Analysis of AccuForm Management

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Ethical leadership for the New Generation
Reconcile Culture Gap in Globalization
Analysis of AccuForm Management
NHK-250 FUDAN University
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Executive Summary

• An accident that 5 children were hospitalised
  for a rash caused by unqualified clothes broke
  out, which disclosed a series of business scandal
  of AccuForm.
• As joint venture, AccuForm is the combination of
  a German coating producer and a Hong Kong OEM,
  while placing its RD center in China mainland.
• Kim, the general manager of AccuForm, found the
  obvious differences in business practices between
  China and the West, yet failed to tackle the
  issue.
• As a result of lacking regulated business
  standard, Ching committed money laundering,
  misappropriation of company assets, illegal
  rebates and brides.
• Actions are imperative to deal with the pressing
  problem, not only to meet the emergency but also
  conduct some underlying adjustments concerning
  business practice involving culture gap.

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Agenda
Company profile and case overview
Keep problem analysis
Recommended resolutions
Appendix
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Coating Industry Profile

• 82 of Americans wanted more performance cloth
• European firms produced gt31 of the worlds
  chemicals
• The growth of Chinas apparel market was up to
  19.6

Market players were expanding operations in Asia
Pacific, esp. in China. Industry standard should
be strictly carried out.

• The use of precise quantities and mixtures of
  chemical properties in the coating production was
  important.
• The residue of chemical substances could irritate
  skin.
• The harm to environment caused by irresponsible
  handling of chemical waste should be taken
  seriously.

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Company Profile
CreaseFree (HK OEM of clothing)
Dynocoat (German coating producer)

• Generating profits override anything
• characterized as internal control system

Companys Vision

• Enhance product performance
• Place a strict quality assurance system

• Manufacturing base with low cost
• - Use cheap labor in mainland China

• Leading supplier of advanced coating
• - Hold advantage in high-tech and RD

Market Position
Business Practice

• Develop suppliers and customers by Guanxi network

• Relationship Marketing

• Treat ISO standard as window dressing
• Turn blind eyes to environment commitmenta

• Keep safety standard to minimize negative impacts
  on the environment

Corporate Social Responsibility

• Deal with literal rules flexibly
• Lack of business ethics cultivation

• Enforce strict codes of conduct to ensure
  professional integrity

Corporate Culture
Intellectual Property

• Emphasize the intellectual property protection

• Neglect the protection of trademark

Joint venture with (1)foreign manager, in charge
of RD and coating production (2) local staff,
taking care of marketing and purchasing
activities.

• AccuForm

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Case Overview
Mr.Ching

• Diagnose

• Apply RD incentive to AccuForm in spite of
  cultural difference Over-decentralization yet
  lack supervision

RD manager

• Use the authority to access corporate resources
  and over-utilize the machine

Make purchasing decision

• Accept referral money from small suppliers at the
  cost of buying potentially inferior material from
  them

• Effect of Chinese personal tie interfere with
  other department

Take charge waste disposal

• Ship untested coatings to CoralWear where they
  were applied to the finished garments, which were
  finally sold by wholesaler

• Blurred authority and work division

Build CoralWear

• Counterfeit AccuForm brand by intent
  misspelling and sell the garment by distribution
  network

• Lead to the outbreak of allergies on children and
  disrepute AccuForm

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Agenda
Company profile and case overview
Keep problem analysis
Recommended resolutions
Appendix
8
Typological Prospect
Failure to take direct measures to offset and
elude the effects of GuanXi and perform under
ethical code of conduct in the business
environment in China
Key Problem
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Moral laxity of Kim

• Kims management laxity

• Failure to recognize some cultural difference
• Give minimal direction or supervision staff are
  expected to be self-disciplined
• Failure to settle down the difference
• - Set up company performance-oriented
  targetexpected to show his own managerial
  capabilities
• Wrongly disregard informal relationship-guanxi
• -Admit the informal guanxi by recruiting new
  colleagues in China from Ching as production line
  supervisor

A late recognition of a lingering self-illusion
that one would do tomorrow what one neglected
today. He didnt take needed precautions
Moral Judgment Ethical management is not changed
in accordance with different culture. Moral
Motivation He is not prepared to recognize
timely the cultural difference and postpone the
fulfillment of the duty.
AccuForm could not survive
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Moral problem of others
For Mr. Ching
Compliance problem
Moral Judgment
Moral Motivation

• Has a clear knowledge of the local law which All
  dictate the same action

• Only his self-interest

For the accomplice
Genuine dilemma

• 13 Workers To be dismissed or to be exposed?
• 2 line supervisors Maintain Guanxi or to be
  exposed?

Timely adjustment and ethical management
development is imperative
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Culture analysis

• Kim fails to incorporate the culture difference
  into his corporate governance
• Emphasis on ethical standard in West leads to Kim
  takes it for granted that staff would strictly
  conduct the ethical code.
• Those together leads to lapse hole of AccuForms
  flaw management and crisis of ethical management
• Definitely AccuForm suffered a lot more than what
  it gained from misbehavior and even corruption
  rooted in guanxi. From a long-term perspective,
  the importance of guanxi in doing business in
  China is doomed to fade, but not in the present.
  While non-Chinese westerners have excuses not to
  conform to intricate ethics of relationship in
  the guanxi game, they shouldnt overlook its
  power if they eye the Chinese market expansion.
  As global companies devise comprehensive ethical
  policies and apply company-wide rules to Chinese
  operation, the real challenge is the awareness of
  the importance of being appreciative to Chinese
  culture. AccuForms case is a typical example of
  non-appreciative approach, for which all parties
  paid dearly.

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Agenda
Company profile and case overview
Keep problem analysis
Recommended resolutions
Appendix
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Short-range Strategy
Designate different supervisor for RD,
production line and waste disposal sectors,
Let the Board of directors decide from the
potential raw material suppliers put forward by
RD manager
Authorities decentralization
Kim could form a supervision committee
comprised of officers of different sectors and
hold regular discussions and annual meetings on
existing or potential problems of all sectors
Supervision mechanism
Exchange people of high levels from
different departments in terms of their positions
to prohibit the possible wrongful utilization of
superior-inferior relationships
Rotation system
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Long-term effort
Recruitment
Training Education
Public commitment
Property Exchange
MBWA
Public commitment

• Issue an annual report of their ethics
  accomplishments and the challenges AccuForm faced
  
• Post the companys vision, values and codes of
  conduct on their websites for public viewing

• Communicate ethical expectations and requirements
  in daily and informal meetings with employees of
  all levels
• Let workers know what is required for them to
  survive and how they are doing in terms of ethics

• Establish a committee of independent
  non-executive directors on its Board of Directors
• Take measures including evaluations of the
  compliance system, staff training funding,

• Conduct regular trainings for employees on their
  ethical responsibilities and teach them how to
  translate the pledge into specific actions
• Provide necessary and well-developed support and
  guidance to them

• Conduct official and transparent recruiting job
  recruiting process in the public
• Organize panels of interviewers from all levels
  and all sectors
• Hire high-level employees after sanction of the
  Board of Directors

• Post copies of codes of conduct on the wall and
  on bulletin boards
• set examples for all the employees, especially
  underlying, to follow

Furthermore, pay more attention but not rely
on unique Guanxi culture in China
Notes MBWA
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Agenda
Company profile and case overview
Keep problem analysis
Recommended resolutions
Appendix
16
Appendix

• Aviva Geva 2006, A Typology of Moral Problems
  in BusinessA Framework for Ethical Management,
  Journal of Business Ethics(2006)69133147
• P. Steidlmeier 1997, Gift Giving, Bribery and
  Corruption Ethical Management of Business
  Relationships in China, Binghamton University,
  USA
• Wilfred. R. Vanhonacker, May-June 2004, Guanxi
  network in China, The China Business Review
• Michael Hougard Pedersen, January-February 2006,
  Business Integrity in China, The China Business
  Review