Managing Cultural Change

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Table of Contents
1.0 Introduction..........................................................................................................................2
2.0 Michelin in China.................................................................................................................2
3.0 Problems in Combining Two Cultures.................................................................................3
4.0 Differences in Cultures.........................................................................................................4
5.0 Differences in Management Styles......................................................................................5
6.0 Managing Cultural Change..................................................................................................6
7.0 Conclusion............................................................................................................................7
References..................................................................................................................................9

Cross-Cultural Management: Michelin Case

Study
1.0 Introduction
The culture is an important factor that influences the working environment and management
decisions in any organisation. The cultural differences affect the business in many ways; for
example, they mainly influence management decision and styles, human resource activities,
and communication due to language barrier. The cultural conflict is more certain when two
companies with different cultures work together on a single project. So it is necessary for any
organisation to take into account the culture issue seriously when establishing its business
outside the country.
The purpose of this report is to identify and analyse key cultural and management issues that
arose between Michelin and Shanghai Tire and Rubber Co. (STRC) when Michelin entered
into the Chinese market after joint venture with STRC. Michelin faced many critical cultural
based issues during this joint project. The author of this report reviewed the management
styles and differences in ideas and values of both organisations. In this regard, various
management practices are reviewed which include human resource management, recruitment,
management styles, performance appraisal, communication, and decision making styles. The
primary reason to analyse these elements is to evaluate how these elements were managed or
ignored in order to resolve cross-cultural issues.

2.0 Michelin in China

Michelin is financially sound company that has technical and management abilities to
establish its business at international level. The growing Chinese market in the rubber sector
attracted Michelin to establish its business in China. The company started its business in
China with the aim to achieve 30% growth rate within the period of five years. In order to
enter in the Chinese market, Michelin did a joint venture with a Shanghai Company called
Shanghai Tire and Rubber Co. (STRC). The STRC provided an established platform to
Michelin to start its business activities in China. The STRC also allowed Michelin to use its
supply chain.

In order to be successful in China, Michelin was required to adopt new management practices
with new ideas and values. The company was successful in adopting technology, marketing,
communication, and few management aspects. But on the other hand, it faced some critical
issues in adopting new management practices and to comply with the Chinese local culture
and management policies within the Chinese organisational culture. This is often the case
when a new firm entered into a new market to look for business opportunities and failed to
create a balance between already implemented management practices and local management
policies (Haghirian, 2010). Therefore, the joint venture produced several critical concerns
that resulted in various conflicts and misunderstandings (The Link, 2005). The main reason
behind these conflicts was the influence of Michelins state-owned mentality, organisational
culture, and management styles that have been developed and implemented since its
establishment.

3.0 Problems in Combining Two Cultures

Schien (1992) defined culture as a pattern of basic guesses that a given group has invented,
discovered, or developed, in learning to cope with its problems of external adaptation and
internal integration, and that have worked well enough to be considered valid (p. 9).
Similarly, in defining culture from an organisational point of view, Mukherjee (2005) states
that culture is a set of key values, beliefs, understandings, and norms shared by the members
of an organisation (p. 26).
On the basis of above two definitions, it can be said that culture is the way of life and
accepted behavioural patterns that members of the organisation learn and teach others with
the passage of time. In this way, they engage in internal relationships and work jointly to
achieve a common organisational goal. In case of cross-border joint venture and acquisition,
two different organisations have different cultures which are developed and influenced by
many things such as leadership, management styles, and peoples behaviours, values, norms.
According to Hofstede (1991), cultural differences do occur due to differences in the
behaviour and attitudes of employees towards work. Some other forces that hinder joint
venture success include organisational history and different operating business environments
of each organisation (Johnson and Scholes, 2008).
Michelin continued to adopt the previously used way of management practices because the
company was previously successful in adopting those practices in the global operating
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environment. The company also continued to enforce individual behavioural patterns that
were adopted by the organisation before starting its operations in China. Therefore,
Michelins plan was to repeat the success by applying same management practices and
behaviours in the Chinese culture and business environment. But the scenario was different in
China. The major problem was that the Chinese values and beliefs were different from
Michelins and this difference resulted costly and led various conflicts and management
issues. Therefore, there was a need to rearrange the cultural morals and beliefs to become
successful in implementing changes to a joint project.
The case study of Michelin demonstrates that cultural differences influence on multinational
organisations particularly in managing and implementing their business strategies. Managing
change is a difficult task as the beliefs and values of two organisations from different cultures
are unseen and people communicate below the level of awareness in silent languages such
as time, space, things, friendships and agreements (Hall, 1983).

4.0 Differences in Cultures

The organisational culture in Michelin was entirely different from STRC. Michelin used to
motivate employees by giving them value and power to take decisions on their own. Michelin
implemented the responsible authority principle where the organisation sets objectives and
communicates clearly to its employees what it wants them to achieve (Derek et al. 2008). In
addition, Michelin provides much independence to decide how and when they can
accomplish their individual and organisational short-term goals and long-term objectives.
This approach Michelin adopted to achieve employee involvement, productivity, and
commitment.
The STRCs companys structure was less proactive compared to Michelin. STRC used to
follow Red Tapism approach to preserve traditional Chinese culture of power and humility.
The Red Tape approach represents excessive bureaucracy and official formality and a
hierarchical relationship within the companys internal structure (Bozeman, 2000). This
phenomenon is also referred by Hofstede (1991) as power distance where all key decisions
are in the hands of top management personnel and they do not prefer to delegate the power
and authority to their subordinates (Derek et al. 2008). In fact, the supervisors or managers
instruct subordinates and get things done from them and consequently receive best

performance awards by themselves. Therefore, this traditional culture does not promote
knowledge sharing and also discourage employees in communicating innovative ideas.
The plan of Michelin was to successfully implement innovation and strategic changes with
least employee effort. But unfortunately, the company faced countless problems in carrying
out their business activities in China. These issues emerged because of a clash with the
approach adopted by STRC due to an entirely different culture.

5.0 Differences in Management Styles

Like cultural differences, the management styles of Michelin and STRC also differ. The
management style of Michelin complies with modern management and leadership theories.
Michelins management follows excellence theory which is based on achieving quality and
strategic objectives through productivity through people principle (Johns, 1995). By
following the basis of excellence theory, Michelin supports independence and free enterprise
to encourage management to delegate its power and control to subordinates so that corrective
actions can be taken on time without significant delays. The management style adopted by
Michelin ensures group responsibility, participative decision making, and long-term devotion
of employees.
In Michelin, the individuals ambitions and abilities are encouraged during recruitment.
Basically, Michelin attempts to create links between personal ambitions and organisational
ultimate objectives to ensure that employees remain a strategic resource. The company also
carries out an apparent career development program which enables employees to develop
managerial and team working skills. Additionally, career opportunities at international level
are also provided to employees to motivate them and also to transfer knowledge and
experience.
Likewise, appraisals in Michelin are regularly carried out to review staff performance and
also to develop, measure, and improve staffs efficiency and effectiveness. Ongoing training
sessions are also arranged for coaching purposes and rewards are given for improved
performance in meeting targets. Such system in Michelin also encourages open
communication and teamwork and therefore enhances mixing of people across the
organisation (Stevens, 1994). In addition, these steps in context to human relations provided

the basis for trust between management and employees. The transparency of the system and
the standardised approach allow Michelin to deal with internal clashes and conflicting issues.
In contrast to Michelin, STRCs management style was influenced by the Chinese national
culture which believes in power distance with centralised decision making. This means that
STRC adopted Theory X leadership and management style where employees are somewhat
allowed to contribute to decision making (McGregor, 1960). In fact, their involvement in key
decisions is limited. As a result, employees are discouraged especially when it comes to
decisions that affect them in making strategic changes. In reality, this traditional approach
follows by STRC creates a group of people who are dissatisfied with their jobs within the
organisation. Consequently, employees are reluctant to provide quality output and this was
one of the reasons of the hardships and failure of management systems of STRC.
The approach of STRC in the context of human relations is also influenced by Chinese
culture. They follow Guanxi philosophy which means a common relationship (Thomas et
al. 2002). This means that it is planned to protect each others face by giving minor
importance to efficiency. This idea is also highlighted by Rugman and Brewer (2003) by
asserting that Chinese cultures tried to be high on the significance of social context and the by
the concept of Guanxi. In this way, management avoids conflict and fear of ruining the
relationship with employees. On the other hand, Chen and Chen (2004) argue that Guanxi is
an informal link between two persons who are restricted to by a psychological agreement to
follow the principles of Guanxi. They considered Guanxi an ineffective approach where
nobody can say something really important just due to the fear of a conflict.
The above stated differences in the management styles of both companies did not promote
teamwork and the idea of functional departments was considered to avoid conflicts and
confusions. On the basis of the facts highlighted in this section, one may easily argue that
management styles are also important practices to be considered when firms establish their
businesses internationally.

6.0 Managing Cultural Change

It was necessary for Michelin to implement cultural changes at strategic level in order to
carry out a mutual project successfully. By adopting new policies, Michelin could be able to
meet international standards in terms of managing cultural change. For this, Michelin was

required to unlearn its existing culture that was hindering the success of strategic efforts and
cross-cultural management in China. In most of the cases, implementing change results in
conflict between management and employees. According to Paton and McCalman (2008),
organisational culture creates stability, continuity, and the pursuit of security which leads to
a stable working environment(p. 53). This then becomes the source of clash between
employees and management because employees prefer no change in the existing
environment.
Leaving existing culture was also essential for Michelin because where there is a cultural
collapse; there will always be a collapse in the opinions. As a result, the activities and
organisational ultimate goals could be affected. Managing the cultural change could be a very
complex procedure because it usually involves changing attitudes, norms, behaviours, and
patterns that have been adopted by individuals and organisations over a long period of time
(Bate, 1996).
According to Schein (1992), an organisation can implement cultural change by implementing
changes in human resource practices particularly in terms of recruitment, selection,
promotion, performance appraisal, reward systems, and the procedures for dealing with
critical situations; for instance, handling conflicts between and employees and management.
Thus, it was essential for Michelin to implement cultural changes in human resource practices
to ensure a new way of thinking that improves employee relations. In this way, they can
effectively contribute to the success of the organisation. Also, they can facilitate
technological and structural changes throughout the organisation.
The change management process requires an effective leadership and an innovative and
creative organisational culture. Further in effective change management process, there is a
need for change managers to initiate and constantly monitor the change process (Paton and
McCalman, 2008). The STRC has limited capacity of change managers and therefore the
management in STRC has limited introduction to modern management concepts (The Link,
2005). On the other hand, Michelin has skilled management and expatriates who are capable
of implementing organisational and cultural changes effectively. But unfortunately, the
change was not implemented successfully and as a result Michelin faced too many problems.

7.0 Conclusion
Organisations operating in an international environment are required to understand and deal
with cultural differences; so that they can learn new standards, values, norms, and
expectations of the culture where they operate. The analysis of case study shows the
difficulties that an organisation could face when establishing its business in another country
with different culture and values. In this way, the organisation can establish a common
cultural identity to avail opportunities. The cross-border joint ventures and acquisitions tend
to increase cultural and management issues as evident in the case of Michelin. Michelins
decision to enter into the Chinese market was based on market attractiveness rather than
cultural similarities. The culture of Michelin was based on the modern management theories
with a major focus on staff efficiency and effectiveness by establishing relationships between
the management and employees.
On the other hand, the Chinese culture was based on Guanxi concept where high importance
is given to avoid conflicts but in contrast, less or no priority is given to resolve other issues or
to make adjustments for wrong doings. It is also concluded that culture influences strategic
thinking and changing the culture of a host company can be difficult because it represents the
local culture whose values have been accepted and followed from the beginning. The use of
foreign skilled employees to implement cultural and management changes is a wise decision
because they are not the part of the existing organisational culture and thus can learn and
implement changes more efficiently. The adoption of the Michelin culture was required
because the company, with existing management practices, was previously successful in
carrying out projects at international level. Therefore, it was necessary for both Michelin and
STRC to work with mutual understanding of the environment and culture in order to achieve
individual and mutual short-term goals and long-term objectives.

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