Starbucks in Vietnam: Guide for analysis

Case 5: The Toyota Production System – Example from NUMMI’s Plant

This case is based on two articles:

1) “Ergonomics, employee involvement, and the Toyota production system: A case study of NUMMI's 1993 model introduction.” Paul S Adler,  Barbara Goldoftas,  David I Levine. Industrial & Labor Relations Review. Ithaca: Apr 1997.Vol.50, Iss. 3;  pg. 416, 22 pgs

2) Toyota Triumphant. Tom Holland. Far Eastern Economic Review. Hong Kong: Aug 12, 2004.Vol.167, Iss. 32;  pg. 36, 5 pgs

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It's the world's best car maker, nearly twice as profitable as its Big Three competitors-combined. Now it embarks on audacious new plans, investing billions to rev up sales around the world.

"It's extremely difficult to say anything negative about Toyota," says Graeme Maxton, Asian managing director at independent motor-industry consultancy Autopolis and co-author of a forthcoming book on the global car business. "There may be a lot of structural flaws in the industry, but within that, Toyota runs its business model to perfection. By almost any measure you can think of, Toyota is the best car company in the world."

The work process at NUMMI was structured by four main Toyota Production System (TPS) principles: 1) just-in-time production, 2) the team concept, 3) the jidoka quality focus, and 4) standardized work and kaizen. Employee involvement was an integral part of each of these principles.

1) Just-in-time JIT) production aims to eliminate all work-in-progress inventory, so that each part is delivered to the work station just as it is needed. Workers, engineers, and managers were thus forced to quickly identify these problems and analyze their root causes.

Both the low inventory level and the NUMMI practice of mingling GM and Toyota models in the flow of daily production (as opposed to producing large batches of identical cars) required extensive worker involvement in real-time problem-solving and significant worker flexibility. Both policies also created considerable pressure on workers to respond rapidly to minor glitches and to the constantly changing production task.

2) To facilitate this flexibility, workers at NUMMI were divided into teams of four to six, each of which had a union member as Team Leader. Workers often rotated tasks within their team. Team Leaders trained workers for the different workstations, replaced absent Team Members, and handled low-level administrative responsibilities. Clusters of three to five teams comprised a Group. The Group Leader was the first level of management.

4) Standardized work and kaizen, or continuous improvement, form the fourth pillar of the Toyota Production System. Following the precepts of scientific management, each task was analyzed and the optimal method was specified in motion-by-motion instructions describing exactly how each job should be performed. However, NUMMI's approach to scientific management differed from GM-Fremont's version. At GM-Fremont, 80 industrial engineers designed the work process, monitoring and timing workers at specific jobs. At NUMMI, by contrast, Team Members and Team Leaders identified the optimal procedures for each job. Moreover, at NUMMI that best practice remained an ever-shifting target. Workers were encouraged to engage in continuous improvement of their work process. Suggestions that passed muster became the new prescription, but only until the cycle restarted with the next suggestion.

NUMMI had a number of mechanisms for capturing workers' ideas. In 1992, about 18,000 suggestions were made to the suggestion program by individuals or by work teams. NUMMI also had Problem Solving Circles, in which volunteers selected and studied a problem for several weeks during lunchtime meetings, then proposed solutions. NUMMI workers were also encouraged to engage in continuous improvement through less formal mechanisms, such as by calling over a skilled worker to change equipment or layout.

Supporting Policies

The Toyota Production System was buttressed by a broader set of management policies that encouraged workers' commitment and skill formation.

NUMMI also opened many avenues for skill formation. New hires received more than 250 hours of training during their first six months on the job, compared to 42 hours for a typical new hire in the Big Three (MacDuffie and Kochan 1995). Team Member cross-training was fundamental to the plant's operation. Ideally, workers learned all the jobs in their team and rotated among them several times a day.

Promotions provided an incentive and another opportunity for skill formation. Team Leaders and Group Leaders were all promoted from within. To be eligible for promotion to Team Leader, workers had to demonstrate competence in all the jobs in their team and perform well in a 28-hour training program conducted on their own time.

Finally, skill development opportunities for production Team Members and Team Leaders were available through numerous special project team assignments. These teams handled tasks ranging from addressing safety problems to working on the design of the production process for a new model.

Today, Toyota is everywhere: It has 15 factories in Japan, and 46 plants in 26 other countries

Case 6: Samsung

It's no secret that Korean electronics-maker Samsung is setting its sights on Sony's turf. Just look at its line-up of sleek new gadgets. Yet while it strives to realize its digital dreams, Samsung is held back by an opaque, old-fashioned management style. To truly succeed, it must adopt a more open culture

"Samsung has done a great job over the past two years," says Roger Entner, an analyst at Boston-based consultant Yankee Group. "If you wanted a textbook study on how to enter a relatively closed market like this, Samsung would be it."

But Samsung has a less endearing side. A closer look provides an insight into an unusual corporate culture whose quirks have brought meteoric success, but which also smacks of a lack of transparency and a prickly sensitivity to criticism that could dent its dreams of global domination.

For all its modern image, Samsung is in many ways still mired in the old ways of Korea Inc. Though it restructured after the Asian financial crisis-as did all Korea's family-run conglomerates-its top-down hierarchy bears more than passing resemblance to the one discredited by that meltdown five years ago. The group's key companies are rigidly controlled by Chairman Lee Kun Hee and his family, who own only a small fraction of shares but exert control through a complex web of affiliate holdings.

Samsung's success has mitigated the impact of some of the excesses of the Lee family's zealous control. Nevertheless, a succession of controversial dealings has created the perception among investors that the family often ignores the best interests of shareholders.

In the late 1990s, Chairman Lee poured millions into a disastrous car venture at a time of rampant industry overcapacity. Samsung Motors soon sank heavily into debt, and was sold cheaply two years ago to Renault Motors of France. Last year Lee's only son, Jae Yong, was appointed to Samsung's executive ranks in a move that shareholder activists branded an attempt to make sure the family retained control of the conglomerate. The younger Lee drew further fire when Samsung affiliates bought his stakes in four Internet companies, handing him a slight windfall gain. Shareholder activists tried unsuccessfully to block the transaction. Lee was later cleared of illegally dumping stock.

"They've had to be dragged kicking and screaming to the corporate governance party," says Mark Mobius, president of Templeton Emerging Markets Fund, which he says has significant holdings in Samsung stock. "Their share price would probably be a lot better if their corporate governance was better."

That's a key point. Samsung's blind spot on corporate governance is helping keep its share price comparatively cheap, given its massive earnings. It's trading at 309,100 won ($241), or only eight times earnings, despite the $2.4 billion in net profit it earned in last year's tough market. Compare that with Sony, which is trading at around 30 times estimated earnings for the current fiscal year ending March 2003, or Taiwanese chip-maker TSMC, which has a much smaller revenue base but still trades at around 25 times.

Products in which Samsung holds world No.1 spot

By contrast, the NEXiO (short for Next Generation Internet Office), represents Samsung at its best. It's a star of Samsung's boldest bid to do what few nonJapanese companies in Asia have accomplished-muscle into the pantheon of global brands with eye-catching gear aimed at consumers. On September 24, the company's top brass gathered at the Guggenheim Museum on Manhattan's Fifth Avenue to romance global hi-tech trend-meisters. Their mantra: Connecting people to the Internet "any time, anywhere, any media." The Guggenheim was the first of four stops in a roadshow dubbed the Global Digital Tour, one the Koreans hope will give them a crack at the North American market and beyond.

Samsung wants to be not just a global brand, but the global brand, besting mighty Sony by 2005. To beat Sony on cash inflows alone, Samsung must at least double last year's 32 trillion won in revenues. To do that it must woo U.S. consumers away from their Sony Trinitron TVs and Motorola StarTac cellphones. Oh Dong Jin, Samsung Electronics America's chief executive, sees U.S. unit sales rising by 30% this year, taking revenues to $7 billion, and is encouraged that his newest digital products now account for 80% of Samsung's TV and audio sales in the U.S. "Two years ago it was 30%," Oh enthuses. "Now we have more patents even than Bell Labs."

Samsung Electronics, the flagship of South Korea's biggest conglomerate, Samsung Group, has long been a titan among memory-chip makers. Now it's also No. 1 worldwide in the ultra-thin screens used in most hi-tech computers and televisions. It's No.3 in wireless handsets and No.2 in DVD players. It's the world's fastest growing brand, according to the U.S.-- headquartered brand-researcher Interbrand, its brand value having more than doubled since 1999 to $8.3 billion.

The products draw admiring gasps from the audience of journalists and retailers. That's no surprise. Only Apple has won as many design awards as Samsung over the past year. "Their products are incredibly cool and innovative," says Stu Asimus, a senior vice-president at U.S.-based electrical-- goods chain Radio Shack, which has a retail partnership with Samsung and whose shops sell more of its cellphones than any other brand. "They're right up there with Sony."

How has this old copycat changed its spots? Part of the answer lies with a group of young designers back in Seoul, whose creative savvy is enabling Samsung to pursue its strategy of targeting high-end users with "must-have" accessories.

Designer Kang Yun Je remembers the dark days. In 1996 the design staff was cut from 240 to 160 as the focus shifted from design to features. Kang, who designs visual displays at Samsung's corporate design centre in Seoul, couldn't afford to think creatively. "You always had people saying `it's impossible, it's too expensive,'" he recalls.

Things are different now. That same year, Samsung Group Chairman Lee Kun Hee made an inspired decision. He eschewed "me-too" product lines, and admonished his foot soldiers to innovate or die at the hands of cheaper Chinese manufacturers.

The rest is history. There are now more than 300 designers spread over the design centre's five floors, and four design bureaus in the U.S., Europe and Japan. The designers are Korea's best, and top executives sometimes make surprise visits to check out their latest brainwaves. They're pushed hard by brass who regularly remind them that digital technology has levelled the playing field in advanced markets. One mantra often chanted is that by 2005 a quarter of all U.S. households will change their TVs to digital. All the designers have to do is invent the right box to steal a march in that huge market. "We're not el cheapo any more," says Kang. "We have to appeal to the high end."

Samsung's lack of transparency is keeping its price down

Kang and his fellow designers are schooled rigidly in what constitutes a Samsung product. Simplicity is in, complicated user interfaces are out, and are depicted in the designer manual as evil Pacman creatures gobbling up the letters in Samsung's brand name. "Nokia leads in mobile phones, but we think they're overdesigned," says wireless designer Park Seung Min. "We're trying to stay away from that."

Management is getting a makeover too. Previously hamstrung by red tape, Samsung's managers are now free to use the resources under their own roof. At his corner office at Samsung's sprawling engineering complex at Suwon near Seoul, digital-media supremo Chin Dae Je explains how he takes advantage of the ability to make whatever components are needed for a breakthrough product like the NEXiO, from screen to chip set. "I simply phoned one of our companies and said `make me a 5-inch screen,'" says Chin, known in the industry as Mr. Digital. "Our strength is we can make products quickly. Boom! And then it's done!" he says, slapping his hands together for effect.

Samsung's other big strength is in attracting talent. Chin worked at IBM. John Garrison, Samsung executive vicepresident of digital business in the U.S., has worked at Amazon.com and Sony. Eric Kim, a Harvard Business School-eduGated Korean-American who heads Samsungs global marketing, was headhunted in rigg after stewarding a string of top U.S. software companies.

Kim is credited with forging the partnerships with retailers like Best Buy and Radio Shack that have made Samsung's products an increasingly common sight in U.S. shop windows. He demands that each product elicit a "Wow!" reaction during market testing, or it's back to the drawing board. He also tightened Samsung's marketing strategy, which reaped huge dividends. The 55 advertising agencies Samsung used before Kim's arrival have been pared back to just one, New York's Foote, Cone and Belding Worldwide, and a $400 million ad campaign rolled out.

But the work floor outside Kiwis office in Seoul hints at Samsung's split personality. Division chiefs sit at the head of a row of desks occupied by juniors seated strictly according to seniority-just like in a traditional Korean company.

It's a reminder that, despite its product makeover, in some ways Samsung has changed little. Analysts say they are still being frozen out for issuing unfavourable research reports on the company. "We haven't spoken to them in more than a year," says one analyst with an ostracised company who declined to be named for fear of losing any chance of a reconciliation. In May, Samsung declined to make its usual appearance at an investors' conference in Hong Kong run by CLSA Emerging Markets after receiving a low rating in a CLSA report on Asian corporate governance last year. Two senior analysts with UBS Warburg were shifted from Seoul by their employer earlier this year after one of them downgraded Samsung from a "strong buy" to a "hold." That prompted media speculation, which Samsung denies, that it pressured regulatory authorities to investigate whether some investors were told early of the rating change.

jang Ha Sung doesn't think Samsung has changed. The Korea University economics professor is a veteran crusader for greater transparency among Korean companies. He leads a group of shareholder activists who have taken issue with Samsung's modest dividend payouts and the ironfisted control exerted from the chairman's office on the 25th floor of Samsung's Seoul headquarters.

"I've heard that people in that office think we're communists," he says halfjokingly. "But Samsung is the crown jewel of the Korean economy. If it screws up we're in big trouble."

Making sure that doesn't happen may be left to the next generation of Samsung executives. In the countryside south of Seoul, eager recruits line up for an unusual initiation into the Samsung culture. They're told to scale an II-metre pole while attached by ropes to helpers below, then jump and be rappelled safely to ground. The challenge clearly terrifies some of the initiates, but most do it anyway.

The idea of the exercise is to build company loyalty. Samsung is forging similar bonds with consumers from Washington to Warsaw. Its challenge now is to inspire the same devotion from the investors who hold its shares. If that happens, its dreams of global glory might be realized sooner than anyone expects.

Case 7: The Design Company (E company)

This Engineering Company Ltd. was established in 2001 by two mother companies: C Corporation (foreign), L Corporation (Vietnamese). The aim of the E company is to provide engineering service in the field of Oil & Gas, Refinery, Petrochemical and Energy.

Working for E company is a group of young, well-qualified and active employees. All of them are either university graduate or above. Employees in E company work in-group: accounting, administration, sales, mechanical, civil structure & architecture, equipment, project team, procurement, electrical & instrument.

In order to cope with the speedy growth and the cutthroat competition in domestic and global market, E company has devoted itself to firmly strengthening its currently more than 150 competent engineers and 3 ~ 5 foreign experts for carrying out project.

E company’s Engineering Capability

The E company is going to bridge the gap between local contractors and foreign contractors. In order to meet the project requirement, the company always tries to improve its staff skill by hiring professional teachers to train both English language and technical programs, which enables the engineers to become familiar with international working environment, standard and practices, and develops good interaction with clients.

The company’s services include:

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  Project Management
  
• 
  Feasibility Study and Planning.
  
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  Engineering Design.
  
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  Procurement.
  

Fabrication, Erection, Construction and Commissioning for the fields of chemical, petrochemical, refinery, power plant, environmental and pollution control.

The company’s business

The company depends mostly on its foreign mother company for business. As the Deputy General Director said: “Engineering is a tough business. It is very hard for new companies to win big contracts. So we normally serve as a subcontractor for the foreign mother company.” A problem with this system is that most of the time, 30-40% of the company’s employees are out of work. Young talented employees were excited to get recruited to the company. They then found that there is nothing for them to work, just “go to your office and keep readings!” Luckier employees get to work on the subcontracts with the foreign mother company. However, they were normally assigned boring works with low technical requirements. In addition, going to work abroad is challenging for these employees because of family obligations.

The company’s structure

The company’s current structure is illustrated in Figure 1. In this structure, there are two foreign managers: General Director and Engineering Manager. The Sales Dept. has two staff members who have technical backgrounds. The Salespeople’s jobs are mostly to “build relationships and collect information from related ministries and organizations.” They do not have capability and skills in coordinating with other technical departments to put together bidding documents and actually participate in biddings for contracts.

The company is very technical oriented. Most people, from General Director to frontline employees, got technical background. The company always focuses on catching the most advanced technology trends in its fields. However, external relations are neglected. For example, the company does not have good relationships with Vietnamese mother company, which could be a potential customer in Vietnam. The General Director once commented:

“It is very hard to work with L company. I want to cooperate with them, and they all said supportive words in general. However, when we moved to more specific deals, we cannot seem to get what they want.”

The Deputy General Director, who is assigned by Vietnamese mother company, appears to be a very dedicated person to the company. He, however, is conservative and believes that there is nothing the company can do in the short-term:

“Engineering company and engineers need 10-15 years to be experienced. Our company is young, so are our staff. So, we just need to wait”

“Staff leaving the company? Yes. But what can we do? Other companies offer better pays. So they leave!”
Figure 1: Organizational Structure


Current human resource problems

Currently, the company’s top management recognizes some problems regarding to human resources. These are:

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  High turnover rate: The company is experiencing a high turnover rate, both in terms of percentage of employees leaving the company and the average time new comers stay with the company. A high turnover rate leads to: i) losses of knowledge, skills, and experiences embedded in outgoing employees; ii) losses of training costs spent on these employees; iii) unstablizes the company’s capability; and iv) reduces morale of those who stay with the company.
  
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  Low employees’ morale: The employees showed a generally low morale, reflected by a lack of positive attitude toward the future of the company and of their own development, and a lack of self-confidence. Low morale means low trust in and commitment to the company, low initiatives, and high turnover.
  
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  Lack of management capability: Company’s managers, especially middle managers, do not appear to be highly motivated and effective in managing people. This is evidenced from evaluations from self and subordinates/ supervisors. Consequently, few managers were able to describe and inspire their subordinates’ on the company’s vision and motivate them to work toward achieving this vision.
  

The top management team recognizes that the company is facing a big problem and wants to turn the company around. They want the company to become an independent and competitive player.

Case 8: Out Of India (CBS 60 minutes)

Aug. 1, 2004

More and more U.S. companies are farming out jobs done over the phone, such as help lines and information services, to India.  (CBS) Quote "We want to show that as a work force, as a labor pool, we are equivalent to, if not better than, anybody else. Anywhere in the world." Raman Roy

(CBS) For decades, American manufacturers of everything from blue jeans to semiconductors have searched the world for the cheapest labor they could find.

It may have cost hundreds of thousands of American jobs, but it's made American products more affordable. Now, some of the most familiar companies -ones we deal with every day - are moving a whole new class of jobs overseas.

They call it outsourcing. Not the old economy assembly line jobs, but jobs in the new economy -- anything that involves a computer or a telephone.

As Correspondent Morley Safer first reported last January, that person at the other end of the line is more likely to be in India than in Indiana.

To many American employers, India is Nirvana. It has a stable democracy, an enormous English-speaking population, and a solid education system that each year churns out more than a million college graduates -- all happy to work for a fraction of the salary of their American counterparts.

And India epitomizes the new global economy -- a country that often looks on the edge of collapse, a background of grinding poverty, visually a mess.

And yet, whether you know it or not, when you call Delta Airlines, American Express, Sprint, Citibank, IBM or Hewlett Packard's technical support number, chances are you'll be talking to an Indian.

"We're doing customer servicing there," says Raman Roy, chairman of Wipro Spectramind, a leading outsourcing company. He helped start the Indian call center boom in the '90s when he came up with a business plan for American companies to direct their calls to India.

Wipro had to build their own generators and their own satellite phone systems. The call centers are cool, self-sufficient islands in an uncertain sea of chaotic Indian street life. Inside, round-the-clock, they keep America on the line.

"We service the globe. We service all parts of the world irrespective of what time it is here or there," says Roy.

New Delhi is nearly 11 hours ahead of New York, so manning the phones is largely night work. By day, the agents - as they're called - are dutiful Indian sons and daughters. By night, they take on phone names such as Sean, Nancy, Ricardo and Celine so they can sound like the girl or boy next door.

"The real name is Tashar. And name I use is Terrance," says one representative.

"My real name is Sangita. And my pseudo name is Julia," says another representative. "Julia Roberts happened to be my favorite actress, so I just picked out Julia."

American movies are part of an agent's training in how to sound all-American.

Lavanya Prabhu is a call center trainer who guides young Indians through the labyrinth of American English. And she says she is able to pick up some of typical American accents while instructing her students.

"Well, you have Brooklyn. 'You walk the walk and you talk the talk.' And you have the southerner's thing. 'Oh hello, there. What can I do for you today,'" says Prabhu, who spends most of her time trying to de-Indianize her countrymen.

But it's difficult to get in. In fact, Prabhu says they accept approximately five applicants out of 100 applications.
On any given day in New Delhi and Bombay and Bangalore, the call goes out for new call center recruits as more and more American companies come calling. The call center employees earn $3,000 to $5,000 a year, in a nation where the per capita income is less than $500. The perks include free private transport to and from work plus the sheer heaven of an air-conditioned workplace.

There are few aspects of your telephonic life that do not sooner or later end up in India - from someone talking you into a new credit card, to your attempt to return your mother-in-law's wonderful gift, to making sure you've paid that bill.

Debt collection is, as it has always been, a growth industry. Arjun Raina, a Shakespearean actor, helps debt collectors and others trying to wheedle money out of you play the part.

"There's also a hierarchy of bill collectors. There's the sweet gentle one who's first calling in and saying, 'Just reminding you,' right? And then the toughies come in, you see? And the toughies have it quite good because the, for example, a lot of men have no problem being aggressive, right? Accent doesn't matter," says Raina. "You know, once I'm being aggressive with you, I don't have to be polite and neat. I can be tough with you, right?"

Partha Iyengar, an analyst in India for Gartner, an American research company, says this is probably the best example of globalization.

"Absolutely. We've had globalization in the manufacturing sector with the auto industry, and Japan really emerging as a major auto power. We've had globalization in the low end manufacturing industry with China emerging as a global power," says Iyengar. "But this is the first time in the knowledge industry we have globalization impacting two countries at such a large scale -- India and the U.S."

The U.S. government does not keep track of how many American jobs have gone overseas, but there are estimates that in just the last three years, as many as 400,000 jobs have gone to places like China, Russia, and India.

"The reason the companies are coming here is to really be more competitive and that cannot be bad for the U.S. economy," says Iyengar, who believes the effect of outsourcing on the Indian economy has been quite dramatic.

"There are some estimates that say that the whole outsourcing revolution, if we can call it that, will really be one of the key factors in moving India towards developed economy status."

At which time, India would probably outsource to China, for the same four reasons the U.S. outsources to India -- money, money, money and money.

What would be the savings to a multi-national company?

"You save anywhere between 30 to 50 percent," says Wipro chairman Roy.

And this is enough to dazzle even the most patriotic CEO, and so, JP Morgan Chase is hiring Indian stock analysts.

Indians also answer some of the Amazon.com's e-mail. And AOL and Dell send technical calls to India. Plus, if your doctor prescribes an MRI at Massachusetts General Hospital in Boston, it may be processed by a radiologist in India.

So what's left? Well, there's taxes. Last year, only a thousand U.S. tax returns were prepared in India. This year, there were 25,000.

"And next year, people are estimating that about 200,000 returns will be prepared in India," says Dave Wyle, a 31-year-old American entrepreneur who expects to make a fortune on outsourcing for U.S. accounting firms through his company, Sureprep, based in Bombay.

What makes India such a good candidate for outsourcing taxes specifically?

"The cost of the labor - it's a fraction of the cost," says Wyle. "You might be paying somebody $300 to $400 a month there that might make $3,000 to $4,000 a month or more in the United States."

Sureprep currently does work for more than 150 U.S. accounting firms, and its client list grows larger each month.

"These accounting firms range from small local firms to right now, it's about 20 of the top 100 firms including one of the national firms," says Wyle.

Those American firms scan an individual's tax documents into a computer. An Indian accountant logs on, fills out the return on his computer, and then it's printed out in the U.S., checked, signed and sent to the IRS.

But most people regard their tax returns as among the most private things they have. Is there any risk of that security being broken with tax returns flying through the ozone?

"The type of security you see in this facility is generally much more so than you would see in any U.S. accounting firm. Everything is paperless," says Wyle. "You'll notice in the facility there's no pens or papers on the desk. There's no printers in the work room. Everything's done on screen."

Young successful businessmen like Wyle and Roy no longer view the world as a place with boundaries.

"This is a global economy," says Wyle.

"Geography is history. Distances don't matter anymore," adds Roy.

But beyond the success and the money that's being made in this business, there's a terrific sense of national pride that India is making its mark in this very sophisticated way.

"There is a huge amount of nationalistic pride," says Roy. "Because we want to show that as a work force, as a labor pool, we are equivalent to, if not better than, anybody else. Anywhere in the world."

60 Minutes spoke to half a dozen major U.S. companies about why they outsource to India.

They all said that the savings they make are passed on to their customers, along with better service. Since 60 Minutes first broadcast this story, the loss of American jobs to developing countries has become a major campaign issue. But American companies aren't the only ones who are outsourcing -- so is the government. At least 18 states are now outsourcing welfare benefits calls to Indian operators.

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