read the “Focusing on Strategy” (below) and comment on the intentions of U.S. firms and Chinese firms

FOCUSING ON STRATEGY

Foreign Firms Seek Joint Ventures to Enter China’s Emerging Market While Chinese Firms Seek Joint Ventures to Expand Internationally

Traditional joint ventures in China have been quite compelling for foreign firms. The foreign partners from more developed countries would usually provide capital, knowledge, and access to international markets and high-technology capabilities. Alternatively, the Chinese partners provided access to cheap labor, local regulatory and market knowledge, and improved access to increasing demand by the emerging middle class for branded as well as other products. Furthermore, the Chinese government often provided land, tax breaks, and an attractive welcome to encourage foreign direct investment into China. Although China protects many important industries such as financial services and automobile manufacturing through restrictive entry requirements, the future potential of the market as well as the availability of lower-cost production has created attractive market entry potential for companies.

For example, JP Morgan Chase formed a joint venture with a Chinese investment bank, First Capital Securities, which allows them to underwrite and sponsor deals in China’s burgeoning securities market. First Capital is based in Shenzhen, and JP Morgan will hold 33 percent of the joint entity. Services provided by First Capital include asset management and mergers-and-acquisition advisory service, as well as service for IPOs and follow-on offerings. Goldman Sachs Group, USB AG, CLSA Asia-Specific Markets, and Morgan Stanley all are investment banks with joint ventures in China. Interestingly, Morgan Stanley put its investment-owned China International Corp. venture up for sale in 2009 in order to set up its own venture independent of a Chinese company. After Morgan Stanley formed its joint venture in 1995, the government put a 33 percent ownership ceiling on foreign owners of financial service firms. Credit Suisse AG and Deutsche Bank AG received approval to set up joint ventures in 2009, after the government had put in a two-year moratorium on new joint ventures to shield its domestic brokerage services from foreign competition. This shielding moratorium ended in December 2008.

The Chinese government is also increasing opportunities for the advancement of Chinese firms. For example, Nissan Motor Company, Daimler Benz, and Johnson Controls are seeking to set up cutting-edge electric-car technology manufacturing operations in China. Nissan is forming a joint venture with Dongfeng Motor Group to sell Nissan’s Leaf electric cars in China. Also, Daimler AG and China’s BYD have set up a 50-50 joint venture for developing an all-electric car for the Chinese market and for potential export abroad. BYD is one of China’s leading battery producer and automakers, and the venture is scheduled to be headquartered in Shenzhen. However, the

Chinese government wants to “compel” foreign firms to transfer lithium-ion battery know-how and other technology to these joint ventures. This is a specific goal of the Chinese government to leapfrog into new technologies so as to become a leader in selling cars in the global market, and not just be a producer. Currently, China is the top automobile producer in the world, primarily for export, but also because of the expanding domestic demand with the burgeoning middle class in China. But they want to compete in global markets with their own branded products. As such, local Chinese firms have been pursuing partnerships domestically and internationally to improve their own competitive market share in world markets outside China.

Interestingly, although many joint ventures and partnerships in China have been successful, Chinese firms are not as hungry as they once were for capital; and many are implementing improved technology that they have learned to develop from international partners or from their own experience abroad. Moreover, demand for foreign branded products has fallen as local competitors’ products have improved and the availability of cheap labor has fallen; as such, Chinese firms are less interested in providing access to foreign partners.

Also, many of the rules for foreign partners have led to difficulties. For instance, Peugeot (cars), Rémy Martin (spirits), Foster’s (beer), Fletcher Challenge (steel), News Corporation (media), and a number of telecommunication firms have found their joint ventures to be problematic because of complex and contradictory rules, and difficulty in appropriating profits and controlling their investments. Even firms with 51 percent ownership, such as Danone, a large French food producer, are not able to control their ventures given the local rules in China. However, Wahaha, a local Chinese partner with Danone, has been able to wrestle control of the joint venture with Danone.

A car part manufacturing company currently produce a suspension assembly for Toyota Motor Corporation. Figure 1 shows the breakdown structure of the suspension assembly and Figure 2 shows the final assembly and how to fit into a car. Table 1 shows the name of components, part numbers and number of components in each suspension assembly.

Table 1: Parts list for Suspension Assembly

Number in Figure 1	Part number	Part name	Amount per assembly
1	PA-T15-001	Shock absorber unit	1
2	PA-T15-002	Lower insulator	1
3	PA-T15-003	Spring bumper	1
4	PA-T15-004	Coil spring	1
5	PA-T15-005	Upper insulator	1
6	PA-T15-006	Spring upper seat	1
7	PA-T15-007	Bushing	1
8	PA-T15-008	Suspension Support	1
9	PA-T15-009	Washer	1
10	PA-T15-010	Stop nut	1
11	GE-001	Bolt	2
12	GE-002	Nut	5

As you can notice from the part number, all parts except bolts and nuts are special purpose parts only necessary for this specific suspension assembly. All parts are purchased from outside benders except the coil spring. Note that sampling inspection is conducted for all purchased parts before they are used for the final assembly.

Coil springs are produced in-house. The process to produce the coil spring in the company is as follows.

1. a) Heating the wire: to an appropriate temperature for the winding process.
2. b) Hot winding process: with a spring winding machine to align the wire into a proper pitch.
3. c) Cutting the wire: cut the wire in an appropriate length after the winding process.
4. d) Cooling process: cool down the spring immediately by plunging into oil.
5. e) Heat treatment: remove internal stress within the material to provide higher resilience. Usually heated in an oven and held at an appropriate temperature for a predetermined time.
6. f) Grinding: the spring needs to have flat ends. The coiled spring will be placed into a jig by operators to feed into the grinding machine.
7. g) Shot peening: this process requires strengthening the steel to resist fatigue and cracking during its lifetime.
8. h) Coating: to prevent corrosion, the entire spring surface will be coated by dipping into a liquid rubber.
9. i) Inspection and Transporting: the final coil spring will be inspected and transported to the final assembly workstation.

Using the info above, answer the followings

Q1.The number of workers and the number of parts produced in each process are assumed to be as shown in Table 2. Using this data, find the productivity in the following.

Table 2: Process for coil spring production

Process	No. of employees	The number of parts produced in each process per hour
Heating /hot winding/cutting the wire	4	80
Cooling process	4	110
Heat treatment	5	160
grinding	5	80
Shot peening	5	100
Coating	4	80
Final inspection and transportation of coil spring	9	80

• The final assembly of the suspension will be done at the end of the process before it is dispatched to another workstation. The final assembly requires 10 workers and can make 80 final assemblies per hour.
• Assume that the inspection workers shown in Table 2 are also involved in the sampling inspection for all parts listed in Table 1.
• Input for the productivity calculation:
• Normal pay rate for inspection/transportation workers is $65/hour and all other workers including the final assembly are paid at $50/hour.
• The workers are normally working 8 hours per day and 5 days per week.
• The overhead cost for each worker is $300 per week.
• The material cost for each coiled spring is $70.00 and assume 7 coil springs process listed in Table 2 will take the equal amount of material cost.
• All other material cost for suspension final assembly (all parts listed in Table 1 except the coil spring) is $185.00.
• Output of the productivity calculation:
• Assume that the company can sell all produced final assemblies of suspension at $650.00 each.
• For the output calculation, assume that 70% of the selling price could be distributed towards the coil spring production process and the remaining 30% is for final assembly process.
• Also assume that 7 coil springs process listed in Table 2 will take the equal amount of selling price as the output of each process, i.e., the output of each process will be 10% of selling price of final assembly.

A) Find productivity in both labour productivity and total productivity of each process listed in Table 1?2and the final assembly.

B) The operation manager is now considering the following three different options to improve the current productivity. Find productivity in both, labour productivity and total productivity for the three options for each process listed in Table 1?2and the final assembly. Which option is the best in terms of the total productivity improvement?

i) Increase the production across all processes including the final assembly by 20%. All other conditions (including costs) are the same

ii) Increase the final assembly selling price 15%. All others are the same

iii) Reduce the labour cost across all processes including the final assembly by 10% with some cost saving measure. Note this is not the reduction of workers. This is simply the reduction of labour cost by 10%. Overhead cost is also reduced by 10%.