product development, and market- ing. In support of its global supply chain, the company applied a unified IT system that enabled it to ship directly to 100 countries, usually with products configured to order.24 In the wake of this integration, corporate headquarters moved from New York to Raleigh.

But the integration also meant some redundancies, especially in IBM’s sales struc- ture. Therefore, layoffs announced in March 2006 affected approximately 1,000 of the company’s 21,400 employees. The cuts spread across company offices in the Americas, Asia-Pacific, and EMEA regions.25

Ubiquitous Differences

The functions integrated, headquarters moved, and managerial responsibility was being shared. Yet without a common language and shared values, it would be impossi- ble to form a unified, global management team.

A year before the acquisition, Lenovo had launched a major campaign to improve the English-language skills of its managers and employees. Most of the company’s senior Chinese executive could speak some English, though not all were able to do so fluently or without sufficient ease to support effective working relationships. Few of the lower-level managers were fluent in English. Of the IBM managers, virtually no one had even rudimentary knowledge of Mandarin. These immense language barriers led to lengthy meetings and frequent misunderstandings. For example, one of the most senior executives did not speak English, so board meetings had to include a translator. Yet the company was determined that English would be its corporate language.

The language barriers seemed obvious from the start; less apparent were the widely divergent preferences regarding communication styles. Especially tricky were

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conference calls, which offered no visuals to help participants interpret the meanings and nuances of others’ verbal comments. Bill Matson, the HR Director of Lenovo, observed:

IBM leaders would do most of the talking and the Lenovo leaders would do most of the listening. The Chinese, and Asian cultures in general, are much more silent in a conversation. They first think about what they want to say before they say it. And if you think about what you want to say before you say it, and you also translate it from your native language into English . . . you can understand that a 5-second or a 7-second gap in a conversation is not a long time. Yet, to a Western person, 5 seconds silence in a conversation seems like an eternity. So, often times what you would see in meetings is that the Western leaders would be filling in the gap in conversation, and therefore would dominate these discussions, and all too often would not spend as much time as they probably should have seeking out the perspectives and experiences of their Lenovo colleagues.

These differences in communication style were not just frustrating; they affected decision-making and problem-solving quality.

Therefore, the company instituted several programs design to overcome such bar- riers. The “East Meets West” program taught the company’s global executives about the foundations of both Chinese and American cultures. The “Lenovo Expression Workshop” targeted the Chinese managers—typically, pragmatic, hands-on people who were not strong communicators, according to Western standards. One Chinese manager explained, “When Chinese people talk, we start from the background, and then we . . . talk about the present situation and the challenges that we are facing, and then we gather lots of supporting materials, so at the end we say, ‘OK, this is our pro- posal.’ I guess this is different from what you call the Western approach: you have an executive summary at the very beginning, basically you tell what you want to tell on the first page.” The program coached Chinese executives in Western communication and presentation styles, with the ultimate goal of facilitating mutual understanding and helping the staff members collaborate more effectively.

Beyond these differences, the variance in cultural norms and values became something of an issue; the US and China can be worlds apart, both literally and figuratively. In particular, their attitudes toward hierarchy and authority are widely divergent. As one former senior IBM executive observed, “Lenovo was a more hier- archically driven company . . . You didn’t challenge authority quite as much, and the leadership was certainly revered . . . in IBM, you are probably a bit more process- oriented, a culture that is a bit more accepting of challenges and bottom-up kind of thinking.” Another former IBM manager was surprised to receive, during his first meeting with his Chinese counterpart, gifts of a cell phone and a portable music player. He also noted a significantly greater level of attention to detail by his new Chinese colleagues.26

For the American managers, these differences were notable; for the Chinese delegates, they often verged on offensive. For example, Yang and several other Lenovo executives arrived at John F. Kennedy International Airport in New York

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for their first planning meeting and found no representatives of IBM waiting to greet them. In China, any such high-ranking guests would have found not only counterparts at the airport to greet them but also a limousine to whisk them away to their hotels.

The potential for offense was mitigated somewhat by the commonalities in the corporate cultures—both sides shared strong beliefs in innovation, personal responsi- bility, and responsiveness to customer needs. Both sides also talked about the need for commitment. However, on this topic, the interpretations were rather different: “In Lenovo, planning before you pledge, performing as you promise, delivering your com- mitment is really deeply engrained in the culture. And when people sign up for a plan, they execute it. And that was probably not as effectively implemented in the old com- pany [i.e., IBM’s PC Division] that we bought.”

These ubiquitous differences were not limited to the relationships between the two companies; they also influenced customer relationships. The deal had been tailored to minimize disruptions and offer service as usual to customers, but some refused to work with the new entity. The US State Department, citing fears of spyware in Lenovo com- puters, altered its use of some 14,000 PCs it had ordered from Lenovo.27 The bias against the Chinese company also reared its head in some former IBM sites; in Japan, the former IBM staff fiercely resisted the idea of Chinese ownership. The Japanese design team in particular expressed deep concerns about any attempts to change the look or feel of ThinkPad notebooks—a design inspired by a Japanese lunch box that had remained unchanged since 1992.

Leadership

A year into it, the “new” Lenovo could look back on some major achievements: it had launched operations and brand in more than 65 countries, without any major disruptions to deliveries and support. No mass exodus of customers had occurred, as some had predicted. It managed to retain 98% of its employees. And it had gained global market share, including in BRIC countries, making it the world’s third-largest PC manufacturer, behind Dell and HP (see Appendix B2 for an overview of global PC market shares).

Then, in December 2005, the skeptics felt a sense of vindication, because some- thing had to be wrong: the American CEO Steve Ward resigned. Why did Ward last only eight months? Some guessed a personality clash with Yang Yuanqing—a man 10 years his junior who embraced a completely different style. Other speculated that Ward had been too accustomed to the “IBM way” and could not adapt to the new culture. Perhaps his departure marked the end of a power struggle between the Lenovo and former IBM executives, won by Yang. No one outside the company’s top management team knew the answer for sure, which kept observers buzzing. Whether the IBM deal would help Lenovo become the global market leader in the PC industry remained uncertain, but this incident certainly raised questions about Lenovo’s ability to build a strong multinational management team and successfully run a global business.

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Appendix B1: “New” Lenovo’s Executive Team

Yang Yuanqing, Chairman

Steve Ward, President and CEO

Deepak Advani, SVP, CMO

Mary Ma, SVP, CFO

Ravi Marwaha, SVP, Geographies

Liu Jun, SVP, COO Global

Supply Chain

Lenovo IBM

Frances O’Sullivan, SVP, COO Product

Group

Liu Zhijun, VP, Mobile

Business

Dell 18%

Dell HP Lenovo Fujitsu Siemens Acer Others

Worldwide PC Shipments Market Share 2005

HP 16%

Lenovo 8%

Fujitsu Siemens

Acer 5%

Others 49%

Appendix B2: Lenovo’s Maret Share

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NOTES

1. Orr, G. and Xing, J. (2007). When Chinese Companies, go Global: Interview with Lenovo’s Mary Ma. McKinsey on Finance, 23 18-22. Available on http://corporatefinance.mckinsey .com/knowledgemanagement/mof.htm.

2. Einhorn, B. (2005). Lenovo’s New Boss: from Dell. Business Week, December 21, 2005. Available on www.businessweek.com/technology/content/dec2005/tc20051221_376268.htm.

3. Ling, Z. (2006). The Lenovo Affair: The Growth of China’s Computer Giant and its Takeover of IBM-PC. Singapore: Wiley & So

4. N.N. (2009). Lianxiang qiye wenhua yu guanli sixiang 12345, June 16, 2009. Available on http://oxford.icxo.com/htmlnews/2009/06/16/1389015.htm.

5. London, S. (2005). The Making of a Multinational Part II: Your Rules and My Processes. Financial Times, November 10, 2005, p. 13.

6. Bell, L. (1948). Thomas J. Watson, in Forbes, B. (ed.) America’s Fifty Foremost Business Leaders, New York: Forbes & Son Publishing Company, p. 427.

7. Weeks, J. (2004). Culture and Leadership at IBM. INSEAD case 10/2004-5239. 8. Collins, J. & J. Porras (2002). Built to Last: Successful Habits of Visionary Companies, New York:

HarperCollins. 9. Mills, D. and Friesen, G. (1996). Broken Promises—An Unconventional View of What Went

Wrong at IBM. Boston, MA: Harvard Business Press. 10. Gerstner, L. V. Jr. (2002). Who Says Elephants Can’t Dance? Inside IBM’s Historic

Turnaround. London: HarperCollins. 11. Source: ibid. 12. Palmisano, S. (2004). IBM Annual Meeting of Stockholders. Providence: RI, April 27, 2004.

Available on www.ibm.com/ibm/sjp/04-27-2004.html. 13. IBM (2004). IBM Annual Report 2004. Available on ftp://ftp.software.ibm.com/annual

report/2004/. 14. Wolf, D. (2009). Lenovo: Amelio’s Exit a Sign that IBM Integration Hitting the Rocks?

Available on http://seekingalpha.com/article/118829-lenovo-amelio-s-exit-a-sign-that- ibm-intetration-hitting-the-rocks.

15. Source: ibid. 16. IBM (2004). IBM and Lenovo: New Leadership in Global PCs. Available on i.i.com.com/

cnwk.1d/html/news/all_hands_presentation_final.ppt. 17. Pilzweger, M. (2006). IBM: PC-Sparte seit Jahren im Minus, PC-Welt, January 19, 2006.

Available on www.pcwelt.de/news/IBM-PC-Sparte-seit-Jaren-im-Minus-18253.html. 18. Quelch, J. and Knoop, C.-I. (2006). Lenovo: Building a Global Brand. (Case No. 9-507-014).

Boston, MA: Harvard Business School. 19. London, S. (2005). Lenovo: The Making of a Multinational Part I. A Global Power Made in

China. Financial Times, November 9, 2005. 20. Quelch J. and Knoop C.I. (2007) Lenovo – Building a Global Brand, Harvard Business School

Case Stud 9-508-703. Boston, MA: HBS Publishing. Available on http://etgstage.hbs.edu/ lenovo/index.html, site of quotation: http://etgstage.hbs.edu/lenovo/heaven-brand.html.

21. London, S. (2005). Lenovo: The Making of a Multinational Part I. A Global Power Made in China. Financial Times, November 9, 2005.

22. Hamm, S. and S. Wildstrom (2005). Turning Two Tech Teams into One, May 9, 2005, Information Technology Online Extra. Available on www.businessweek.com/print/ magazine/content/05_19/b3932116_mz063.htm?chan=gl.

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http://corporatefinance.mckinsey.com/knowledgemanagement/mof.htm

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23. Liu, C.. (2007). Lenovo: An Example of Globalization of Chinese Enterprises. Journal of International Business Studies, 38, pp. 573-577.

24. Van Duijl, M. (2006). Lenovo: An Example of Chinese Globalization. Lenovo internal pre- sentation delivered June 15, 2006 by EMEA and SVP president. Available on www.oecd .org./dataoecd/60/43/36929454.pdf.

25. Ames, B. (2006). Lenovo to Lay Off 1,000, Move Headquarters to N.C. Computerworld, March 16, 2006. Available on www.computerworld.com/s.article/109604/Lenovo_to_lay_ off_1_000_move_headquarters_to_N.C.

26. Tang, Y. (2006). We Are Trying Everyday To Make Lenovo a Global Brand: Interview with Deepak Advani. Available on http://english.peopledaily.com.cn/200606/19/ eng20060619_275249.html.

27. Peng, M. (2009). Global Business Update 2009, Mason, OH: South-Western College Publisher.

All interview excerpts were taken from Baumeister, B. (20009), Lenovo’s acquisition of IBM’s PC Division, unpublished master thesis, WU, Vienna, unless referenced otherwise.

Source: Köster, K., & Stahl, G. (2012). Lenovo-IBM; Bridging cultures, languages, and time zones. In G. K. Stahl, M. E. Mendenhall, & G. R. Oddou (Eds.), Readings and cases in international human resource man- agement and organizational behavior (5th ed., pp. 351–365). New York, NY: Routledge.

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Case 6 Recruiting a Manager for BRB, Israel William Roof Barbara Bakhtari

BRB Inc., a multinational electronics corporation, plans to establish a new subsidiary in Israel. The firm’s base is in Los Angeles, California, with a second overseas head- quarters in England. The U.S. office staffs and operates six North American divisions and three South American subsidiaries. The U.K. office is responsible for operations in Europe and Asia. The Israeli venture is the company’s first business thrust in the tur- bulent Middle East.

During the past 10 years, BRB’s phenomenal growth resulted largely from its ability to enter the market with new, technically advanced products ahead of the competition. The technology mainly responsible for BRB’s recent growth is a special type of radar signal processing. With Fourier transforms, BRB’s small, lightweight, and inexpensive radar systems outperform the competitions’ larger systems in range, resolution, and price. It is this type of lightweight, portable radar technology that has enormous poten- tial for Israel during conflicts with the Arab States.

BRB’s human resource functions in the United States and Europe each boast a vice president. John Conners is the Vice President of Human Resources in the United States, and Francis O’Leary is the Vice President of Human Resources in the United Kingdom. Paul Lizfeld, the CEO of BRB, contacted the two vice presidents and told them to recruit a general manager for the Israeli operation. “I don’t care who finds him, but he better be right for the job. I cannot afford to replace him in six months. Is that clear!” Lizfeld told them to look independently and then coordinate together to select the right person. They knew that their jobs could be in jeopardy with this task.

The two human resource operations were independent, and each was man- aged individually. Recruiting processes differed between U.S. and U.K. operations. Each had different organizational structures and corporate cultures. The only link between the two was Lizfeld’s strong micromanagement style, which emphasized cost control.

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U.S. Operations

John Conners has worked for BRB for the past 20 years. He started with a degree in engineering and worked in the engineering department. After earning his M.B.A. in human resource management from UCLA, he transferred to the human resource department. Management felt that someone with an engineering background could hire the best technical employees for BRB. With BRB’s high turnover rate, they felt that someone who could relate to the technical side of the business could better attract and screen the right people for the organization. BRB promoted Conners to vice president three years ago, after he hired the staffs for the subsidiaries in Peru and Brazil. Except for the general managers, they were all correct fits. Conners felt that the problem with the general managers was an inability to work with Lizfeld.

John Conners looked at many different strategies to determine how to begin recruiting for the Israeli position. He wanted to be sure he found the right person for the job. The first step in choosing the ideal candidate was to determine the selection criteria.

Conners defined the task in Israel to include control and management of BRB’S Israeli operations. The GM must work with the Israeli government both directly and indirectly. The political unrest in Israel also requires the GM to conduct sensitive trans- actions with the Israeli government. This person would also work directly with Lizfeld, taking direction from him and reporting regularly to him.

As with many countries in the Middle East, Israel was in turmoil. Conners actually knew very little about the Israeli culture, but decided to ask different associates who had past dealings with Israel. He knew that the threat of war constantly hung over Israel. The country was also suffering from high inflation rates and troubled economics. Lately, he also learned that the country had become divided over certain political and cultural issues. The person accepting this job needed nerves of steel and extraordinary patience.

Conners decided the selection criteria that would be important for the candidate included technical skill, cultural empathy, a strong sense of politics, language ability, organizational abilities, and an adaptive and supportive family. He also felt that the GM would have to have the following characteristics: persuasiveness, ability to make deci- sions, resourcefulness, flexibility, and adaptability to new challenges. Now all he needed to do was find a person who had all these attributes.

He decided to begin his search for candidates within the organization. He knew this route had both advantages and disadvantages. Since BRB was still in the beginning stages of internationalization in Israel, a “home country” presence might prove to be very helpful. Lizfeld would appreciate this. The disadvantages would be many. It might be very difficult to find someone willing to relocate in Israel. The increased cost of liv- ing and the political unrest make it a tough package to sell. Conners knew of the “Israeli mentality.” He also knew he would have to take care in sending someone who might either overpower the Israelis or break under their aggressive business style. Conners knew that Lizfeld wanted to have the home country atmosphere in Israel and planned to be very active in the management of Israeli operations.

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The second option Conners had was to recruit from outside the company. The ideal candidate would have both domestic and international experience. Conners could recruit either by contacting an employment agency or by placing an ad in the Wall Street Journal. He thought he could find a person with the right qualifications, but he also knew it would be difficult to find someone Lizfeld like outside the com- pany. Conners had hired two managers for the South American offices, and Lizfeld had driven them over the edge within six months. Conners knew that he had to be extra careful. One more “unqualified” candidate might put his own job on the line.

Conners found three potential candidates for the Israeli position. One candidate, Joel Goldberg, was a recommendation from the headhunter Conners had commis- sioned. Goldberg had thirty-five years of electronics and radar experience. He had been CEO of Radar Developments Incorporated, a major electronics corporation in New York. Goldberg had taken control of Radar Developments Incorporated in 1981. By 1986, the company had tripled sales and increased profits fivefold. Goldberg had the technical knowledge to perform the job. He also had the necessary individual charac- teristics Conners felt would be important for this position. Goldberg had studied in Israel on a kibbutz for two years after college, spoke fluent Hebrew, and was a practicing Jew. He wanted to retire in Israel in a few years. Conners worried that Goldberg would not stay with the company long enough to establish a solid organization. Goldberg also liked running his own show, and that created a potential problem with Lizfeld.

The next candidate was Robert Kyle, Vice President of BRB’s radar electronics depart- ment. Kyle had been with BRB for more than twenty years and headed two other inter- national divisions for BRB in Japan and Canada. Kyle was familiar with the international process and the BRB corporate culture. Lizfeld had given him excellent reviews in the other two international positions. He had strong management skills and was highly respected both within the organization and in the industry. Kyle received his Ph.D. from MIT in electrical engineering and his M.B.A from Dartmouth. He had the technical expertise and was familiar with the company and its procedures. Conners was afraid of Kyle’s cultural acceptance in Israel since he did not speak the language and was not familiar with Israeli attitudes. He could require Kyle to participate in extensive cultural training, but Conners still had some reservations about sending a gentile to head operations in Israel.

The last candidate was Rochelle Cohen, an Israeli who relocated to the United States in 1982. She originally relocated to assist the head of the electronics division of Yassar Aircraft, an Israeli company that opened its first international office in 1978. Cohen did very well and brought Israeli thoroughness and assertiveness to the U.S. operations. She now wanted to move back to Israel to be with her family. Additionally, her fiancé recently relocated in Israel, and she wanted to return to marry and raise a family. Cohen had experience in the international circuit, having worked in the United States, United Kingdom, and Israel, but Conners was still worried about hiring her. Although she had the political knowledge and the proper connections in the Israeli government, the problems were her young age, lack of technical expertise, and sex.

Conners contacted O’Leary to see what progress he had made. Knowing the con- sequences that would come from this decision, Conners realized it was going to be a difficult one to make.

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U.K. Operations

Francis O’Leary reflected on his past eight years with BRB. His rise from the strife- torn east side of Belfast to BRB’s corporate vice president for human resources was extraordinary. While most Irish business careers in large English firms peak at middle management, O’Leary’s actually began at that point. He proved his capabilities through hard work, constant study, and an astute ability to judge the character and substance of people on first sight. His task of finding a suitable general manager for the new division in Israel offered a challenge he readily accepted.

O’Leary excelled at recruiting and hiring innovative employees who brought tech- nical ideas with them to BRB. The management structure at BRB in England did not support internal growth of technology and innovation, so new ideas and technological advances were not rewarded with commensurate fiscal incentives. As such, turnover of experienced innovators forced O’Leary to recruit and hire innovation on a “rotating stock” basis. It was this success in hiring innovators that broke him from the shack- les of middle management and thrust him to the top of the corporation. Four years ago, through a well-planned and well-executed recruiting program, O’Leary hired Rani Gilboa, a young Israeli engineer and former Israeli army officer. For Gilboa, the need for lightweight, inexpensive battlefield systems drove a desire to approach the prob- lem from a new aspect: signal processing. After graduate study in this field, Gilboa sought and found a company that would support his concepts. That company was BRB. Gilboa’s subsequent contributions to BRB’s profits secured his and O’Leary’s positions atop their respective disciplines within the firm.

Since that time, O’Leary had other successes hiring innovators from Israel. This stemmed largely from his tireless self-study of Israeli culture. With a feel for the Israeli people rivaling that of an “insider,” O’Leary enjoyed success in pirating established innovators from Israeli firms. Now, he faced the task of recruiting and hiring a general manager for the newly established electronics division near Haifa.

Selecting the right manager would be more difficult than expected. With his knowledge of the Israeli culture, O’Leary knew intuitively that an Israeli should head the new division. Acceptance by the division’s employees, ability to speak Hebrew, spousal support, and knowledge of Israeli government regulations and tax structures were vital to the success of the new division. Unfortunately, BRB’s CEO preferred home country presence in the new division and directed O’Leary to recruit with that as the top priority. After O’Leary presented a strong case, however, the CEO agreed to review all candidates. Another potential problem arose when Lizfeld, the CEO, announced a hands-on management style with plans to participate actively in the management of the Israeli division. To O’Leary, this meant that Western values, along with the current innovative recruiting strategy practiced in England, would extend to Israel as well.

Until recently, O’Leary’s recruiting for management positions concentrated on internal promotions. A known performer from within was a better bet than an out- sider. When current employees could not meet the job requirements, O’Leary typically turned to newspapers as his primary source of candidates. The recent emergence of reputable executive placement services in England gave him an additional sourcing

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tool. At times, O’Leary had turned to social contacts, job centers, and the internal labor market as candidate sources, but the percentages of good leads from these were com- paratively low.

After months of reading resumes, introductory letters, and job applications, three candidates emerged for the position in Israel. It was now up to O’Leary to decide the candidate he would recommend to Lizfeld.

Michael Flack worked for BRB for more than nineteen years. After graduating from Cambridge College with a degree in general engineering, Flack joined the company as a mechanical engineer. Initially, he worked in the mechanical design group of the radar division. After five years, BRB promoted Flack to engineering section manager. While in this position, he enjoyed various successes in radar miniaturization design. During his eleventh year, BRB again promoted Flack to department head in the manufactur- ing engineering group. Emphasis in this position shifted from design to production. During his seventeenth year, he became director of engineering design, where he was responsible for managing forty-three engineers’ efforts in new-product design.

Flack had no international experience, and he was a reputed “tinkerer.” He liked to spend time in the labs designing mechanical components along with his engineers. This generated tremendous esprit within his department but often resulted in inatten- tion to his administrative responsibilities.

Rani Gilboa thought his friend Yair Shafrir was perfect for the position. Shafrir was currently vice-president of engineering at Elta Electronics in Israel. Elta is one of Israel’s top radar firms, with several products proven in actual combat during the last Arab- Israeli conflict. Shafrir received his degree in electrical engineering from the University of Jerusalem. He had spent his professional career in Israel, usually changing companies to accept promotions. He had been with four companies since graduating from the uni- versity nineteen years ago. Shafrir was s strong-willed, organized individual who took pride in his record of technical management accomplishments. He had been able to complete projects on schedule and within budget over 70 percent of the time, a rare feat for an Israeli company. This record resulted mainly from the force of his personal lead- ership and strength of will. With his entire career spent in Israeli companies, O’Leary had little doubt that Shafrir could manage BRB’s new electronics division. Culturally, he was perfect for the job. O’Leary had concerns, however, about Paul Lizfeld’s injection of Western culture through his active management plan. The obstinate Shafrir, with no international business experience, might resent the interference.

A well-placed advertisement in the London Times’ employment section drew a number of responses. One of the three final candidates responded to the ad about four weeks after it appeared in the Times.

Harold Michaelson was an English citizen of Jewish faith. Michaelson’s fam- ily fled Poland in 1938 when Harold’s father insisted that the “Nazi madman” would never attack England, especially after Prime Minister Chamberlain’s successful visit to Munich. Harold was born to the newly naturalized couple in 1940. Later, he attended college in the United States, where he earned both bachelor’s and master’s degrees in electrical engineering at Georgia Tech. After graduating, Harold spent two years with General Electric until his father’s illness forced him to return to England. He accepted

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an engineering position with Marconi, and he has remained with that company. Shortly after his return, his father died. Michaelson continued to take care of his mother for the next year. Mrs. Michaelson had always dreamed of living in the Jewish homeland—a dream not shared by her husband. One year after his death, she joined her sister’s fam- ily in Haifa. Harold had readily accepted a position with Marconi in Israel to work on the new Israeli defense fighter LAVI. Unfortunately, cancellation of the LAVI program also canceled his chances to work in Israel for Marconi. At the time of the interview, Harold was vice president of engineering for Marconi’s air radio division. He was also the youngest vice president in the corporation. His background in engineering and administrative functions, coupled with his ability to speak Hebrew, made Harold a strong candidate for the position. During the interview, he mentioned his mother’s failing health and her refusal to leave Israel. He intended, if selected, to take care of her there. O’Leary wondered if that was Harold’s main reason for wanting to live in Israel. Would he still want to live and work there if he lost his mother? O’Leary was anxious to discuss his candidates with John Conners.

Source: Roof, W., & Bakhtari, B. Recruiting a manager for BRB, Israel. In G. K. Stahl, M. E. Mendenhall, & G. R. Oddou (Eds.), Readings and cases in international human resource management and organizational behavior (5th ed., pp. 276–281). New York, NY: Routledge.

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Case 7 Andrew Robinson Goes to Taiwan: The Challenges of a Short-Term Assignment Catherine Welch

Andrew Robinson had been working as a software developer in the computer industry for 10 years and had recently joined the subsidiary of a major multinational telecom- munications equipment supplier in Sydney, Telequip Australia. Andrew was born in Australia, had studied at an Australian university, did not speak a foreign language and had never worked abroad, although his family had lived abroad when he was of pre- school age and while still a student he had visited parts of Asia and Europe. Andrew knew he had outstanding technical skills as a software programmer and trouble- shooter, and he had accumulated extensive experience in developing software for the telecommunications industry.

When Andrew joined Telequip Australia, he was assigned to the company’s net- work management division, which was in the process of developing a management platform for its main domestic customer. A network management platform is the ner- vous system of a telecommunications network. When something goes wrong in the network, the management platform sends messages to the ‘brain’ of the network, the control center. The platform was always designed to be generic and to be sold to other telecommunications operators in the world market. It would be Telequip Australia’s first ‘world product’.

Andrew worked on the network management system for the domestic customer for about 6 months. The first releases of the product had been installed when a Taiwanese telecommunications carrier, Taicom, became the first foreign company to sign a con- tract with Telequip Australia for the network management system. Because of the many

Note: This case would not have been possible without the generous and extensive input provided by Andrew Robinson.

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different requirements of telecom operators, the network system would require exten- sive adaptation and new features to be developed, so initial estimates were that the contract would require 6 months of development before Taicom would have the new system up and running. It was anticipated that a large degree of re-use from the project for the domestic customer would be possible, particularly for the first few releases.

In addition to the software to be provided by Telequip Australia, Telequip North America was providing hardware and finance. The total value of the hardware was about 10 times the value of the Australian software.

Andrew was asked if he wanted to join the Taiwanese project and, happy at the prospect of a change, agreed. All the development work for the project would be done in Australia, with just a single manager, Jonathan Samuels, being sent to Taipei from Sydney on a full-time basis. The most senior manager on the project, Malcolm Donaghue, was based in Australia, but the understanding was that he would spend about half his time in Taipei. Because of shortages of staff and demands from other projects, most of the staff on the project were newly hired subcontractors from India with no experience of the industry.

Andrew knew that it was likely he would have to make a few short trips to Taipei to install and test software during the life of the project, but he didn’t mind the idea of visiting a city he hadn’t been to before. He liked Chinese food and had a lot of friends of Chinese descent, so he didn’t feel that Taiwan would be too alien.

Andrew joined the project in November and in January was on the plane to Taipei for a 4-week visit. His initial few weeks on the project had been very positive and he felt that the technical aspects of the project were on track. The small development team in Australia had been making progress and hitting deadlines. The view from Taipei was very different. Taicom was not happy with progress: the system was frequently down, and even when it was running it was incapable of handling the promised load.

Andrew also had the feeling that Jonathan, although a hard worker, was not com- fortable in Taipei. Although Jonathan rarely complained, he never seemed happy either. He never went out, worked 7 days a week, had not made any friends among the locals and had not made any attempts to learn Chinese. He never had a good word for his Chinese colleagues and it had not occurred to him to get business cards in Chinese. Andrew began to have his doubts about whether Jonathan was the most suitable person to act as Telequip’s liaison with Taicom.

It seemed that Malcolm was also not entirely at ease in Taipei. This surprised Andrew, because Malcolm had worked in Hong Kong for some years and was the only one on the project with Asian experience. However, Malcolm’s problem seemed to be that he was having trouble managing a project that now spanned two countries. He was not able to prevent further delays to the project and his only solution to a problem seemed to be to ask his staff in Taipei to work harder. He worked himself harder still. Andrew became frustrated that Malcolm did not send more work back to the devel- opment team in Australia, and that communication between staff in the two locations was so poor.

One day, Andrew’s wife rang him during office hours to report that they had exceeded their limit on their credit card and she had not been able to use it. ‘That

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doesn’t sound right,’ he responded, ‘I haven’t paid the hotel bill yet, so I don’t see how we could have run up such a large amount on the card. I have been keeping track of how much I am spending.’

It transpired that the hotel had placed a hold on his card when he had checked in, pushing the amount on the card to its limit.

‘Couldn’t Telequip have given you a company credit card to use while you are over there?’ his wife said.

‘I’m afraid that’s not how they work. They will reimburse me when I get back home and hand over my receipts.’

‘But in the meantime I am going to have to use cash,’ his wife grumbled. ‘Why couldn’t they have at least warned you about this? We could have increased our limit in advance.’

‘It could be worse,’ said Andrew. ‘One of my colleagues has shown up here without a credit card at all. A couple of others had space on their cards so his hotel bill and expenses have been shared between them.’

Andrew returned to Australia after his 4-week stay in Taipei, slept 40 hours in 3 days then went back to work as normal. He and his wife had been house-hunting and on his return from Taipei found a house they liked, so signed a contract on it. Under the terms of the contract, settlement on the house would take place in May and he and his wife would move straight in.

In April, a few weeks after he had signed the contract on the house, Andrew was approached by Malcolm and asked if he would be prepared to go to Taipei for a more extended period of time. Taicom was complaining that they didn’t have any visibility over the project since the work was being done in Australia, so Malcolm was convinced that Telequip needed more people on the ground in Taipei. Andrew pointed out that he had just bought a house and needed to be in Australia for settlement, but Malcolm felt confident that that could be accommodated in the schedule and assured Andrew that he could put together an attractive though unspecified financial incentive for the short- term assignment. Andrew went home to consult his wife and both agreed that since it would not be a good career move to turn Malcolm down, and since the extra money would be welcome in view of the fact they were about to start making repayments on a mortgage, Andrew should take up the assignment. ‘I’ll come back to Australia to help you move, anyway,’ Andrew assured his wife. ‘Malcolm knows about the house and knows that’s something he has to work around.’

Accordingly, Andrew let Malcolm know that he would accept the assignment, but requested 2 weeks’ grace so he could get himself ready. He also asked that he receive in writing the terms and conditions of his assignment. At this stage it wasn’t clear how long the assignment would last, but under the terms of his visa he would not be able to stay in Taiwan for more than 60 days at a time.

Two days later, Malcolm came to him and said, ‘Look, it’s bad news. Taicom have told us that if we don’t meet the next deadline they’ll cancel the project and we’ll be kicked out. I am flying out tomorrow and need some technical staff to come with me for backup. I know you said 2 weeks, but this is urgent.’ Andrew didn’t like the idea of having to break this latest development to his wife, but he agreed and his flight was

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booked. He spent the afternoon trying to finish the most urgent tasks on which he was working, leave instructions for the team he was supervising and copy his most important files on to the laptop he would be taking with him to Taipei. At 5 o’clock his personnel office e-mailed a short memo setting out his financial entitlements for the short-term assignment. It was 8 o’clock in the evening before he arrived home, by which time his wife had packed his suitcase.

On the plane he took out the document outlining his entitlements. Now that he was classed as being on a short-term assignment, rather than a business trip, the finan- cial arrangements for his stay in Taipei had changed. He would still be paid his usual salary and would remain on the Telequip Australia payroll, but he was entitled to an additional daily per diem. Jonathan had already told him to claim the per diem at the end of each month, and the money would be paid straight into his bank account in Australia. The per diem was generous, but Andrew knew his wife wouldn’t be pleased that he would still be using his personal credit card. He had at least arranged with the bank to raise his credit limit while he was back in Australia.

When he and Malcolm arrived in Taipei, a full-blown crisis had indeed developed. Taicom was very concerned about missed deadlines and, even worse, complained that the product that had been delivered so far did not meet their requirements. There was a strong sense that if Telequip did not devise a way to meet some of Taicom’s grievances then the project would be cancelled. Failure of the project would have serious ramifica- tions for the global marketing of the product. Malcolm was working 12-hour days, 7 days a week, and expected Andrew to do the same. Andrew didn’t mind hard work but he wondered how long he could keep up such a demanding schedule.

Andrew was staying in a hotel but there was an expectation that he would find alter- native accommodation. Telequip did not provide him with any assistance in finding an apartment, however. The whole issue of accommodation started to trouble Andrew. He didn’t want to remain at a hotel, but as a foreigner with no Chinese and no knowledge of the city, how was he going to find something else? And how was he going to find the time to hunt for an apartment when he was spending such long hours at the office?

April turned into May and Andrew began to realize that he was not going to make it back to Australia in time for the move into his new house. His wife said she under- stood and she would manage on her own, but he knew she was upset and was finding it hard to cope. But he didn’t see how he would be able to leave Taipei for a week or two. The crisis was nearing its peak, and in desperation Malcolm was transferring more and more staff from Sydney to Taipei. At one point there were 30 Telequip staff in Taipei, including many of the subcontractors who had been hired from India. Many had left behind children as well as their spouses, something which Andrew was glad he did not have to do.

Andrew was beginning to feel tired of the long hours and the sterile environment of the hotel. One night he accompanied some colleagues to a nightclub not something he would normally do at home, but he felt that he was entitled to some entertainment. The night was not a success, however. He danced with a Taiwanese woman who propo- sitioned him, despite his protestations that he already had a wife back in Australia. He eventually managed to shake her off, but when he went back to his room early in the

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morning, he realized that he had lost his mobile phone on the dance floor. When his wife heard a carefully edited account of the night she was not impressed, and because he did not obtain a police report he was not able to claim the loss of his mobile phone on insurance.

Andrew had been looking for an apartment with the assistance of a Taiwanese colleague. He had looked at two flats which were spartan but adequate. However, in Taiwan, a 12-month lease is standard. He was unwilling to sign such a long-term lease and unable to negotiate a shorter one. Andrew found that Jonathan had also tried and failed to find an apartment, opting instead to stay in a serviced apartment. Their Taiwanese colleagues were amazed at how much the Telequip Australia employees were spending on five-star accommodation.

On his way to lunch one day, Andrew noticed a board in English advertising a flat for let. He phoned the number and found out that the real estate agent spoke English and that he had a different apartment on offer which was not far from where he was working. Later in the week the real estate agent took him to view the apartment. It was very basic and lacked a kitchen, but it was reasonably cheap, its owner spoke English and was prepared to agree to a 3-month lease. Andrew decided to take it. He had to provide 3 months’ rent in cash, so he took out a cash advance on his credit card, and moved in as soon as the apartment had been cleaned.

Andrew’s mood improved when he checked out of the hotel. At least he had over- come one hurdle and he was secretly proud of having managed such a complex transac- tion in a foreign city. He began eating at local restaurants rather than at the hotel, even though he often didn’t understand what he was ordering. The first time he visited an eatery he would choose a meal at random. If he decided to return, he always ordered the same meal again.

The hurdles he faced in the office remained. Malcolm had returned to Sydney but had started to behave erratically and was perceived to be suffering from burnout. Control of the project had been placed in the hands of a more senior manager who was based at Telequip headquarters rather than in Australia. The long hours and the uncer- tainty over the project’s future continued.

Approaching the end of the first release, the project looked like it was being can- celled. Much of the promised functionality was missing. As Andrew explained to his wife, ‘There’s a piece of functionality we promised in the contract. It doesn’t fit nicely into anyone’s responsibility and no one’s done anything about it. The customer really needs it right now and, the problem is, it’s going to take months to develop it.’ He explained their planned approach.

‘That sounds awfully complicated. Isn’t there an easier way to do it?’ ‘I don’t know. No one’s looked for one. Maybe there is.’ There was. Three weeks later, Andrew explained, ‘90 per cent of the work was going

to be in writing a program to display the data. But frankly, there wasn’t anything in the data that couldn’t be displayed in any web browser. I wrote a small program that turned each record into a file and posted it to a web page. Taicom still aren’t satisfied with the release as a whole, but they’ve agreed to overlook the other deficiencies for the moment and we can start work on the second delivery.’

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After this, life in Taipei started to settle down a little for Andrew. He took the odd day off on the weekend and explored some of the hills near his apartment. One day on the way home from work he stopped off at a coffee shop that looked fairly lively, and was invited to sit down with some students eager to practise their English and prepared to give him some tips on Chinese in return. He had bought some books on Chinese characters and could distinguish about 200 characters by this stage, although he still had great trouble working out what he was being served in restaurants and could only speak a handful of words. He had noticed that his colleagues preferred to stick to restaurants that had menus in English, and were not interested in learning any Chinese. As May turned into June they also had the humid summer to complain about.

Andrew’s 60-day term was approaching its end and his wife was busily making plans for his return. Again, she was to be disappointed. He was asked to go back for another 2 months. He contemplated saying no, but the telecom industry was suffering a severe downturn at the time and Telequip Australia had recently laid off nearly 20 per cent of its staff. Perhaps because it was under pressure, the Taicom project went unscathed. Now, he thought, was not the time to make trouble and he knew he should be feeling relieved to have a job at all. There were a lot of people worse off than he was.

He told work he needed 10 days in Sydney and no one objected loudly, so he packed his bags eagerly. He really needed a break and was looking forward to a chance to rest and unwind. When he arrived home, however, he realized his wife had other plans. She wanted him to help her move some furniture upstairs, unpack boxes, start filling out their tax returns, go shopping for a new dining table, prune the roses in the garden and catch up with relatives he hadn’t seen for months. There seemed to be no end to the chores awaiting him. At one point he burst out, ‘Look, you have no idea how much stress I have been under. I just want a bit of time to do nothing’. His wife snapped back at him, ‘And do you think life has been a holiday for me? I still had to keep working, yet somehow manage the settlement of the house all by myself and move, and unpack, and organize all the urgent repairs to this place that needed doing. And now you’re about to disappear again. You can’t leave me to do everything. You just don’t understand what it’s been like back here. There are some things I just can’t do on my own, I need your help, and now’s the only time I can get it.’

The personnel officer also wanted to catch up with him. She informed him that the per diem that Malcolm had arranged for Andrew’s first 2-month stay in Taipei was considerably above company guidelines and would be scaled back by an unspecified amount. She promised to send him a letter outlining his new entitlements, but the letter did not arrive in time for his departure. She also told him to ring a number at an accountancy firm to check if he had any tax liability in Taipei. The accountant sent him a three-page e-mail on the matter. In part, the e-mail read:

Based on our discussions with our Taiwanese office we understand that where an individual is seconded to work in Taiwan and receives any income from a Taiwan entity, that individ- ual will be subject to Taiwan individual income tax regardless of the days spent in Taiwan.

However, where an individual is paid by a foreign entity with no recharge to a Taiwanese entity of the compensation costs associated with the assignment, it is the number of days

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spent in Taiwan which will determine whether there is a Taiwanese tax liability. Where an individual has been in Taiwan for a period of less than 90 days cumulatively during a Taiwanese tax year (being the calendar year), the employment income will be exempt and no Taipei income tax return is required.

Prima facie, owing to the International Tax Agreement (ITA) between Australia and Taiwan, where an individual:

1. is physically in Taiwan for less than 183 days (in a calendar year);

2. is paid by an employer not resident in Taiwan; and

3. their compensation costs are not being recharged to a Taiwanese entity their salary will also be exempt from tax in Taiwan.

However, even though the salary income is exempt according to the ITA, and individual must still lodge a Taiwanese tax return if their stay exceeds 90 days. Taiwanese tax is also payable at this stage but a full refund is available at a later date if all the following can be substantiated with the Taiwanese tax authorities:

1. the individual remained a tax resident of their home country (e.g. statement of resi- dency from the Australian Tax Office);

2. Australian notices of assessment cover the relevant period; and

3. there is proof that the individual was paid and employed by a foreign company.

We understand from our Taiwan office that the process of claiming a refund is difficult even with the above substantiation. This is especially in the case of an Australian taxpayer due to the difference in tax years. Practically, the costs of claiming the refund can often outweigh taxes paid.

‘So does that mean you are liable for tax in Taiwan or not?’ asked his wife when she read the letter, ‘and if you do have to pay tax in Taiwan but can’t get a refund, or have to wait years for one, is Telequip going to reimburse you? I’m beginning to think that we’re not going to do as well out of this assignment as we initially thought. Take the way you are being paid the per diem, for instance. They never pay it to you in advance. You wait a month, then put in a claim form, and then we wait around for them to give you a cheque for the amount you have claimed. But in the meantime you have racked up all those bills on your personal credit card. So in the end they owe us thousands of dollars.’

His 10-day interlude in Sydney was soon over. Back in Taipei, the routine was dis- turbingly familiar. Another crisis involving Taicom was brewing. This time, however, Andrew had a real sense of impending disaster. He had a sobering talk with a Taicom manager who told him that even if the system were made to work, Taicom would not use it. It simply did not provide the functionality that Taicom required.

Despite these pressures, Andrew was determined to keep some balance in his life and make sure that he take at least one day off each week. He certainly didn’t want to end up like Malcolm, who probably should have been on extended sick leave but was

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still working. He also decided he should take the initiative to study Chinese in a more formalized fashion. He started ringing around some language schools that other expa- triates had mentioned and found one with weekend classes. He had to pay for 10 weeks of classes in advance. He was unsure he would still be in Taipei for that long, so enrolled in the cheapest course he could find.

Meanwhile, his Australian colleagues were complaining about the food, the hot and humid summer, the unreasonableness of the Taicom staff and the pollution. One day was spent in suspense waiting to see if a typhoon threatening the city would hit. All the local staff stayed at home, so it was only the expatriates who gathered in the darkened, empty Taicom building. At about noon they received a call from a manager at Telequip headquarters ordering them to leave the building. In the end, the typhoon missed Taipei, but struck a village that some of the Telequip staff had visited the pre- vious day. By this stage most of the Australians working on the Taicom project were openly expressing the hope that the project would indeed be cancelled. If the proj- ect were to fail, Andrew and his colleagues nevertheless anticipated that they would remain in Taipei for a number of weeks to wind up the project.

In mid-August, 6 weeks into Andrew’s second 2-month assignment, senior Telequip Australia management announced that the company would be pulling out of the Taicom project. Telequip informed Taicom of a revised schedule that included delays of more than 6 months beyond previous estimates, which had already slipped by almost 6 months. Telequip management did not expect that the offer would be acceptable, and indeed, Taicom responded by cancelling the project. Andrew and his colleagues in Taipei were informed of the cancellation the follow- ing day. Telequip instructed its staff in Taipei to shut the system down, pack up and return home as soon as possible. Andrew and his colleagues disabled the system, collected all their belongings and left the building by the end of the day. All of them wondered if they would have jobs to return to. All felt defeated and dispirited after now having nothing to show for their months of effort. That evening Andrew ended up at a nightclub and drank until 4 a.m. with colleagues from a different but related project.

The following day, and rather hung over, Andrew was told by a Telequip secretary that she had managed to book him on a flight back to Sydney that evening. He was advised to collect the ticket from the airline’s sales office in the city, after which he raced back to his apartment to pack. He caught his flight, but did not have time to retrieve his deposit from the real estate agent. A colleague who was remaining behind for a few days handled the matter on his behalf.

Back in Sydney, the Taicom team was briefed on what had happened. The Indian subcontractors were gone within an hour of the meeting. The rest of the company quickly found out through word of mouth. Morale, already low since the first round of retrenchments, plummeted even further.

‘I hope this time you’re back for good,’ his wife said when they met at Sydney air- port. ‘It’s truly amazing, you know. Telequip is such a large company that operates all over the world and has so much international experience. So why is it they couldn’t manage to run this project in Taiwan?’

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‘The worst thing is,’ Andrew said, ‘if we had been better prepared I think we could have made this project work. I don’t think it had to be a failure. The technical problems were real, but the major problem was that we weren’t “buddies”. We never understood them and they never understood us.’

Malcolm was retrenched the following week. Two weeks later, so were almost all of the managers and a majority of the employees who had been involved in the proj- ect, although Andrew survived. The remaining staff were reallocated and a number of other retrenchments were made elsewhere, including the whole product sales team. The ‘world product’ vision was dropped and Telequip Australia’s focus shifted squarely to its domestic customer.

Source: Dowling, P. J., & Welch, D. E. (2004). International human resources management: Managing people in a multinational context (4th ed.). London: Thomson.

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Case 8 Conscience or the Competitive Edge? (A) Kate Button

Christopher K. Bart

The plane touched down at Bombay airport on time. Olivia Jones made her way through the usual immigration bureaucracy without incident and was finally ushered into a waiting limousine, complete with uniformed chauffeur and soft black leather seats. Her already considerable excitement at being in India for the first time was mounting. As she cruised the dark city streets, she asked her chauffeur why so few cars had their headlights on at night. The driver responded that most drivers believed that headlights use too much petrol! Finally, she arrived at her hotel, a black marble mono- lith, grandiose and decadent in its splendour, towering above the bay.

The goal of her four-day trip was to sample and select swatches of woven cotton from the mills in and around Bombay, to be used in the following season’s youthwear collection of shirts, trousers, and underwear. She was thus treated with the utmost def- erence by her hosts, who were invariably Indian factory owners, or British agents for Indian mills. For three days she was ferried from one air-conditioned office to another, sipping iced tea or chilled lemonade, poring over leather-bound swatch catalogs, which featured every type of stripe and design possible. On the fourth day, Jones made a request that she knew would cause some anxiety in the camp. “I want to see a factory,” she declared.

After much consultation and several attempts at dissuasion, she was once again ushered into a limousine and driven through a part of the city she had not previously seen. Gradually, the hotel and the western shops dissolved into the background and Jones entered downtown Bombay. All around was a sprawling shantytown, constructed from sheets of corrugated iron and panels of cardboard boxes.

Dust flew in spirals everywhere among the dirt roads and open drains. The car crawled along the unsealed roads behind carts hauled by man and beast alike, laden to overflowing with straw or city refuse—the treasure of the ghetto. More than once the limousine had to halt and wait while a lumbering white bull crossed the road.

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Finally, in the very heart of the ghetto, the car came to a stop. “Are you sure you want to do this?” asked her host. Determined not to be faint-hearted, Jones got out of the car.

White-skinned, blue-eyed, and blond, clad in a city suit and stiletto-heeled shoes, and carrying a briefcase, Jones was indeed conspicuous. It was hardly surprising that the inhabitants of the area found her an interesting and amusing subject, as she teetered along the dusty street and stepped gingerly over the open sewers.

Her host led her down an alley, between the shacks and open doors and inky black interiors. Some shelters, Jones was told, were restaurants, where at lunchtime people would gather on the rush mat floors and eat rice together. In the doorway of one shack there was a table which served as a counter, laden with ancient cans of baked beans, sardines, and rusted tins of a fluorescent green substance that might have been peas. The eyes of the young man behind the counter were smiling and proud as he beckoned her forward to view his wares.

As Jones turned another corner, she saw an old man in the middle of the street, clad in a waist cloth, sitting in a large tin bucket. He had a tin can in his hand with which he poured water from the bucket over his head and shoulders. Beside him two little girls played in brilliant white nylon dresses, bedecked with ribbons and lace. They posed for her with smiling faces, delighted at having their photograph taken in their best frocks. The men and women moved around her with great dignity and grace, Jones thought.

Finally, her host led her up a precarious wooden ladder to a floor above the street. At the top Jones was warned not to stand straight as the ceiling was just 5 feet high. There, in a room not 20 feet by 40 feet, twenty men were sitting at treadle sewing machines, bent over yards of white cloth. Between them on the floor were rush mats, some occupied by sleeping workers awaiting their next shift. Jones learned that these men were on a 24-hour rotation, 12 hours on and 12 hours off, every day for 6 months of the year. For the remaining 6 months they returned to their families in the country- side to work the land, planting and building with the money they had earned in the city. The shirts they were working on were for an order she had placed 4 weeks earlier in London, an order of which she had been particularly proud because of the low price she had succeeded in negotiating. Jones reflected that this sight was the most humbling experience of her life. When she questioned her host about these conditions, she was told that they were typical for her industry—and for most of the third world, as well.

Eventually, she left the heat, dust, and din of the little shirt factory and returned to the protected, air-conditioned world of the limousine.

“What I’ve experienced today and the role I’ve played in creating that living hell will stay with me forever,” she thought. Later in the day, she asked herself whether what she had seen was an inevitable consequence of pricing policies that enabled the British customer to purchase shirts at £12.99 instead of £13.99 and at the same time allowed the company to make its mandatory 56% profit margin? Were her negotiating skills— the result of many years of training—an indirect cause of the terrible conditions she had seen?

When Jones returned to the U.K., she considered her position and the options open to her as a buyer for a large, publicly traded, retail chain operating in a highly

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competitive environment. Her dilemma was twofold: Can an ambitious employee afford to exercise a social conscience in his or her career? And can career-minded indi- viduals truly make a difference without jeopardizing their future?

Conscience or the Competitive Edge? (B)

Olivia Jones described her subsequent decision as follows: “The alternatives for me were perfectly clear, if somewhat unrealistic: I could stipu-

late a standard of working conditions to be enforced at any factory employed, and offer to pay an inflated price for merchandise in an effort to fund the necessary improve- ments. This would mean having to increase the margins in other sections of the range and explaining to my controller exactly why prices had risen.

“There was, of course, no guarantee that the extra cash would make its way safely into the hands of the worker or improve his working conditions. Even exercising my greatest faith in human nature, I could see the wealthy factory owner getting increas- ingly fatter and some other keen and able buyer being promoted into my highly coveted position!

“I could refuse to buy from India. This would mean I would have to find alternative sources at equally low prices to justify my action. There was always Macau, where I knew conditions were worse if anything, or Hong Kong, where conditions were cer- tainly better, from what I had seen, but prices were much higher. I had to ask myself if I would truly be improving the plight of the workers by denying them the enor- mous orders that I usually put through their factories. Or would I simply be salving my own conscience by righteously congratulating myself at not dealing in slave labour? Doubtless my production schedule would be snapped up eagerly by the next buyer who was hungry for cheap labour and fast turnaround.

“I could consider speaking to the powers that be and ask their advice. After all, the group was proud of its philanthropic reputation and had promoted its charity work and sponsorship of various causes, including Wimbledon Football Club and Miss World. This in mind, I approached my line manager, who laughed at my idealistic naivety and made it quite clear that I should hold my tongue if I knew what was good for me.

“It seemed I had but two choices. Either I quit the company and look for an employer which would be more responsible in its attitude towards sourcing merchan- dise, or I could continue to buy as before, but aware of the consequences and exercising a conscience wherever possible. I won’t bother to list my excuses for opting for the latter choice.

“I believe that there is no solution, no generalization which can be used as a prece- dent in this type of scenario. I don’t know to this day what action I could have taken to improve the lives of those individuals whom I felt I had compromised.

“Every day, in various work situations, employees, and specifically managers, come up against questions of conscience versus the status quo. It may be that you are encouraged to show prejudice against an individual or group of employees due to their race, colour or clique; maybe your boss asked you to lie to camouflage an embarrassing

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error and insinuate that the fault lies with someone else; maybe your employer’s policy requires you to screw a client or a supplier to close a deal and maintain the bottom line.

“Each case is different and demands its own evaluation. Each man and woman must draw their own set of rules and regulations to suit their own situation and conscience.

“It takes brave individuals to jeopardize their careers for a cause but it is thanks to those who do take a stand that great feats of humanitarian work are successfully under- taken and completed. We should all evaluate the choices that are open to us and be true to ourselves. Let your conscience be your guide within the realms of reality.

“The most important lesson that I learned from the episode was that, above all, you have to learn to live with the choices that you make.”

Source: Button, K., & Bart, C. K. (1994). Conscience or the competitive edge? (A, B). Case Research Journal, 14(1). Reprinted by permission from the Case Research Journal. Copyright 1994 by Button, K., Bart, C., and the North American Case Research Association. All rights reserved.

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