Read Case 16.1: AMEX, Hungary. Answer question #1.

AMEX, HUNGARY

Case Study - "Michael Thomas shouted, "Sasha, Tor-Tor, we've got to go! Our driver is waiting for us." Thomas's two daughters were fighting over who would get the last orange for lunch that day. Victoria ("Tor-Tor") prevailed as she grabbed the orange and ran out the door to the Mercedes Benz waiting for them. The fighting continued in the back seat as they drove toward the city of Budapest, Hungary. Thomas finally turned around, grabbed the orange, and proclaimed that he would have it for lunch. The back seat became deadly silent as they made their way to the American International School of Budapest.

After dropping the girls off at the school, Thomas was driven to his office in the Belvros area of Budapest. Thomas worked for AMEX Petroleum and had been sent to Budapest four months earlier to set."

Up business operations in central Hungary. His job was to establish 10 to 14 gas stations in the region by purchasing existing stations, building new ones, or negotiating franchise arrangements with existing owners of stations. Thomas jumped at this project. He realized that his career at AMEX was going nowhere in the United States, and if he were going to realize his ambitions, it would be in the "wild, wild east" of the former Soviet empire. Besides, Thomas's mother was Hungarian, and he could speak the language. At least he thought he could until he arrived in Budapest and realized that he had greatly exaggerated his competence."

"As he entered the partially refurbished offices of AMEX, he noticed that only three of his staff were present. No one knew where Miklos was, while Margit reported that she would not be at work today because she had to stay at home to take care of her sick mother. Thomas asked Bla why the workmen weren't present to work on finishing the office. Bla informed him that the work had to be halted until they received approval from the city historian. Budapest, anxious to preserve its historical heritage, required that all building renovations be approved by the city historian. When Thomas asked Bla how long it would take, Bla responded, "Who knowsdays, weeks, maybe even page 621months." Thomas muttered "great" to himself and turned his attention to the morning business.

He was scheduled to interview prospective employees who would act as station managers and staff personnel. The interview with Ferenc Erkel was typical of the many interviews he held that morning. Erkel was a neatly dressed, 42-year-old, unemployed professional who could speak limited English. He had a master's degree in international economics and had worked for 12 years in the state-owned Institute for Foreign Trade.

"Since being laid off two years ago, he had been working as a taxicab driver. When asked about his work at the institute, Erkel smiled sheepishly and said that he pushed paper and spent most of the time playing cards with his colleagues.

To date Thomas had hired 16 employees. Four quit within three days on the job, and 6 were let go after a trial period for being absent from work, failing to perform duties, or showing a lack of initiative. Thomas thought that at this rate it would take him over a year just to hire his staff.

Thomas took a break from the interview schedule to scan the Budapest Business Journal, an English newspaper that covered business news in Hungary. Two items caught his eye. One article was on the growing threat of the Ukrainian Mafia in Hungary, which detailed extortion attempts in Budapest. The second story was that inflation had risen to 32 percent. This last item disturbed Thomas because at the time only one out of every five Hungarian families owned a car. AMEX's strategy in Hungary depended on a boom in first-time car owners.

Thomas collected his things and popped a few "aspirin for the headache he was developing. He walked several blocks to the Kispipa restaurant, where he had a supper meeting with Hungarian businessman Zoltn Kodaly. He had met Kodaly briefly at a reception sponsored by the U.S. consulate for American and Hungarian businesspeople. Kodaly reportedly owned three gas stations that Thomas was interested in.

Thomas waited, sipping bottled water, for 25 minutes. Kodaly appeared with a young lady who could not have been older than 19. As it turned out Kodaly had brought his daughter Annia, who was a university student, to act as translator. While Thomas made an attempt to speak in Hungarian at first, Kodaly insisted that they use Annia to translate.

After ordering the house specialty, szekelygulas, Thomas immediately got down to business. He told Kodaly that AMEX was willing to make two offers to him. They would like to purchase two of his stations at a price of $150,000 each, or they could work out a franchise agreement. Thomas said AMEX was not interested in the third station located near Klinikak because it would be too expensive to modernize the equipment. Annia translated, and as far as Thomas could tell she was doing a "pretty good job. At first Kodaly did not respond and simply engaged inside conversations with Annia and exchanged pleasantries with people who went by. Thomas became frustrated and reiterated his offer. Eventually Kodaly asked what he meant by franchising, and Thomas tried to use the local McDonald's as an example of how it worked. He mentioned that Kodaly would still own the stations, but he would have to pay a franchisee fee, share profits with AMEX, and adhere to AMEX procedures and practices. In exchange, AMEX would provide petroleum and funds to renovate the stations to meet AMEX standards.

Toward the end of the meal Kodaly asked what would happen to the people who worked at the stations. Thomas asserted that according to his calculation the stations page 622were overstaffed by 70 percent and that to make a profit at least 15 workers would have to be let go. This statement was greeted with silence. Kodaly then turned the conversation to soccer and asked Thomas if it was true that in America girls play "football." Thomas said that both of his daughters played AYSO soccer in America and hoped to play in Hungary. Kodaly said girls don't play football in Hungary and that Annia was an accomplished volleyball player. Thomas pressed Kodaly "for a response to his offer, but Kodaly rose and thanked Thomas for the meal. He said he would think about his offer and get back in touch with him."

"Thomas left the Kispipa restaurant wondering if he would ever see Kodaly again. He returned to his office, where an urgent message was waiting from Tibor. Tibor was responsible for retrofitting the first station Thomas had purchased for AMEX. The new tanks had not arrived from Vienna, and the construction crew had spent the day doing nothing. After several phone calls he found out that the tanks were being held at the border by customs. This irritated him because he had been assured by local officials that everything had been taken care of. He asked his secretary to schedule an appointment with the Hungarian trade office as soon as possible.

At the end of the day he checked his e-mail from the States. There was a message from headquarters asking about the status of the project. By this time he had hoped to have his office staffed and up and running and at least three stations secured. So far he had only one-third of his staff, his office was in shambles, and only one station was being retrofitted. Thomas decided to wait until tomorrow to respond to the e-mail.

Before returning home Thomas stopped off at "the English Pub, a favorite hangout for expats in Budapest. There he met Jan Krovert, who worked for a Dutch company that was building a large discount retail store on the outskirts of Budapest. Thomas and Krovert often talked about being "strangers in a strange land" at the pub. Thomas talked about the interviews and how he could just see in their eyes that they didn't have the drive or initiative to be successful. Krovert responded that Hungary has high unemployment but a shortage of motivated workers. Krovert confided that he no longer interviewed anyone over the age of 30, claiming that what fire they had in their bellies was burned out after years of working in state-run companies."

Question -

1. "What suggestions would you have for Thomas in managing this project?