Shi Fabris Case

In todays “borderless” business world, arises a misalignment on the organizational goal expectation on Return of Investment of Shui Fabrics, (a China-based, 50-50 joint venture involved on the production of dye and coat fabrics for sale to local and international sportswear manufacturer.) between American company (Rocky River Industries), and its Chinese counterpart (Shanghai Fabric Ltd.).

Chiu Wai, the company’s Chinese (Regarded to posses high cultural context, considering its effect on the local economic environment & addressing the unemployment issue of China thus avoiding being in hot waters with local authorities) deputy general manager, has a profound content on the 5% annual ROI, surpassing its local counterpart.

Paul Danvers, president of the American (with Americans regarded to have low cultural context, geared towards business goal achivements) partner company is rallying his frustrations for not reaching the annual ROI of 20%.

Ray Betznel, the Joint Venture’s (Shui Fabrics) general manager is caught between the decision of the American partner company through its president, Paul Danver’s directive for greater efficiency through sophisticated technology while reducing a significant number in workforce.

There is a problem on information dissemination on the part of Ray, the American GM of the joint venture to Chui Wai, the Chinese deputy GM as brought about the differences on their social context levels resulting to the confusion on the way both GM’s look towards profit.

The Political and legal constraints, plus considerable red tape on doing business in China, as mirrored by the uncertainty surrounding the periodic, often contentious US-Chinese textile trade negotiations is also a concern.

As common problem with the international operations, Shui Fabrics is faced with the pressure Globalization Backlash as may local authorities still sees western companies on Chinese soil as just one of more instance of exploitation in a long history of foreign attempts to domination.

“Given the problems raised above, the ultimate concern of “mother company” investing on a foreign land is to take advantage of the resources available for better chance of profit, in this case China’s cheaper labor cost. Therefore the problem should focus on delivering the expected Annual ROI of 20%. Address the call for efficiency by lowering the cost of production. Is it timely to pull the plug on Shui? What is the best option to turn things around?”

Objectives:

Corporate Level Objective:

As the main purpose of the joint venture on branching out its business in China is to reduce the cost brought about by the cheaper labor cost that is directed to increased profit which in this case, a higher percentage on return of investment of an aggressive 20% annually as opposed to the lackluster current state of 5% annual ROI.

Functional Objectives:
Human Recourses
Develop techniques geared to enhance cultural intelligence especially among the top management. Develop a sense of awareness towards the social orientation of everyone. Address the need for retrenchment as it arises while protecting employee welfare.

Finance
– Source out for budget to finance the new technology upgrade.

Production
Establish efficiency over production by the introducing scientific methods both on workers and machinery for optimum product output. Promote a working schedule that suits the company’s financial profile.

Marketing
Establish relationships with trade partners locally (China), regionally and internationally to promote market share. Make a “brand” out of the products.

Legal
Introduce policies that better protect the company from the uncertainties of trade negotiations. Secure special trade agreement with the host country so development would not be hindered by popular culture.

Methodology

SWOT Analysis
Internal Strengths
Workforce totaling to almost 3,000 employees
Operations had been up for a decade
Rey Betzel, the General Manager is an American
Five years experience of Ray Betzel as Manager

Internal Weaknesses
Differences on social context levels
Chiu Wai, the Deputy GM is Chinese
Profit losses for the past years
Production Capacity
50-50 ownership on the joint venture

External Opportunities
Access to cheaper labor costs
China’s Product Demand
Regional Product Demand
International Product Demand

External Threats
Government Red Tape
Uncertainty on US-Chinese textile trade negotiations
China has 20% unemployment rate
Government pressure on foreign businesses
Current US tariffs and quotas could change at any time
Operating on a culturally diverse environment

Solution:

Strengths – Opportunities Strategies

The strength Workforce totaling to almost 3,000 employees paired with the opportunity to access cheaper labor costs is a perfect environment for profit.

The strengths of having Rey Betzel, with five years of experience General and being American (goal-oriented equipped with managerial tools from homeland) provide the company leverage to their decade of presence in the Chinese textile industry on assessing the opportunities on local (China), Regional (Asia), and International Product Demands.

Strengths – Threats Strategies

The strength of having a Workforce totaling to almost 3,000 employees, would address the threats on China’s unemployment rate thus lightening the threats on the pressure of the Government on foreign business and red tape.

Having Rey Betzel, the General Manager as an American, poses as strength against the treat of current US tariffs and quotas that could change at any time.

With strengths of a decade of presence of the joint-venture’s on the global industry paired with the five years experience of Ray Betzel as General Manager, directs the threats that arises from uncertainty on US-Chinese textile trade negotiations and Operations on a culturally diverse environment.

Weakness – Opportunities Strategies

The weakness as to Differences on social context levels, would leverage on the opportunities on product demand on the foreign territory (China), Regional (Asia) and International territories.

The weakness of having Chiu Wai, the Deputy GM as Chinese, would leverage on the opportunities on product demand on the foreign territory (China).

The weakness brought by Profit Losses for the past years would leverage on the opportunities on product demand on the foreign territory (China), Regional (Asia) and International level.

The weakness of 50-50 ownership on the joint venture, would provide the opportunity for easier Access to cheaper labor costs.

Weakness – Threats Strategies

Weakness Differences on social context levels, answers the threat on Uncertainty on US-Chinese textile trade negotiations.

Weakness on Chiu Wai, the Deputy GM as Chinese would work on mending the threat Government pressure on foreign businesses.

Weakness brought Profit losses for the past years can capitalize on the threat of Current US tariffs and quotas could change at any time, should the odds be favorable for past loses.

Weakness in 50-50 ownership on the joint venture would work to alleviate the threat of Government Red Tape through China’s 20% unemployment rate. Weakness on Production capacity would take advantage of the threat in Operating on a culturally diverse environment.

Alternative Courses of Action:

The company shall put up a project-based team composed managers from the two joining companies to promote open communication in the venture so confusion is lessened and expectations are clear to each parties. Create an immersive activity to promote social orientation awareness and improve Cultural Intelligence CQ though the different strategies of social and behavioral science. Establish local, regional and international presence though the introduction of “product branding” as an American dye and coat fabric manufacturer. Influence the creation of trade treaties to promote stability on foreign investments. Direct efforts for the optimum goal of creating profit while addressing economic, legal and sociocultural concerns on operation on a global environment.

Recommendation:

The last option on the list of alternatives given above, directing efforts for the optimum goal of creating profit while addressing economic, legal and sociocultural concerns on operation on a global environment, is what I would recommend by resorting to Outsourcing. By the mere definition of outsourcing: engaging in the international division of labor so that work activities can be done in countries with cheapest sources of labor and supplies. Through this process a “service level agreement” can ascertain the level of efficiency on Paul Danver’s expectations in an exact and measurable manner thus effectively mending the differences based upon the GLOBE project.

As opposed to the 50-50 joint venture, were every facet of management is shared by both parties (having two general managers is one example). The distinction between management role is now more precise as operations would resort to outsourcing. This process is like hitting three birds with one stone as the sociocultural concerns are addressed by outsourcing, the economic side of the formula is answered as the business partnerships are maintained. Meaning the creation of about 3,000 jobs that helps boost the local economy is also maintained. This establishes good rapport of foreign investments on Chinese soil, which would open the venue for local official to change their negative outlook towards Western companies. Finally, the cost on introducing more assets to provide the technology upgrade is diminished as existing assets are being utilized. Through this process the ultimate goal maximizing profit is within the grasp of the organization.

References:
Daft, Richard L. (2012). New Era of Management: Concepts and Application, 2nd Edition. Pasig City, Philippines: Cengage Learning Asia Pte Ltd