The Wuhan ERIC Joint Venture
Stanley Yong’s request for a transfer
back to the Indiana, US headquarters of
the Performance Polymer Division of
ERIC had been approved. Three years
earlier, Stanley, a Hong Kong-born US
citizen, had been appointed as the
general manager of the Wuhan ERIC
Polymer (WEP) joint-venture (JV) plant
in Wuhan, Hubei Province, China, after
leading the team that negotiated the JV.
Just one year ago, Stanley was given
added responsibilities as the division
general manager of the China Region
for Performance Polymers Division.
While Stanley enjoyed the challenges
he faced to get the Chinese JV up and
running, a return to Indiana was the
best for his family. Stanley went to
China alone – he and his wife decided
that it was in the best interest of his
two schooling-age kids that the family
stayed in the US. Since his transfer date
was still a few months away, Stanley
would take time to prepare his unit for
the eminent change: “I worked too hard
to let this waste away,” he thought. He
thus saw his main task would be to
nominate a successor. The human
resource department sent six resumes
for consideration and as he was
studying the resumes (and jotting notes
– see summary in Exhibit 1), Stanley
wondered which one would soon be
occupying the chair in which he
presently sat.
ERIC Inc
ERIC, based in Ohio, developed and
produced specialty chemicals. The
company’s four divisions, Performance
Polymer, Additive, Textile Dyers and
Pigments, had sales in 80 countries,
manufacturing plants in 21, research
and development facilities in six and a
total of revenue of US$5.1 billion in
2001. The Performance Polymer
Division’s US1.6 billion in revenue
comprised 33 percent of the company’s
total.
ERIC was one of the first American
companies to venture into China. The
high demand for specialty chemicals in
China was derived from its rapidly
expanding industrial capacity. To date,
ERIC has invested UD$250 million in
four JVs employing about 1450 people
in the country. A key HR policy for ERIC
in China was that the company should
be regarded as local, and not one that
is run by expatriates. As such, ERIC
worked hard to get as many position as
possible filled by Chinese persons.
Although several key positions in the
JVs were still held by foreigners,
cultivating a strong management team
of native Chinese was a high priority.
The Wuhan ERIC Polymer Co Ltd JV
To expand its production in China,
Performance Polymer had joined with
Wuhan Plastic Factory to form WEP. A
leading Chinese state-owned enterprise
and the biggest hard-plastics producers
in the Wuhan region, Wuhan Plastics
employed approximately 1,800 people.
Unlike the other state-owned
enterprises, the company has achieved
international recognition for producing
high quality products. About 50 percent
of its products were exported to the
neighboring nations and its greatest
achievement to date (according to the
management) was receiving the ISO
9002 certification.
Through the JV, ERIC hopes to exploit
the fast-growing market for high-quality
resins and hardeners in the Asia Pacific
region and to establish the first
multination polymer plant in China.
Wuhan Plastics objectives were, in the
order of importance, to access modern
manufacturing knowledge, to access
Western management skills and to get
foreign exchange. On paper, the
Wuhan-ERIC JV was a 50-50 JV. In terms
of resources investments however, ERIC
contribution amounted to about 65
percent and Wuhan 35 percent.
Critically, the WEP plant provided no
cost advantage. Higher labor costs in
the US were offset by higher
productivity. If anything, the WEP plant
costs more to set-up because it used
the more advanced computer system.
Like the other division in ERIC,
Performance Polymers Division focused
on delivering high quality products
rapidly and reliably. Contrasted with the
bulk chemicals, the division
manufactured relatively small batches,
often tailored to a customer’s needs
and charges a premium. Nonetheless,
like the other divisions in ERIC,
Performance Polymers Division was
committed to cost leadership through
improvements that lowered costs and
improved quality. The WEP plant was
held to the same world-class standard
as its other sisters in the Performance
Polymers Division. Partly due of
government requirements, WEP
sourced much of its raw material
locally.
Stanley’s Responsibilities
Stanley’s activities at the plant evolved
through two phases. During the first
phase, he monitored plant construction,
obtained environmental and import
permits, sought taxation relief, tacked
financial concerns such as foreign
exchange procedures and payments to
suppliers, selected and trained key staff
and coordinated activities between
Chinese and American engineers. In the
post start-up phase, Stanley
concentrated on developing and
building his management team. His
primary objective was to build a strong
corporate culture that integrated
Chinese and American values in the
pursuit of excellence. He also oversaw
the plant operations and responded to
safety issues.
In both phases, Stanley interacted
weekly with the JV partner and
government officials. Through a close
relationship with the Wuhan Plastics
directors and infrastructure manager,
Stanley sought to solidify their
commitment to provide utilities for the
plant. Stanley’s most frequent
interactions were with the Wuhan
municipality Vice mayors for foreign
trade and Economic relations,
managers from the Environmental
Agency, state bank managers, custom
officers and Planning Bureau directors.
In a week, he attended as least one
social function, including dinner with
partners and government officials and
opening ceremonies for ERIC’s JV as
well as those of other multinationals.
Stanley also attended both monthly
meetings with managers of other
foreign JVs to exchange information and
business promotion functions in which
the government used WEP’s success in
China to woo other investors. WEP’s
story was the most “popular” success
story because of its state-of-the-art
manufacturing technology. Last but not
least, Stanley frequently hosted dinners
and outings where he entertained top
Chinese leaders (at least once a
month) and visiting ERIC executives
(every three to four months).
Stanley – the Divisional Manager of
China Region
Stanley’s appointment as the division
general manager of the China Region
for Performance Polymers Division
added more responsibilities and duties
to his already full plate. His “new”
responsibilities included:
• motivating the marketing and
sales staff, setting sales targets,
visiting customers with
salesperson and ensuring
responsive customer services;
• establishing divisional production
objective and apportioning
 responsibilities to the plants in
China and Taiwan;
• monitoring financial indicators
(profitability, cash flow and asset
management) and
• overseeing employment planning
for the division, encouraging
management development and
resolving personnel problems.
In addition, his ambassadorial duties
greatly increased, as did his
responsibilities for government
relations and negotiations for new JVs.
Mindful of the Chinese practice of
"renqin," meaning the exchange of
favors between people or "rubbing each
other's back," he tried to respond to
requests for assistance. Initially, even
with these new responsibilities, Stanley
devoted more time to WEP. Once he
was satisfied that his management
team was ready to take on more
responsibilities, he shifted his focus on
his divisional duties. As such, Stanley
spent a lot of time travelling. Aside from
the one to two weeks per month spent
at WEP, he was travelling within China,
Hong Kong and Taiwan (meeting
customers and managers in Shanghai,
Guangzhou, Beijing and Hong Kong)
and returned to Indiana three times a
year to meet HQs executives. In
addition, he travelled frequently to
Xiantan, Hunan Province to shepherd
negotiations for another JV.
Nominating a Successor
This was not going to be easy. And the
future responsibilities of whoever would
replace Stanley would be even greater.
As China was regarded as a critical
market for ERIC, the division manager
and divisional manager would need to
become even more involved in JV
negotiations and plant constructions.
Moreover, with the rapid expansion
plan, the new boss would have to
address a few strategic concerns. Two
vital concerns were ongoing shortage of
Chinese managers qualified to operate
in Western enterprises and fierce
competition for the services of the
available few. Although some of WEP
managers had increased their skills,
Stanley believed that the local talents
have not yet adopted enough of the
Western management orientation
essential for effective corporate
management.
On the issue of increasing competition,
Stanley believed that the new manager
needed to look into cost containment,
“de-bottlenecking” processes, and more
aggressive marketing and sales
programmes to increase sales. Yet
another important issue was fine-tuning
the organization and continuing staff
development.
As expected, most of the WEP
employees worried about what would
happen after Stanley left. Alison Deng,
the deputy general manager expressed
the beliefs of many:
We are especially worried to see a
non-Chinese expatriate being sent
from Indiana to be in charge of this
operation. Verbal communication is
essential here. A manager who can
only speak English would be able to
communicate effectively with the
Chinese subordinates. We have to
wait and see but I am not optimistic
about the new general manager.
While suffering from his daily stress
headache, Stanley leaned back in his
chair. Upon reviewing the resumes, he
wondered who would be the best
candidate for the job. "This is my third
baby - I need good strong hands," he
told himself. As he unscrewed the cap
from a bottle of aspirins, he wondered if
he should leave a new bottle on his
desk as a welcoming gift for his
successor.