Final case zpmc_group10

WHERE IS THE WAY FOR MADE IN CHINAA CORPORATE RESEARCH ON ZPMC

Group 10

MA Zhiyuan

JIANG Yi

LUO Yingying

Group 10 ZPMC Where is the Way of Made in China

1

Corporate research structure

WHERE IS THE WAY OF MADE IN CHINA

CATALOGCatalog....................................................................................................1Abstract..................................................................................................21. Introduction to ZPMC...................................................................3

1.1 Snapshot.................................................................................31.2 Main Business........................................................................31.3 Organizational Structure.....................................................51.4 Shareholder Structure..........................................................61.5 History.....................................................................................6

2. Core competence..........................................................................132.1 Core competence and the Diamond Model...................132.2 Core competences of ZPMC..............................................142.3 Core Competences of different developing stages......17

3. Internationalization.....................................................................193.1 Going out: Chinese Wisdom..............................................193.2 Going out: ZPMC Way.....................................................203.3 Illuminations for “Made in China”....................................25

4. Leadership.....................................................................................274.1 Personal traits of Guan......................................................274.2 Source of Power...................................................................284.3 mixture of transformational and transactional.............304.4 Paternal Management Style..............................................314.5 Typical Chinese CEO...........................................................31

5. Conclusion and Reflection..........................................................335.1 Success of ZPMC.................................................................335.2 Potential Problems of ZPMC..............................................335.3 Illumination: “Made in China” to “Made by China”......34


2 ABSTRACTMade in China has become a world-famous brand, the label of which can be found in every

market of the world. Someone tried not to use any made-in-china products in one week but failed.

However, made in china is a synonym of cheap price and low quality in oversea market. It stays in the low end of value chain and has a bad image abroad. When we search for bands that stand for top quality or fashion design in our mind, we can hardly find any that’s created by China. ZPMC is an exception, however, which occupied 78% of market share in port machinery industry by the core competence of independent innovation and successfully transferred from Made in China to Made by China. ZPMC has set up an inspiring example for made in China products to follow and pointed out a new way for them to take.

The article will make detained analysis of ZPMC’s history, main business, internalization and leadership style. We want to explore why it’s ZPMC among thousands of made in china products that managed to succeed, in order to shed light on the future development path for made in china to take.

In conclusion, we think the success story of ZPMC should be attributed to both external and internal reasons. Port machinery industry which is labor, capital and tech intensive, is an area where Chinese company can grow fast. Besides, the leader of ZPMC made correct strategy in every historical moment, insisting on independent innovation and international standards.

However, successful as ZPMC is, there is potential threat lying in its paternal management style. Rigid management style is the common problem existing in most of Chinese companies which must be changed for sustainable development.

Key Words: ZPMC Independent Innovation Internationalization Paternal management Made in China


3 1. INTRODUCTION TO ZPMC

1.1 SnapshotShanghai Zhenhua Heavy Industry Co., Ltd. (ZPMC) is the top

heavy-duty equipment manufacturer in the world, whose main products, supply of large-size port container cranes, have entered into 73 countries and regions all over the world, occupying more than 75% world market shares. It’s a state holding company listed on A and B shares in Shanghai Stock Exchange. The major shareholder is China Communication Construction Co., Ltd. (CCCC) which is one of top 500 companies in the world.

ZPMC is headquartered in Shanghai and has 8 production bases located in Shanghai, Nantong and Jiangyin, occupying a total area of 6670 hectares and 10 kilometer coastline. Changxing Base, in particular, has 5 kilometer deep water coastline and heavy-duty dock of 3.7 kilometers. ZPMC is the largest heavy-duty equipment manufacturer in the world and owns 26 transportation ships which are from 60000 DWT (dead weight tonnage) to 100000 DWT, can deliver products globally.

ZPMC insists on independent innovation and has been awarded a first award of National Science and Technology Progress. ZPMC has also established a national level enterprise technology center and post-doctoral workstation. At present, ZPMC has 2000 R&D technical engineers in mechanical, electrical and hydraulic, and awarded more than 50 nation and municipal technology awards.

1.2 Main BusinessThe primary business of the company includes:

Designing, building, installing, and contracting large-scale loading and unloading system and equipment in port, w offshore heavy-duty products, construction machinery, engineering marine, and large-scale metal structure and ship repair;

Crane leasing activities; Sales of products made by the company; Using pure carrier for international sea transportation; Professional outsourcing of steel structure work.

The main products can be classified into 3 types:

Type One: supply of large-size port container cranes and

ore/coal bulk material handling machinery, such as ship-to-shore container gantry cranes and rubber tire container gantry cranes which have entered into 73 countries and regions all over the world and occupied 75% world market shares. Bulk material handling machinery includes ship loader, ship unloader, bucker wheel stacker-reclaimer and environment-friendly chain type ship unloader.

Gantry cranes


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Type Two: supply of large-size steel structures and steel bridges. The production capacity

is 400000 Ton per year. Now the U.S.A new Bay Bridge is under constructing.

Type Three: supply of off-shore products, such as huge floating cranes, pipe laying vessels

and other engineering vessels, all types of platforms and DP system.

Large-size port container cranes

Large-size steel bridge

Off-shore heavy-duty products


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Board of supervisors

Board of directors

President (vice-president)

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Nomination committee

Strategy committee

Compensation and assessment committee

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1.3 Organizational StructureTo increase the communication efficiency and be easy to control, ZPMC has adopted a very

flat organizational structure which is organized on function basis. The whole company is divided

into three parts: functional offices, production bases, and subsidiaries divided according to different products. All the departments are lead by the president, which results in efficient resource allocation and make the top manager gain a whole picture of company operation. But the fact that president is so dominated in the organization can give rise to some side-effect, which will be explained in detail in “Leadership style” part. The organizational structure is demonstrated in the table below:


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Hong Kong Zhenhua Engineering Co., Ltd

State-owned Assets Supervision and Administration Commission of the State Council

China Communications Construction Group Company

China Communications Construction Company LTD.

Shareholding 100% Shareholding 100%

Shareholding 17.08% Shareholding 28.71% Shareholding 0.33%

Macau Zhenhua Bay Engineering Co., Ltd

Shanghai Zhenhua heavy Industry Co., Ltd

1.4 Shareholder Structure

As we can glean from the chart above, 46.12% shares of ZPMC are held by the state-owned

enterprise. In fact, even though ZPMC is a public company, those 46.12% shares are never for sale on public. The China Communications Construction Company LTD directly holds 28.71% shares of ZPMC, and the other 17.41% is held by its fully-controlled subsidiaries, Hong Kong Zhenhua Engineering Co., Ltd and Macau Zhenhua Bay Engineering Co., Ltd, holding 17.08% and 0.33%, respectively. On the whole, ZPMC is a state-owned enterprise in essence.

1.5 History Time Line

1992 —Foundation

Shanghai Zhenhua Port Machinery Co., Ltd. was established in February 1992, by Shanghai Port Machinery Factory and Hong Kong Zhenhua, each investing $500,000. The company had no more than twenty staffs and the founder is Guan Tongxian, 59 years old at that time, the ex- Deputy Director of one department in the ministry of communications.1992—The first purchaser order

ZPMC got the first purchase order from Vancouver Harbor, Canada, and had surpassed dozens of worldly famous competitors, like Mitsubishi and Mitsui of Japan, Noell of Germany, Samsung of Korea.1996—New shareholders

The China Harbor Engineering Company went in with ZPMC with assets investment, becoming the third shareholder.1997—Enterprise restructuring

ZPMC restructured from a state-owned enterprise to a corporate. And in April of the same year, the company issued B shares as a public company.1998—Gaining market shares


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ZPMC beat up all the other competitors and got 25% market share, becoming the No. 1 in the Port Machinery industry.2000—Issuing A shares

In December, ZPMC issued A shares.2002—Company rename

In January, the company changed its name for the Shanghai Zhenhua Port Machinery (Group) Co., Ltd.2009—Expanding new business

In May, the Shanghai Zhenhua Port Machinery (Group) Co., Ltd. changed its name for Shanghai Zhenhua Heavy Industry Co., Ltd., as a formal announcement to enter into the new business – offshore heavy-duty products.

Development Stages

Timelines above are the brief overview of the company’s development. To take a deeper look at

its developing history, we divide its growing process into 3 stages:


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Stage 1: Periphery Innovation, 1992-1998

At this stage, ZPMC was just entering the Port Machinery field with only $1 million capital and no more than twenty employees. Compared with those internationally famous port machinery companies, like Mitsubishi and Mitsui of Japan, Noell of Germany, Samsung of Korea, ZPMC was in lack of both Capital and qualified technicians.

In order to survive in the market, ZPMC chose to avoid direct combat with the big boys in the industry, but instead adopt a strategy called “Periphery Innovation”. Periphery innovation means ZPMC pledges to provide better service and lower price while keeping the same quality. Here are some landmark events:

Enter international market on the strength of “lower cost and international standard”

In 1992, ZPMC got its first order from Vancouver Harbor, Canada with 25% lower price, commitment of good after-sale service and international product standard. At this stage of history, ZPMC is too financially and technically weak to carry out independent innovation. They just imitated the competitors and stick to the international standard strictly.

The lower price did help ZPMC open the door to the international market. But high quality is the key reason for company’s sustainable development. Since 1994, ZPMC began to apply for ISO9001 accreditation and so far, the company had passed the accreditation of CWB, AISC, SLV, UL, CE and so on.

1 1992-1998 Periphery Innovation

2

3

1999-2006 Core Products Innovation

2007-Now High Integration Innovation


9 Build own delivery system

At that time, only one company provided delivery service all around the world. ZPMC had eaten a lot of bit relying on others for delivery. So, in 1993, ZPMC decided to build its own delivery system. By doing so, ZPMC had decreased the delivery cost, guaranteed punctuality of delivery and also increase the flexibility of operation. As a result, ZPMC could provide better service than other port machinery companies for customers. So far, ZPMC is still the only one company having its own delivery system.


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Whole machine loading and unloading

In convention, most port machinery companies disassemble the products for delivering and then reassemble parts of the products in arrival at the customer’s harbor. The reloading process is cost-consuming, taking the customer one to three months to finish. To solve this problem, ZPMC created a horizontal method of loading and unloading, which largely saves customers’ time.

Stage 2: core products innovation, 1999-2006

In this stage, ZPMC started to focus on the innovation of core products and technology. Because in this industry, it is high quality, not cost advantage that promotes the sustainable development. ZPMC, at this phase, has already possessed the capital and technicians to carry out products innovation. Here are some examples:

Rubber tire container gantry cranes with “eyes”


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In 2001, ZPMC applied GPS technology to rubber tire container gantry cranes, improving the efficiency and decreasing the risks of accidents in loading and unloading process.

New crane lifting 2 forty-ft containers at a time

In 2004, ZPMC created a kind of new crane which could lift 2 forty-ft containers at one time, improving work efficiency by 50%. In 2007, it developed another new crane which could lift 3 forty-ft containers, improving efficiency by another 25%.

In 2006, ZPMC had already got 70% market share, owing to the core products innovation. In this stage, ZPMC attracted customers mostly by providing more excellent products rather than by lower price and better service.

Stage 3: high integration innovation, 2007 till now

In this stage, ZPMC went through its boundary, opening up a new market--automatic terminal system-- to maintain the first place in market.

Automatic terminal system


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In 2008, the automatic terminal system of ECT Euromax, Holland, was put into use. This system was provided by ZPMC and the whole system worth more than 200 million Euros. As a matter of fact, the bid price of ZPMC exceeded that of a competitor from Austria by 5%-10%, which is a sign that high quality and good service of Zhenhua become more important than lower price in the competition.

Automatic loading and unloading system

To improve the efficiency of automatic terminal system, ZPMC developed an automatic loading and unloading system in 2009 together with Shanghai Jiao tong University and Shanghai Tongji University. By practice, this system improved efficiency by 50% at least.

In this stage, ZPMC has gone through innovation of single product to that of the whole port machinery system. Within 17 years, ZPMC has turned from a small workshop with $1 million capital and no more than 20 employees to a “big boy” occupying more than 75% market share. ZPMC is the company which realized the change from “Made in China” to “Made by China”.


13 2. CORE COMPETENCE

2.1 Core competence and the Diamond Model

Core competence is defined as a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills two key criteria:

1) It is not easy for competitors to imitate.

2) It can be applied widely to many products and markets.

A core competence can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication.

To explore the core competence of ZPMC, we employ a model as framework—Diamond Model of core competence. The diamond model of core competence of enterprises has two

meanings:

Core competence of enterprises depends not only on the level of practical factors, such as corporate culture, human resource, innovation competence, organization management competence, marketing competence, strategy management competence, and production service competence, but also on the interrelationship and transaction of these factors, every factor has a close connection with the others, as shown in fig.

Corporate culture is the core factor of core competence of enterprises, and other factors are external factors of core competence of enterprises. Corporate culture is connected with six external factors with double lines, the way of using corporate culture to enhance core competence of enterprises is bolstered by these six channels. The six factors which have close connection result in an intercrossed space structure model by organic combination, the structure make an enterprise as an entirety owns great potential energy. Core competence of enterprises is enhanced in the implantation and operation of the six basic channels.


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Organization Management

Strategy Management

Production Service

Marketing Management

InnovationManagement

Human Resource

Corporate Culture

2.2 Core competences of ZPMCThe industry where ZPMC operates requires efficiency and quality so much that innovation is

very essential to the development in this industry. This characteristic can be illustrated in the developing history of ZPMC:

Stage 1: Periphery Innovation, 1992-1998 Stage 2: core products innovation, 1999-2006 Stage 3: high integration innovation, 2007-now

Only by employing deeper and wilder innovation could the company grow sustainably. Importance of innovation has almost been a common sense r, however, only ZPMC succeeds through innovation. The reason behind its success story is that they have implemented innovation in all the 7 aspects: Human Resource, Organization Management, Strategy Management, Production & Service, Marketing Management, Innovation Management and Corporate Culture.

Corporate Culture

The corporate culture is largely affected by the core value of the founder, Guan Tongxian. He

set a mission for the company: Fight for the rejuvenation of the Chinese nation and improvement of situation of Made in China product. This exciting mission was well

communicated to the whole company and the employees regarded their job not just a way to make a living, but a great career for the national profit. So the employees are always highly motivated to do the best.

Strategy Management


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The company appropriately analyzed the relevant environment, sensitively seized every opportunity to develop and made correct strategies. For example:

At the establishment of ZPMC, the company made the strategy to open up the international market first;

At the beginning stage of ZPMC, due to the limited resources, the company opened the oversea market by lower price and better service, but also followed the international production standard strictly.

After being the biggest market share holders in 1998, the company turned to core technology innovation, because they understood that in this industry technology is the deciding factor and at that time they also had enough capital and qualified technicians.

When the port machinery field is saturated, the company entered into the market of off-shore products.

Human Resource

There are three features of human resources in ZPMC: low cost, high quality, and good personality.

Low costIt is known to all that the cost of labor in China is much lower than that in most countries,

especially the developed ones. The port machinery industry is labor-intensive, so the low cost of human capital benefits the company an advantage of 30% lower price.

High qualityThere are 23 high-level managers, among which 19 have post graduate diploma, 3 have

university diploma and 16 senior technical certification.

Until 2008, the company has more than 2,000 R&D technical engineers in mechanical, electrical and hydraulic, and among them 179 are senior technical engineers. The employees who are holding the post graduate diploma, university diploma and the following tertiary education are 5.16%, 77.50% and 17.34%, respectively.

Good personalityThe company treasures traditional merits in employees, and through the ASA system, the

employees of ZPMC all have good personalities, like diligence, honest and fortitude.

Production & Service

human capital

low costhigh quality

good personality


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ZPMC focus on providing the best products and service.

Follow the international standards There are more than 20 international standards of port machinery in the world. ZPMC analyzed

all the standards carefully and strictly followed to guarantee the quality of products.

Since 1994, ZPMC began to apply for ISO9001 accreditation and so far, the company had passed the accreditation of CWB, AISC, SLV, UL, CE and so on.

Ability to provide the bestZPMC has an excellent team with highly qualified technicians (more than 2,000 R&D technical

engineers in mechanical, electrical and hydraulic). By employing product innovation, ZPMC provided products with more efficient and advanced functions, while by employing periphery innovation, ZPMC offered better service which cut down the customers’ operation cost and improved the efficiency.

Customer-orientedZPMC is always customer-oriented. At the very beginning of the developing history, the

company had set down the strategy to better serve the customers and this conception was embedded in the corporate culture.

Marketing Management

To gain the first order, ZPMC offered a rather competitive price and in this order, the company hardly earned any money, but it was a way to establish the reputation for company.

Organization Management

In this company, there are some rules, simple but important. Some doesn’t seem to be corporate rules but rules for life, such as no smoking, no excessive drinking, no gamble, no Shanghai dialect in the public, no second jobs, and not allowed to engage in others’ marriage. All those rules are not only to require employees to work better but also to be a better man.

Innovation Management

As we can see in the analysis of developing history mentioned previously, Zhenhua really got a great achievement on innovation, resulting from the proper policies to a large extent.

Adequate financial resourcesZPMC invested 3% of turnover every year to research and development. The adequate financial

resources guaranteed the innovation.

Training and learningThe company established all kinds of training schools for workers to improve their professional

skill, including the projects which cooperate with world famous universities like Noer University, Queensland University, and paid much attention to encourage employees to read books to gain the advanced technical knowledge.


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Reward policyEvery year, the company invested 10 million RMB in rewarding the technical engineers who

got excellent achievement, and the highest reward reaches 1 million RMB.

2.3 Core Competences of different developing stages

All the characteristics mentioned above are the core competences of ZPMC, but they do play a different role in the different developing stages. Only Corporate culture plays an important role in all the developing stages.

Stage 1: Periphery Innovation, 1992-1998

In this stage, ZPMC opened up the international market and finally got the first place in the market by lower price, good after-sale service and international product standards. Those three advantages are supported by the low cost of Human Resource, correct strategy to start from foreign market and good production & service. the core competences are strategy management competence, Human Resource competence, marketing management competence and Production & Service competence.

Stage 2: core products innovation, 1999-2006

In this stage, ZPMC won more customers by providing more excellent products rather than by lower price and better service only, and it focused on core product innovation. The achievement is

Adequate financial resources

Training and learning

Reward policy

International Standards Lowe Price (30%) Better Service (External Innovation)

Strategy ManagementLow cost of Human ResourceProduction & customer-oriented Service Marketing Management



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supported by proper strategy transition, high qualified human resource and correct innovation policy. So in the second developing stage, the core competences are strategy management competence, Human Resource competence and Innovation Management competence.

Stage 3: high integration innovation, 2007-now

In this stage, ZPMC, the core competences are strategy management competence and Innovation Management competence.

Qualified Technicians of Human Resource Innovation Management

TechnologyTech

nology

Technology

Strategy Management

Innovation New Business Offshore Heavy-

duty Products Heavy-duty Steel Structure

Automatic terminal systemAutomatic loading and unloading system


Strategy Management


19 3. INTERNATIONALIZATION

ZPMC’s internationalization is quite specific, successful and illustrative. In this part we are going to talk about its internationalization. The structure is stated as below:

3.1 Going out: Chinese Wisdom

Internationalization is one major trend for contemporary corporate practice (see Thomas

Friedman “The World Is Flat: a Brief History of the 21 Century”). It is a very important and

complicated decision for managers to make, as well as an important strategy for companies to

maintain long-term goal. It is also somehow inevitable. There exist 3 kinds of incentives for

companies to implement internationalization:

Profit-driven: hunting for more profits Development-driven: striving to develop and strengthen to prepare for future competition Entrepreneurship: leader’s ambition or patriotism

For most large mature companies from developed countries, their incentive of

internationalization is mostly profit-driven; for most young and immature companies, their incentive

is mainly development-driven and entrepreneurship. Is is quite typical for Chinese companies to

internationalize for development, like Lenovo, TCL and Haier.

Behind “going out” strategies is the Chinese Wisdom to pursue long-term success, although

they have to invest a lot and carry high risk in the short run, and are viewed as blind-

internationalization. However, in a catch-up situation confronting most developing companies,

“staying home” is never safe, large transnational companies will come in eventually. “Going out”

strategies put companies in a global competition environment, which can build up core competence

and avoid intense competition and country risk in domestic market. (In reality, many small

companies were stuck in domestic competition and finally beaten up by large newcomers.)

why going out

how going out

illumination

Larger market Cheaper raw material or labor cost Lower environmental standards

Profit-driven

Expansive supply chain Advanced technology, management and human capital

Development-driven

Ambitious PatriotismEntrepreneur-ship


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ZPMC is specific in pursuing internationalization in that it aimed at internationalization in its

market and technologies from the beginning, rather than to wait until it controls the domestic

market. This is of industry characteristics (port machinery industry tends to have higher level of

internationalization), yet also a sign of ZPMC management’s Chinese wisdom. (Later ZPMC merged

with Shanghai PMC to take almost the whole domestic market.) ZPMC’s internationalization

incentive combines the feature of both developed and developing companies, which is not only

profit-driven, but also development-driven and entrepreneurship:

3.2 Going out: ZPMC Way

International ProcessZPMC’s internationalization process is stated as below:

Profit-driven

Port Machinery Industry is a high-internationalized industry, due to wide ports distribution in the worldDmestic market is relatively small at that time Large ports were experiencing a huge replacement then

Development-driven

Chinese WisdomMeet international standards of Port Machinery

Entrepreneurship

Ambition and vision of CEO Guan to realize the dream of "every large port should have ZPMC"Patriotistic culture to achieve "Made by China" goal and show capability and vigor of China

Periphery innovationInternational standards and serviceSelf-support25% market share

1992-1998


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ZPMC’s internationalization is divided into 3 phases, along with its core competence

development (stated in part 2).

Stage 1 (1992-1998) ZPMC tried hard to learn and mimic advanced foreign technologies, and strove to meet

international standards. In 1992, ZPMC gained its first large order from Canada

(internationalization from the start), mostly due to ZPMC’s low price, but also its quality and

standards.

During the periphery innovation, ZPMC also offered considerate service, like direct shipping, to increase attractiveness to international customers (English study was encouraged by company policy). To avoid strong international supplier and distributor, ZPMC had been supporting itself by making accessories and shipping on its own. In 1998, ZPMC had acquired 25% world market share, ranking it the largest port machinery maker.

Stage 2 (1999-2006)ZPMC speeded up core innovation to strengthen internationalization and dominance world

market, after digesting all advanced technologies and gaining considerable earnings to support further innovation, making itself not only largest, but also most advanced and brand-renowned.

It emphasized international technology cooperation with advanced companies, academics and

R&D institutions. Through intensive independent innovation, ZPMC acquired 20

technologies that far ahead of its competitors, among which are Japanese Mitsubishi, Korean

Samsung and German MAN. With its advanced technologies, ZPMC entered the strictest European

market. In 2006, ZPMC acquired more than 70% world market share. Its internationalization is both

wider and further.

Stage 3 (2007 till now)Since 2007, as the industry leader, ZPMC saw the saturation of port machinery market and

started to stretch out towards ocean heavy equipment and steel structure. During the industry transformation, ZPMC still sticks to internationalization policy and puts itself in global competition

Internationalization achievements

A general measure of ZPMC’s internationalization is its foreign business proportion. From the

chart below, we can conclude that ZPMC’s foreign business proportion is nearly 80% in 2009, a

level much higher than general Chinese manufacturers. ZPMC is now a world-famous brand in

the industry, especially among developed countries (although ZPMC keeps low-key style in China).

Generally, ZPMC has significantly high internationalization level.


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9%

33%

26%

14%

12%5% 1%

Main Business In Regions 2009

mainland,China(exporting)

Asia(excluding mainland China)

Europe

America

mainland,China

Africa

Oceania

However, a detailed measure of internationalization under the Internationalization Cobweb

Model gives an ambiguous result. Among the 6 dimensions of Cobweb model- DOI (a

combination of foreign business and HR portion), Operation mode, Corporate finance,

Marketing, Corporate structure, HR, ZPMC does a good job in DOI and marketing, but

relatively low in management dimensions including operation mode, finance, structure and HR.

ZPMC’s internationalization is biased.


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Here we must clarify that Internationalization Cobweb Model only measures the general internationalization, which is not applicable to all industries or companies. ZPMC’s biased internationalization strategy is different to general transnational companies, but also successful. We will discuss the reasons of ZPMC’s internationalization strategy in the next part.

On the other hand, Internationalization Cobweb Model also illustrates some potential problems for ZPMC’s future development, which will also be discussed later.

Internationalization entry mode

There are 3 transnational entry modes: “entry by trade”, “entry by contract” and “entry by investment”. At present, ZPMC’s biased internationalization is mainly achieved through “entry by trade”, or direct exporting, the reasons of which can be classified into 3 perspectives- industry, company and leadership perspective.

Before analyzing from 3 perspectives, let’s see what are the major pros and cons of each entry mode for ZPMC (cons in blue):

Industry Perspective

Port Machinery companies prefer the “entry by trade” mode, even for large

transnational corporate like Japanese Mitsubishi. First, PM products are high-tech intensive and many countries cannot provide itself, which results in very low trade barriers. Second, PM products require strict compliance with international standards to facilitate all kinds of large ports around the world, which lowers the need to involve and go deep into foreign local demand. Thus, concentration on domestic manufacture base to export products, with less investment and more flexibility, is more popular in PM industry.

Entry by trade

Cheap and diligent Chinese labor; local government support for cheap land and facilitating finance; Shanghai high-tech academic and talent supportLow investment and risk of internationalization, more flexibilityHigh transportation cost; trade barriers; low sensibility to foreign demand

Entry by contract

Overcome trade barriers and high transportation costLose control of technologies, cultivate new competitiorsrigidity and low return on investment due to contract

Entry by investment

Overcome trade barriers and high transportation costMore invlovement and control of foreign marketMore use of international finance, talents and management experienceHigh investment and risk of internationalization


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On the other hand, “entry by contract” is very rare due to urgent technology protection needs in PM industry. “Entry by investment” is also less popular due to huge initial investment in manufacturing base, and it is very difficult to find suitable place with low land price and enough high-tech talents.

Company Perspective

ZPMC uses “entry by trade”, mainly for the reason that it can make full use of Chinese cheap

and diligent labor, low-price land and facilitating finance offered by the government, and high-tech support from Shanghai academics and institutions.

Moreover, ZPMC developed strategies to overcome “entry by trade” weaknesses and

absorb “entry by investment” strengths: it ships equipment on its own fleet to lower transportation cost; it set up international offshore offices to run international bids worldwide to get acquainted with foreign market; it cooperates with international high-tech companies and professionals to use international talents.

Leadership Perspective

Guan Tongxian, the CEO of ZPMC, vows to build own high-tech products and commits to independent research and manufacture, even for accessories. Also, Guan wants to create

more jobs for Chinese and help increase their personal

income, especially for migrant workers. Those concerns contribute to “entry by trade” mode.

In all, “entry by trade”, direct exporting, or biased internationalization, is

appropriate for ZPMC to achieve internationalization, whether from industry

characteristics, use of resources, relevance of local market, trade conditions, investment or

nation sense, at least for the moment. In this way, ZPMC chose its suitable internationalization

policy.

Use of resources

Relevance of local market

Trade conditions

investment

Nation sense

Industry character-istics


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Yet, there are potential problems for ZPMC to deal with in the way towards a generally-recognized transnational company. As Internationalization Cobweb Model illustrates, ZPMC’s management is very rigid, concentrated and immature, far behind advanced international management experience, which cannot provide with a long-lasting foundation for ZPMC in the future. What if the powerful CEO Guan retires?

3.3 Illuminations for “Made in China”

Nowadays, more and more Chinese companies are going out to be international. The incentives behind this trend have been discussed above. However, not every Chinese company succeeds; even those seemingly successful, their strategies are in hot debate.

According to Resource-based View, the source of a firm’s profit is the rare resources it

owns that are internal, intangible tacit and cannot be imitated. ZPMC gives us a clear illustration on how to successfully use a firm’s rare resources to achieve internationalization.

At the beginning period, ZPMC’s rare resource is its comparative advantages on

manufacturing cost (cheaper labor, land and finance) and fast-learning ability. It is always difficult to

internalize as a new player, but ZPMC took advantage of its low cost and learning ability to meet

international standards to open up the market. Moreover, a sense of service well helped gain

industrial repute and make up for the technology disadvantages.

After obtaining certain market share and company fame, ZPMC speeded its innovation to

gain technology advantages, by innovation investment and management and cooperation with

advanced academics. At that time, ZPMC’s rare resource is its continuous innovation ability and

commitment, to “turn comparative advantages into competitive advantages” (Guan’s word) to

facilitate dominant internationalization.

After becoming the industry leader, it is also ZPMC’s rare resource- its rich experience in

heavy industry innovation that facilitates ZPMC’s transformation towards new industries for further

development.

From ZPMC, we have illuminations on internationalization with “Made in China”:

Not every company is suitable to pursue “entry by investment” strategy, especially if there are low trade barrier and low local demand differences. Companies should decide based on industry practice and company resources.


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Always use yourresources and

Core Competence

to find the most

suitable way!

Chinese companies can open up international market with low cost, but should still stick to international standards, like quality and environmental requirements.

Chinese companies can provide considerate service to make up for technology disadvantages.

Chinese companies need to learn how to suffer from losses at the beginning to achieve good reputation and brand. This is Chinese wisdom.

For long-lasting development, Chinese companies must build up their own competitive advantages, such as speeding technology advantages, because comparative advantages will eventually lose.

Chinese are diligent and talented to achieve any technology innovation, as long as proper environment and education are provided.

To be fair, we have to point out that ZPMC’s success is with great luck, such as government support, lucky entry time and low trade barriers. Moreover, PM industry is quite technology-oriented, while many others are more design or brand-oriented, which requires other core competences that are more difficult to acquire for Chinese, such as marketing or sense of fashion. And remember, ZPMC is still not successful to pursue internationalized management.

What matters for “Made in China” is to find the

appropriate strategy to make full use of its rare

resources and build up core competence to achieve

internationalization and become world-renowned in the long

run.


27 4. LEADERSHIP

ZPMC can’t achieve such tremendous success without the

leadership of a 77-year-old man, Guan Tongxian, the founder and

the then CEO of ZPMC. Guan Tongxian founded the Corporation in

1992 when he is 59 years old. Only in 17 years, ZPMC surprisingly

transforms from a small workshop near sea to the biggest heavy-duty

equipment manufacture occupying 78% world market shares in the

port machinery industry. Guan should take the most of the credits of

the miracle. This part we are about to analyze the leadership style of Guan Tongxian, in order to shed

light on the leadership style that’s working in Chinese business world.

4.1 Personal traits of Guan

He is old, which is an advantage in China. The old in China’s history always play the role of

leader, because they are considered experienced, steady, reliable and well-respected. Conversely,

leader in young age is more likely to encounter wide-spread suspicion and resistance.

He is ambitious. At the very beginning of ZPMC, Guan set a seemingly unrealistic goal,

claiming that “where there is container handling terminal, there is container produced in China.”

This used to be considered a fair tale, but Guan successfully turned it into reality in only 17

years.

He is energetic. He launched the business in the age of retirement. Even in his late 70s, he

said he had no intention to retire. He often works to the midnight, but arrives at work at seven

thirty punctually the next morning.

He is patriotic. His vision of career is by no means to make money himself, because he

earns much less than what he deserves. He said he felt sorry for the fact that made-in China is a

synonym to low-quality product. So he hoped one day, made-in China becomes things people

look up to admire. In 2008, He hired lawyer to sue CNN commentator Jack Cafferty for his

remarks that describe Chinese product as “junk”.

He is austere. As the CEO of such a big company, he leads a simple life, living in the dorm,

sharing office with a dozen of employees.

He is intellectual. He is a college student in 1950s, when only a few smartest people can

enter university. He studies engineer, but also knowledge of literature and art.


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He possesses other kinds of traits, such as innovation, persistence, all of which are the necessary ingredients of being a good leader. But six traits explained in detail above are the most prominent characteristics of Guan.

4.2 Source of Power

Guan is a leader with strong power, the source of which is referent, legitimate, reward, coercive, in a deceasing order of ranking.

Referent is his biggest source of power. Guan has many personal traits that enable him to won reference from subordinates. Firstly of all, He is an old man of ambition and intelligent. Chinese people worship a steady and experienced leader more than an innovative and passionate leader. However, the old are considered to be steadier and experienced than the young. In addition, he is someone of noble mission, putting aside his personal interest. This spirit of devotion is highly admired in China. Besides, he is very humble and austere in his personal life, which is extraordinarily moving in China where corruption is prevalent.

Trait

Old

Ambition

Energetic

Austere

Patriotic

Intellectual


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Legitimate ranks second as the source of the power. It’s Chinese tradition to be in awe of authority. Whether the person in authority is capable or not, their orders are to be obeyed unconditionally.

Reward is also a source of power. Guan has implemented various reward policies to motivate employees. Every year, ZPMC will devote nearly 10 billion RMB to encouraging innovation. In 2003, they set up four kinds of one billion RMB-worth rewards, for people who have made great contribution to technological innovation. Every year, there are two English tests. People who passed the test can get a salary raise in accordance with their test score.

Coercive is closely related with legitimate, legitimate gives leaders the right to implement coerce and coerce, on return strengthens the power of people in authority. Guan is a caring leader, but he is also a leader, imposing coerce to employees. He was once asked how to make sure that each employee will participate in the conventional meeting every Monday evening , he reply with ease that “The absent employees will be deducted salary.”

Guan is an expert at heavy-duty equipment himself. But expert is not a source of power

because there are tons of people out there in china who possess excellent expertise in this area.

Expert is china is never an important factor in being a good leader because in china’s ancient

philosophy, the mort noble people should not carry out the specific task, but to think widely.

Reference

Devotion to

noble mission

Old man of ambiton and intelligent

Austere in his personal life

Referent

Legitimate

Reward

Coercive

The Pyramid of power source


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4.3 mixture of transformational and transactional

Transformational Leadership

Firstly, Guan is a charismatic leader, enthusiastic and self-confident, and being able to

communicate his vision of how good things could be. He is not only energetic himself, but also able

to energize his employees to achieve the goal together. As a matter of fact, the stock of ZPMC is

decreasing, but just as one person said that as long as you hear the speech of Guan on the future

development of ZPMC, you will regain confidence in ZPMC and keep hold of its stocks.

Secondly, He engages in supporting and encouraging followers and helping them develop

and grow on the job:

Training and learning is one spotted characteristics of ZPMC’s organizational culture. He established all kinds of training schools for workers to improve their professional skill, such as school for welding. Because the salary is directly connected with the welding skill, workers are very active in attending all kinds of training courses.

Guan put a lot of emphasize on English. Most of ZPMC’s products are sold to markets overseas, so English is of great importance for ZPMC to expand business overseas and improve service quality. As a result, ZPMC organizes two English examinations per year, examined by foreigners. The salary of the workers will be raised by the range of 600-1200, according to his test score. There are many other similar tests within ZPMC.

ZPMC launched a MBA program with the cooperation with NOVA University in U.S. employees graduating from the program can get a master degree, which is recognized by the world except China. Each employee is entitled to be admitted into the program as long as they meet the admission requirement which has nothing to do with educational background.

He encourages the employees to read. There is pension around 1000 yuan per year for buying books.

Transactional Leadership

Guan doesn’t pay a lot of attention on interactions with employees. He made the strategy of the

company development on himself and assigned specific tasks to different divisions. Although, he has

no faith in the notion that money is the only incentive, he does make full use of money to motivate

employees. For example, he a welding team with 4000 workers, most of them are migrants. As to

Transformational leadership

Transactional leadership


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how to motivate migrant workers, Guan said that “it’s not necessary to say big words to them. They

only care about money.” So the migrant workers get wages on the hourly basis, more hours they are

working, more they gain. In this sense, Guan is a transactional leader.

4.4 Paternal Management Style

Unlike western corporations where leaders empower subordinates for motivation, Guan still uses a sort of paternal management model, taking care of everything. The employees don’t have much empowerment to be the part of decision making. Guan assigns tasks to subordinates and makes sure that they get the work done efficiently and by international standards. Guan is acting like a parent of all the employees in ZPMC, telling them what to do and providing training program to equip them with better knowledge and skills. Guan has 14 vice presidents, who are more like the assistant of Guan for they don’t have much autonomy to make decisions. Guan is said to be charged with things from the prescription of “Cola” to business strategy.

Another evidence of his paternal way of leading is his disbelieve of democracy within corporation. He said that democracy is not working in a company and minority shouldn’t surrender to the majority.

The path from made-in-China towards made-by-China doesn’t just involve with the production improvements, but also the upgrade of its leading method from paternal management mode to modernized management mode. Chinese leaders have the history of being authoritarian, and unluckily, they are still practicing that. They tend to make decisions all themselves, and treating subordinates as stupid and shortsighted. Guan is taking charge of everything, without giving empowerment even to his vice presidents.

This kind of paternal management mode can be effective and efficient when the leader has right vision and strategy, like Guan Tongxian and when most of the subordinates are ill-educated. But, putting all the stakes on the ability of the leader can be risky. A minor mistake of one person can be magnified to a disaster.

Conversely, giving powers to the subordinates can make them feel more valued and motivate themselves to a higher performance. Empowerment can also make CEO get rid of trivial business, focusing their energy on planning. This is the direction of corporate reform in the future of China. ZPMC has come to another turning point of the business, expanding the core business cranes to heavy-duty steel structure and offshore heavy duty products. At this critical time, paternal management mode is becoming more and more inefficient and spectrum of ideas and innovation from subordinates are much more needed in desperate.

4.5 Typical Chinese CEO

Guan Tongxian, is typical of CEOs in China.

1) Most of the successful CEOs in China have a high sense of moral and social responsibility. They put priority to serving country instead of maximize personal interest.


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2) They are often faced with complex, multi-party negotiations, involving with other businesses and different parts of the local or national governments. So they are always seeking for harmony between multiple parties.

3) Most of them impose paternal management mode on the subordinates. This is a very distinctive feature of Chinese CEOs compared with western CEOs.


33 5. CONCLUSION AND REFLECTION

5.1 Success of ZPMC

ZPMC’s success is driven by both external and internal forces. Its prominent internal forces

are strategies and leadership, while the prominent external forces are industry characteristics and

environment support.

ZPMC’s success suggests Chinese companies develop large and clear plans and strategies, and have a strong leadership to execute strategies, which is especially important in a catch-up situation. Additionally, Chinese companies should find appropriate industry and keep track of China and world economic trend, which largely influences how far a company can go.

5.2 Potential Problems of ZPMC

ZPMC now faces potential problems both from inside and outside. From inside, the retirement of powerful founder and CEO Guan is a great crisis to ZPMC’s future development, which leaves a weak management system. From outside, deteriorate environment and high-risk industry transformation are big tests to ZPMC.

Strategies

Three steps of development and appropriate strategy in every stepCommitment to continuous innovationstrong execution power

Leadership

Large vision that is well communicated to employeesValue innovation and talentsLead by example, with passion, ambition and patriotism

Industry Characteristics

PM industry is technology-intensive, labor-intensive and capital-intensive, which is quite appropriate for current China

Environment support

Government policy and finance support for heavy industryWrold developing demand for port machineryShanghai location and Hong Kong control- far from state-owned restrctions


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5.3 Illumination: “Made in China” to “Made by China”

Made in China is one of the most recognizable labels

in the world today due to rapidly developing China's large manufacturing industry. However, Made in China, in the global market, was a synonym of cheap price and low quality. Only a very few brands of Made in China enjoy good reputation in the international world and ZPMC is one of them. Although, the CEO Guan Tongxian attributes the big success of ZPMC to a lot of chances, Rome was not built up in a day. The story of ZPMC’s success is inspiring, but the question arises:

why ZPMC succeeds and other made in china still stays in the low end of value chain. Here are some lessons for made in china products to learn:

Leaders play a decisive role in the fate of a business. So the leaders should have a big picture of the whole business, a long vision of the company development and a sense higher than self-interest. At the very beginning of ZPMC, Guan insisted on manufacturing by international standards, no matter how hard and costing it is. He knows the price advantage can help them get into the market. But he is also aware that it’s the quality and self-innovation, not price that can make them sustainable, especially in long-enduring products area like heavy-duty equipment. However, many other leaders of made in China manufactures are so shortsighted that they are only concerned with short term profit, at the expense of long term development. The tainted milk powder is just one example of irresponsible made in china products and the leaders are to be blamed for that.

Change of leadership

Retirement of Guan leaves a weak management system, which may lack ability to take opportunities and prestige to motivate employeesHow to sustain after retirement of founder remains a headache to Chinese companies

Deteriorate environment

Increasing labor cost and steel material cost in China lowers profitsLarge demand decrease due to financial crisis and following trade warsGovernment policy change towards light industries

High-risk transformation

Huge R&D investment before making profitPossible innovation failure in new areas


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Made in China should put more efforts on improving quality. ZPMC used to be in the situation where capital and technology is in scarcity and they are discriminated by international market. So they open the market with low price and good service. Once they gain the capability for innovation, they put a lot of capital into research and improve the quality of their production. In 17 years, quality, which used to be the biggest disadvantage of ZPMC has been turned into the biggest advantage.

Made in China products should rely on independent innovation to win in the Homogeneous Competition. There has a problem of homogeneity in made in China productions. Manufacturers compete with each other by lowering prices to zero profit. In order to earn profit, most of them have to lower the quality of the production, which eventually destroy their future development. So the way to stand out is to be innovative. Innovation can help lower the cost and improve the quality.

Part of the success of ZPMC should owe to being a state holding company. Just like Guan puts it

being a state holding company can enjoy policy inclination and favorable treatment by local

government. However, most of made in china manufactures are private owned business,

restricted by a lot of regulations. So the government should launch some policy to

help them grow or at least eliminate unnecessary obstacles along their way of development.

However, ZPMC has the same problem as other made in China manufactures which impose

potential threat to its future development. The problem lies in its way of management. ZPMC still

adopts the paternal management method to lead the company which put the company into a great

risk. What if the manager made a wrong decision? What if the manager retired? That’s what ZPMC

is facing today. The fate of ZPMC used to be so relied on Guan Tongxian that after he retired, there

incurred social wide worries of its future. What’s more, paternal management method can’t fully

energize the subordinates and leads to low

efficiency since only one person in the

company is thinking. So the made in china

manufactures should adopt a modernized

management method, which

empowers the subordinates and encourage

them to think creatively. Only in this way, the

mistakes by CEO will be timely corrected and

the replacement of CEO will not have an

overwhelming influence on the future

development, because the whole company is

working itself.


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To Dear Prof. Wu:

Thanks for throwing light on our life.

Best!

Brian, Susan and Joyce

2010.11.03

Final case zpmc_group10

Business

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