From Crisis to Cultural Synergy in China.
The Situation
A mid-sized Italian HVAC company had established a plant in Shanghai, China. Initially successful in manufacturing, the venture spurred development in the Asian market and encouraged a fusion of R&D efforts. However, one year later, manufacturing quality had critically deteriorated, and on-time delivery (OTD) was unsatisfactory. The Italian leadership style and operational methods were incompatible with the local context, with cultural differences underlying many of the problems.
The Task
Financial performance had become unsustainable in the medium to long term. The owner's mandate was clear: "dramatically improve within a year or relocate the plant from China.", this was the common goal.
The Actions
The interim General Manager defined a new mission statement to refocus the Chinese subsidiary on core manufacturing activities and reduce non-strategic functions like R&D, marketing, and sales. The Board of Directors approved the mission and agreed on three key actions to achieve it:
Quality Improvement:
Issue: The Italian stakeholders demanded high manufacturing quality but had never clearly defined it or provided the Chinese plant with the necessary tools or training.
Actions:
New standards were established for critical production processes.
Investments were made in quality inspection.
Production was temporarily shut down to allow for operator training.
Results: Within a month of restarting production, non-quality costs were reduced from 30% to 3% of sales costs.
Information Systems Enhancement:
Issue: Cultural differences were evident in the ERP system. The Italian company's minimalist approach to data entry and informal way of working was incompatible with the local culture that required clear definitions of personal responsibility.
Actions:
Lean tools such as flow-charting, VSM, and Pareto analysis were used to break down cultural barriers and optimize communication.
A comprehensive management system was implemented across warehouse, production, and quality areas to enable MRP and industrial accounting.
An integrated information system with Italy was established, including product document management.
Results: Improved communication and operational efficiency.
Human Resources Reorganization:
Issue: The Italian HR processes were loosely structured and incompatible with the local culture that required clear employee rules, formal job descriptions, and a review process.
Actions:
Cross-responsibilities between Italy and China were clarified, and non-value-added tasks were eliminated.
Some managers were relocated or released, and new hires were made in HR, purchasing, and quality functions.
A new transparent HR policy and engagement strategy was implemented.
Results: HR costs were reduced by 10%, and employee turnover was reduced from 28% to 8%.
The Results
The company not only avoided closure within the year but continued to operate successfully for several years afterward. This success was driven by increased employee loyalty, significant reductions in non-quality costs, and improved operational efficiency.
The Top Three Lessons Learned
Visual Communication:
Visual communication is more effective than text in a cross-cultural context. For example, using flowcharts is preferable to written procedures.
Cultural Bias in Information Systems:
Information systems can have a cultural bias toward a certain way of working. Recognizing and adapting to these biases is crucial for effective implementation.
Detailed Planning for Critical Production Processes:
A detailed plan is essential before transferring critical production processes, with particular consideration given to the human aspects. This includes understanding cultural differences and providing appropriate training and support.