2.7 READING FOR CROSS-CULTURAL ASSOCIATIONS

a. Read the text about new product development.

New product development that coordinates efforts across national markets leads to better products and services, but companies develop products in different countries in markedly different ways.

Japanese companies, for example, tend to believe much more in getting new products to market and then gauging the reaction to them. The product itself may have been developed with reference to observations of present and potential customers rather than conventional market research. US companies on the other hand, tend to use more formal market research methods. And for German companies, product development schedules tend to be more important.

Clearly, companies decide on different launch strategies for different categories of products. Toshiba launched the Digital Video Disk (DVD) in Japan in November 1996, in the US in March 1997 and in Europe in autumn 1997. However, Intel launched its latest PC chips simultaneously in all countries.

The launch decision also includes marketing mix decisions. When Citibank introduced its credit card in the Asia-Pacific region, it launched it sequentially and tailored the product features for each country while maintaining its premium positioning. The promotional, pricing and distribution strategies also differed from country to country.

The introduction of the Internet and Intranets has the potential to accelerate the process of mining all markets for relevant information and for features that can be included in new products. Numerous companies investigate the possibilities of melding product ideas arising from different countries.

Both Marks and Spenser, by selling underwear and pensions, and Virgin, with flights to New York and cans of cola, have seized opportunities for extending their brand names into new areas. But if you stretch a brand too far, the name becomes devalued, as some companies have found to their cost. During the recession, hard-pressed marketing directors in the food industry offered consumers more choice by adding new flavours, taking out fat or sugar, or moving from one tried and tested category, such as confectionery, to an allied one such as soft drinks. It was a low-risk strategy – it avoided the huge costs of new product development and offered variation on an existing purchase.

Instead of building its own new products, a company can buy another company and its established brands. In the past years we have seen a dramatic flurry of one big company gobbling up another (Nestle absorbed Rowntree Mackintosh, Philip Morris obtained General Foods, Pfizer acquired Pharmacia Corporation, etc.). Such acquisitions can be tricky – the company must be certain that the acquired products blend with its current products and that the firm has the skills and resources needed to continue to run the acquired brands profitably.

In the past years, many companies have used “me-too” product strategies – introducing imitations of successful competing products. Thus Tandy, Sanyo, Compaq and many others produced IBM-compatible personal computers in the 1980s-1990s. These “clones” were sometimes sold for less than half the price of the IBM models they emulate. Imitation is now fair play for products ranging from soft drinks to toiletries. Me-too products are often quicker and less expensive to develop. But the imitating company enters the market late and must battle a successful, firmly entrenched competitor.

Many companies turn to reviving once-successful brands that are now dead or dying. Reformulating, repositioning an old brand can cost much less than creating new brands. Thus Dannon yogurt sales rocketed as a result of linking it to healthy living; Coca-Cola rejuvenated Fresca by adding NutraSweet and real fruit juices.

b. Draw a parallel between the practice of new product development in different countries. Discuss their advantages and disadvantages.

	Examples				Advantages		Disadvantages
	the USA	Japan	Germany	Russia
Market research method
Launch strategies:
Brand extension
Acquisition
Me-toos
Revival of old brands
Marketing mix decisions

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2.7 CASE STUDY & ROLE PLAY

The Case

The merits and demerits of reorganization

Modern Industrial Equipment (MIE) is a manufacturer of industrial electrical equipment. In addition to large domestic plants the company has several wholly-owned subsidiaries abroad. In 19XX the financial performance of the foreign subsidiaries was good with the exception of the Taiwan facility, which was losing money. Despite an infusion of $3 million from the parent company the Taipei office reported further substantial losses. After considerable study, the president of the Taiwan plant, Mr. Yang, was fired. He was replaced by Henry Tanaka, 38, a second generation Japanese-American who had formerly been vice-president of operations at one of the domestic plants. Tanaka was the youngest person ever to become a MIE president and during his three-year tenure he had initiated policies, including a managerial reorganization that had resulted in phenomenal growth.

Tanaka disposed of a part of the assets and inventory in order to offset liabilities, shut down the manufacturing of heating and cooling equipment, and introduced a radically new management system. As a result of that both the vice-president of operations and the plant superintendent resigned. The middle- and upper-level managers sent a letter to the President of MIE, James Hill, seriously questioning Tanaka’s policies.

The management of MIE is torn between the need for sweeping changes to restore the financial soundness of the subsidiary versus the need to maintain the confidence of the staff. Tanaka is in a difficult position. On the one hand a number of the problems need to be solved before any recovery can be achieved. On the other hand, he is replacing a seemingly popular Chinese national. Tanaka must make some decisions that are not likely to be readily approved of by his all-Taiwanese staff (he believes that the reason for the resentment between him and the staff is partly that he is a Japanese-American). If he develops an antagonistic relationship between him and his managers, his measures will hardly ever succeed. Still Tanaka assumes that renewed financial solvency will outweigh the present difficulties resulting from the reorganization.

Case Analysis

1. 
   Summarise the situation at MIE-Taiwan both before and at the time Tanaka took over.
   
2. 
   Dwell on Tanaka’s qualifications.
   
3. 
   Comment upon the position of Tanaka as “outsider”.
   
4. 
   Write a brief summary of the financial situation at MIE-Taiwan inherited by Tanaka. Use chart 1.
   

Chart 1. MIE-Taiwan Balance Sheet (in Thousands of US$)

ASSETS
Current Assets
Cash	1,610
Short-term securities	222
Receivables	1,620
Inventory	11,830
Prepaid expenses	150
Other assets	140
Total Current Assets	15,572
Fixed Assets (at cost)
Buildings	4, 182
Machinery and equipment	8, 021
Less depreciation	(3,212)
Total Fixed Assets	8,991
Other Assets	410
Total Assets	24,973
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable (trade, usance credit and loans)	11,290
Accounts payable (local)	3,150
Loans and current portion of long-term debt	1, 130
Other current liabilities	130
Total Current Liabilities	15,700
Long-term debt	3, 294
Reserve for depreciation	1, 250
Other reserves	120
Duty payable	110
Other liabilities	129
Shareholders’ equity	4, 370
Total liabilities and equity	24,973

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5. 
   Sum up the changes in the Organizational Chart of MIE, proposed by Tanaka. Use Chart 2.
   

Chart 2

Present Organization



Proposed Organisation

5. 
   Consider Chart 3 and elaborate on the stagnant sales trend in heating and cooling equipment.
   

Chart 3. MIE-Taiwan Sales by Product Line (All Models)

19XX-19XX (in Thousands of US$)

	19X1	19X2	19X3	19X4	19X5	19X6
Fans	689	724	867	928	831	789
Elevators	1,457	1,763	1,847	2,148	1, 658	1,892
Lighting systems	1,408	1,302	1,503	1,429	1,347	1,236
Heating and cooling systems	684	992	1.280	1,564	891	726
Total	4, 238	4,781	5,497	6, 069	4, 727	4, 643
Annual growth (in percent)	-	12.	15.	10.	-22.1	-1.8

5. 
   Prepare a report on the case.
   

Role-Play -1

Situation

Tanaka’s first action upon being named subsidiary president was to dispose of a part of the assets and inventory in order to offset liabilities, a course that had been rejected by his predecessor, Mr. Yang. His second action, after just one week in Taiwan, was to shut down the manufacturing of heating and cooling equipment, a decision completely opposed by the all-Taiwanese staff. This action, resulting in the layoff of eighteen workers and the reassignment of twelve more, drew considerable heat from the workers. Tanaka’s third action, after just one month on the job, was to introduce a radically new management system. This last decision finally outraged the executives to a point where both the vice-president for operations and the plant superintendent resigned. The middle- and upper-level managers sent a letter to the President of MIE, James Hill, expressing their dismay with Tanaka and seriously questioning his policies. Hill who had worked closely with a number of the letter’s signatories began himself to wonder whether Tanaka was maybe moving just a little too fast.

a) Act out a policy discussion between James Hill, President, MIE and Henry Tanaka, President, MIE-Taiwan:

James Hill, President, MIE:

You make sure that Tanaka got a copy of the letter sent to you by Lo and thirteen others. You are disappointed that the firm had to lose Hu (vice-president for operations) and Lee (plant superintendent) and Tanaka couldn’t persuade them otherwise. You understand that the staff in Taiwan are upset. Morals hasn’t been so hot for some time there, and it seems the situation has gone from bad to worse and that’s counterproductive. You wonder if may be Tanaka could hold off a bit on the reorganization as with all the other changes going on this is not the best thing to take on at the moment. When Tanaka reorganized at his previous place, it worked fine because he was not perceived by middle-management as an outsider. But in Taiwan things are different. Tanaka is making the key decisions, and that’s what you expect him to do, but he has got to have cooperation if his decisions are truly to be implemented. You know that in traditional Chinese companies seniority is regarded very seriously. It is highly unusual to fire a senior manager, and rarely do lower-level employees resign except in case where personal honour is at stake. Thus, resignations of Hu and Lee must be regarded as very serious matters. The appeal to you on the part of remaining managers must be looked at as rather unprecedented. You do not take seriously Tanaka’s conclusion that part of the resentment toward him is because he is Japanese-American. You advise him to make an effort to communicate, to talk everything out with the staff, to get their advice. You are sure they know and care a lot about the business.

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Make use of the helpful phrases:

• 
  Well, I’m calling for couple of reasons … .
  
• 
  I’ll get the small matter out of the way first… .
  
• 
  I see. Well, how are the things there now?
  
• 
  That may be true, but … .
  
• 
  I’m not questioning your fiscal policies.
  
• 
  My personal feeling is that … .
  
• 
  But you’re not running Taiwan by yourself.
  
• 
  What does that have to do with it?
  
• 
  Oh, come on.
  
• 
  I just hope that you are right and that the attitudes won’t get in the way of making a profit.
  

Henry Tanaka, President, MIE-Taiwan:

You saw the copy of the letter sent to Hill by Lo and thirteen others. You were surprised by the resignations of Hu and Lee. You think that they felt they had to resign to save face. They didn’t give you much of a chance to persuade them otherwise because they had their minds made up. You have got something of a rebellion on your hands at the moment. Though you are sure it’ll pass soon. Once the managers realize that the changes you want to make are for their own good, there will be some real changes in attitude. The former President, Yang pleased everybody in the company for years while driving it to the point of bankruptcy. You are not interested in alienating the people that you have to work with, but at the same time you are not trying to win any popularity awards. Certain measures had to be taken and taken immediately. You took them. Already the company has current assets in excess of current liabilities. You are sure that you are resented because you are not Taiwanese. The Chinese don’t like Japanese. That’s a matter of history. At the same time you are doing what you feel you have to do to save this subsidiary. And a reshuffle is one of those measures. But you may have moved a little too fast with reorganization. As you start to make a profit again, the attitudes will change.

Make use of the helpful phrases:

• 
  What’s up?
  
• 
  Thanks for considering this proposal.
  
• 
  But I guess … .
  
• 
  To be honest, James, it’s tough going. In fact … .
  
• 
  The point is we can’t wait for people to be happy with every decision.
  
• 
  I’m well aware of that.
  
• 
  Anyway it doesn’t matter. What matters is that … .
  

b) Act out a conversation between Hill and Lo concerning his letter about Tanaka:

C. Lo, Executive Director, Finance Division:

You wrote to James Hill on behalf of the middle- and upper-level managers at MIE-Taiwan as a last resort. While you understand the need for sweeping changes for cost-effective reasons, you take issue with two of Mr.Tanaka’s actions - his decision to halt production of heating and cooling systems and his reorganization plan.

Tanaka’s decision does not take into consideration a number of factors. One, the decline in sales has been due chiefly to artificially low prices set by competition (mainly with Japanese manufacturers) in an attempt to drive MIE-Taiwan out of the market, under certain conditions MIE-Taiwan could compete in this price war. Two, layoffs have resulted in depressed morale among the workers on other assembly lines. Besides you are discouraged by Mr.Tanaka’s American-style (or Japanese-style) reorganization plan. In your opinion it is extremely unwise for the following reasons.

(1) The plan consolidates sales in one division, and it may seriously affect the reputation and sales of MIE Taiwan. Under Mr.Tanaka’s plan, salesmen will sell all MIE products, even those that they may not be familiar with, a situation that could backfire if the product sold is not appropriate to the client’s needs.

(2) Mr.Tanaka has so far not appointed the heads of different divisions after the reorganization, which creates unfair anxiety among the middle- and upper-level managers.

(3) Mr.Tanaka has created his plan without consulting you and your colleagues and without having any knowledge of the intricacies of doing business in China.

Make use of the helpful phrases:

• 
  Although none of us would argue that … .
  
• 
  It is clear that … .
  
• 
  Surely, … is not the only viable solution available to somebody
  
• 
  The other matter that concerns me is … .
  
• 
  There are three main problems with it. First, … . Second, … . Third, ….
  
• 
  We also feel that … .
  
• 
  I’m sorry to have to bring this matter to your attention, but … .
  
• 
  Thank you for your time and attention to my plea.
  

---

James Hill, President, MIE:

The financial situation in MIE-Taiwan has necessitated a number of changes designed to increase its profitability. Among the measures instituted by President Tanaka are partial liquidation, cessation of manufacturing heating and cooling systems, and managerial reorganisation. In the past the parent company attempted to be responsive to local management. Now the strategy has backfired. The head office cannot allow the subsidiary to continue losing money. Maybe Tanaka has moved fast in order to try to stem the losses. You disapprove of the fact that Tanaka’s actions have been interpreted by the local managers as being totally insensitive to the workers. As a result, a major rebellion is underway with the security-conscious Chinese fearing for their own jobs. Still, the subsidiary is surviving on a loan of $3 million from the parent company and is not at all self-supporting. You try to make them pick up on the fact that Tanaka is highly regarded as a manager by the parent company, he obviously works fast and is quite decisive. Even before he arrived in Taiwan he was already taking rather radical actions and within a month has already devised a new management system.

Make use of the helpful phrases:

• 
  As you are well aware… .
  
• 
  I’ll begin with general comment … .
  
• 
  It is clear that … .
  
• 
  Don’t be so offensive about it.
  
• 
  You should treat the man according to his merits.
  
• 
  I’m sure Mr. Tanaka will rise admirably to the occasion.
  

c) Act out a conversation between Tanaka and Lo after Tanaka has talked to Hill:

Henry Tanaka, President, MIE-Taiwan:

You are disappointed that Mr. Lo did not speak to you first before writing to Mr. Hill. You understand that he is upset, but you are only doing what you feel you have to do for the company. You do not understand why Lo calls your style “Japanese-style management” – you are a second-generation Japanese. You know very little about Japanese management and barely speak Japanese. You try to talk about the reorganization. You understand that you may have been a bit hasty in your actions but in the given situation you felt that you had few options. You are trying to convince Lo to stay.

Make use of the helpful phrases:

• 
  Won’t you have a seat? I have ordered coffee for both of us if that is acceptable.
  
• 
  I’m sorry to hear that … .
  
• 
  However I feel sure that you will understand that it cannot alter our attitude to …
  

C. Lo, Executive Director, Finance Division:

You present the main objections to Tanaka’s plans. You are offering to resign, telling Tanaka that you can’t accept his way of doing business. Tanaka’s measures are unnecessary. He is not taking into account the cultural aspects of the matter, nor is he using sound business tactics. Tanaka has done nothing to show that he is concerned with the welfare of the remaining managers, only with balancing his books. Still you acknowledge that the financial situation is quite serious and demands immediate handling.

Make use of the helpful phrases:

• 
  Allow me to put my case … .
  
• 
  I am, of course, not for one moment doubting that you have the full backing of … .
  
• 
  There are no circumstances in which I would … .
  

• 
  Then I am sorry to inform you that … .
  

Making a Decision

In coming to a decision, consider the following points:

• 
  The role of cultural factor in transnational companies
  
• 
  The pitfalls of promoting young enterprising managers to high positions.
  

What other factors should be discussed?

Your decision:

Role-Play -2

Act out a meeting Tanaka has arranged with the executives of MIE-Taiwan to introduce the management reorganization and to explain how the new changes will affect personnel:

Henry Tanaka, President, MIE-Taiwan:

You want to see the staff in action before you make a decision who will be in charge of what division after the reorganization. The resignation of two top managers does not seem to bother you nor does the fact that the remaining managers are questioning your decisions. You absolutely believe that you are doing what you need to do and that your mission is not to get along with your staff, but simply to turn MIE-Taiwan into a profitable operation.

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