THE DREAM DOOR FOR DAK Introduction It was a nice sunny morning in Zurich. DAK Europe's chairman gathered all of his board members around a large table and went straight to the point of this meeting: Ladies and gentlemen, despite an ongoing recession and turbulent times in the automotive industry, our corporation managed not only to survive but to do quite well despite many difficulties in our sector. However, we must not be complacent and continuously think about our strategic development. We have plenty of opportunities for growth overseas and it is time that we start acting upon them. I want to use the expertise we have developed in our European divisions and start treating DAK as a global enterprise. The purpose of today's meeting is to prepare for this phase and our first step should be to form a team that would take the company forward towards becoming a global enterprise. We have a brilliant team of expatriate managers who worked with us for years. However, our recent experiences in our foreign subsidiaries such as DAK Polska taught us that we need to increase the level of skills and competencies of our expatriate managers if we are to succeed in dramatically different cultural contexts such as China. What I want us to do today is to review our past experiences and draft a plan for forming and developing a new generation of expatriate managers who will be responsible for taking DAK to a new global level. DAK Corporation The history of DAK dates to 1897, when the oldest unit of the company was established in the USA. Through the years, the company acquired and incorporated many other car manufacturers and developed into a leading vehicle producer in the USA. The 1920s was the time of DAK's expansion in Europe, including countries such as Germany and England. In 1973, the Arab oil embargo and ensuing gasoline price increase led to a rapid and unexpected rise in sales of small Japanese built cars in the USA. This resulted in the beginning of a long-term cooperation between DAK and Japanese car manufacturers (Datamonitor, 2003). The history of the DAK Corporation is full of turmoil and low as well as high points. Whilst in the late 1990s the company was making significant profits and had gained market share in the previous decades; this was shortly followed by a pension and benefit fund crisis within the company in 2000 because of interest rate increases at the stock market. DAK responded to this crisis with a broad restructuring plan in 2005 following a $10.6 billion loss in the same year. Despite the company reporting some signals of the positive effects of restructuring on overall corporate performance, DAK's operating losses kept increasing and reached a quarterly loss of $15.5 billion in 2008, the third biggest in the company's history. To rescue the corporation from impending bankruptcy, various strategies were implemented to raise much needed funds and keep the company afloat through the economic crisis. For example, in 2008 DAK announced it would sell its 3 per cent stake in the Suzuki Motor Corp. for $230 million. In addition, the company received numerous loans from the American Government to aid the recovery of the struggling car manufacturer. DAK's global strategy centres on providing its consumers with a fleet of brands rather than streamlining its global 4 business around one flagship brand like Ford for example (Pfaner, 2008). As a result, the corporation manages a vast network of its subsidiaries in South Africa, both America and Europe. DAK Europe, the corporations' division facilitating operations in eight European countries, was established in 1986. The core brands managed by DAK Europe were based in the UK and Germany. In 2009 the corporation announced the acquisition of DAK Europe by a consortium consisting of a Canadian company (27.5 per cent) and a Russian bank (27.5 per cent). The remaining 10 per cent of company assets would land with DAK Europe employees and car dealers whilst DAK would keep a 35 per cent minority stake in the new company. The German Government has backed the deal with a guarantee of e4.5 million; however, support for the acquisition on the part of the European plants was mixed. The plan was expected to cost 10,000 jobs in Europe with the potential closures of Antwerp and the UK plants (Gazeta Wyborcza, 2009). In addition, the existence of the Polish plant was threatened since the Russian bank's partner firm, producing old-fashioned cars for the Russian market, had high hopes for the incoming partnership with DAK Europe. This would move the production of DAK cars further towards the east of Europe. However, after six months of negotiations, DAK backed out of the bid and decided to keep the ownership of DAK Europe claiming that this division and its brand was crucial to DAK's global strategy. As the industry was shifting away from large trucks and SUVs toward more fuel-efficient passenger cars, DAK needed its European subsidiaries' expertise. DAK Europe does the basic engineering work globally for DAK's compact cars and midsize family sedans. It would be difficult for DAK to quickly assemble its European engineering know-how. With so much growth opportunity overseas, said then vice chairman, ''I think we must look at DAK as a global enterprise'' (Muller, 2009). DAK Europe clearly remained on the strategic map of the Corporation as an irreplaceable player in the development and implementation of its international strategy. DAK Europe organisational structure DAK Europe, which determines the shape of the plants, is centrally managed from Zurich where the European ''heart'' of the company is located. The headquarters - ITDC - a ''brain'' responsible for engineering and technical decisions, is in Russelsheim, Germany, where the central quality department is located. Thus, all quality managers from all plants in Europe report to the quality director in Russelsheim. There are also other units in Europe responsible for decisions, for example, the insurance centre in London and the banking centre in Brussels (where DAK Polska reports). On top of this complex DAK Europe structure is DAK in the USA, where their governing body resides. There is strong cooperation between the European plants, which is encouraged by a teamwork ethos ever present in DAK and mutual visits to different plants are encouraged, which are especially intensive in the early stages of plant development. Knowledge exchange is supported by the company's insistence on creating a ''DAK Family'', a slogan often present during official events and speeches by top management. But the principle of a network of plants cooperating closely together, reinforcing each other strengths and potential does not always work perfectly in practise, according to the opinion of some employees. 5 The centralisation of DAK determines the matrix company structure of European functional directors in a project centre, in either Russelsheim or Zurich. To ensure good cooperation between plants according to the central guidelines from the project centre, staff has been appointed as co-ordinators, who ensure that common systems for human resources, manufacturing, quality, and materials are applied in all the plants across the project. Due to the responsibilities and strategies assigned to the functional departments of the European DAK headquarters, there is often friction when the local interests of plants come into play. Since each factory in Europe has been built at a different time, with German and Belgian plants being the oldest, car models for each factory are assigned centrally taking the plant's facilities into account. The newer and more modern the plant, the easier and cheaper it is to adjust it to produce a new model. For this reason, DAK Polska often receives new models which sell in higher volumes than older models. Receiving a new model for production is also associated with the creation of jobs in the plant. At the other end of the spectrum, the allocation of old models which are destined to be phased out can mean the eventual closure of the plant. Such was the fate of the Antwerp plant which was too expensive to be modernised to produce new models. DAK's globalisation strategy DAK Corporation is one of the largest automobile producers in the world. It has been expanding its operations consistently since the late 1890s and became one of the companies associated with the development and spread of globalisation in the world. As every global company, its efforts to operate on a truly global scale were not without problems or setbacks. The history of acquisitions through which the company grew and its strategies to set up operations abroad, provide a fascinating lesson in the development of various expansion strategies that companies may adopt in their efforts to grow. Discussion on globalisation has now been running for years and it is equally fervent amongst academics as it is with practitioners. There are three dominant views on globalisation, which have been termed globalist, traditionalist, and transformationalist perspectives (Held, 2000). Globalists take the view that globalisation is a real and tangible phenomenon, and its impact can be felt everywhere. Adherents of this process, positive globalists, see it as a universal ''best practice'' for doing business, which is the key to efficiency and effectiveness as it offers unique opportunities, such as economy of scale and reduced costs. The opposing group of pessimistic globalists, so-called traditionalists, perceive it as a standardised approach leading to homogenisation and marginalisation of human diversity. They emphasise the dominance of major economic and political interests, such as the USA and Western Europe, who can impose their own agenda on the world and resist all pressures for change. The third view by transformationalists describes globalisation as having some positive effects contributing to the new shape of local cultural identity and self-expression. This way of approaching globalisation rejects the polarity of the globalist and traditionalist perspectives. Transformationalists claim that globalisation's influence is not only limited to economy. It is a political, technological, and cultural issue as well. It should be considered as a process of mutual influence rather than as a one-way practice. 6 DAK's strategy of entering new markets such as Eastern Europe and China is now moving towards the transformationalists' approach. The company experienced some failed attempts to transfer their knowledge using the ''best practice'' approach as advocated by globalists which proved to be problematic. They often led to unsuccessful attempts to implement various management philosophies, for example a failed effort to introduce total quality management in the UK. As a result, the company is now abandoning this strategy. However, the move towards the transformationalist approach requires the development of new management techniques and philosophy. Since this approach is based on the ''invasion'' of local contexts but without destroying them, the management know-how required to achieve this is dramatically different from the traditional autocratic, one-way communication style. DAK, as other global companies willing to pursue the transformationalist strategy, face a challenge of training their fleet of managers responsible for setting up and monitoring their operations abroad. If performed successfully, this will not only help the corporation to successfully grow and expand; it can also create an advantage of developing their expertise in the new locations and create new economic and cultural zones within and across nations. This can potentially lead to reverse colonisation'' when non-Western countries influence developments in the West. This case study presents an illustration of such effort by DAK in Poland. However, with the DAK's plans to open its factories in China, where culture and socioeconomic context is dramatically different, how can the company prepare its managers for this new challenge? Dreams come true: the maturing of DAK Polska It took only three years for DAK Polska to become a fully developed mature car plant. The English managers call it ''the best plant DAK has got'', a benchmark for Europe. The changes that DAK Polska has gone through since 1998 are enormous - from a green field to the leading DAK' car manufacturer in Europe. The workforce employed in DAK Polska was relatively young and inexperienced, with unrealistic expectations for their future work in car manufacture with DAK: These people may have excessive expectations of the company. Their parents' generation looked on the DAK or DAK brand as an impossible dream, a magical token of life elsewhere; and now this dream has been realised here, and people still have these excessive expectations of what this firm, in all its imagined opulence, can do for them (Polish Manager 7 (DAK Polska)). The dream of Japanese automation seen on TV was replaced by the reality of hard manual machine-paced production. People learned that the work of producing cars is harder and more complex than they expected. They became disillusioned about the miracle success of large organisations like DAK and found out what really lies behind that big name. From initially being inexperienced, young people became well-trained, skilled professionals. During the initial few years of the DAK Polska operation, there was no first line management, only first line supervision by ''ex-pat'' managers, which created a deliberate gap in the management structure. The creation of this gap enabled the best people from the local teams to be 7 promoted to fill these positions. Those who were promoted were high caliber people with excellent communication skills who replaced foreign managers who had left DAK Polska. This, however, forms a new challenge: to maintain the motivation levels and enthusiasm of the employees who have no chance of further promotion. The managers are aware that they may lose many employees due to the lack of prospects for their future development. The economic development of Poland has significantly contributed to the changing expectations of DAK Polska employees. First, the national unemployment rate has steadily decreased from over 18 per cent in 2001 to 13.8 per cent in 2006 and 11.8 per cent in September 2011 (GUS, 2011). The region of Gliwice has also transformed from those with higher than national average unemployment to significantly lower. In 2009 unemployment rate in Gliwice was as low as 8.3 per cent in 2007 and 6.6 per cent in 2011 (GUS, 2011) with average wages in the region exceeding the national average (Gliwice City Hall Web site, 2011). The region's economic and industrial development coupled with Poland's European Union membership, created significant employment raise in the Silesia region as well as entrepreneurship opportunities. Headhunters eagerly search for DAK Polska employees, who know that they have greater chances of changing their jobs due to their experience in a multinational corporation which many locals lack. DAK Polska management is aware of these issues and intends to keep motivation levels high by creating new challenges, such as new targets, or the introduction and mastering of new processes. But some consider this insufficient and criticise management for underestimating the issues that might lead to people leaving the plant. The strategic position of DAK Polska on DAK's global map remains strong despite the scare following DAK Europe's failed takeover bid in 2009. The decision of DAK to pull out of the deal improves the chances of the DAK plant in Gliwice and averts the risk of transferring Polish DAK production to Russia (Poland Autos Report, Q4, 2011). Despite these positive strategic developments within DAK Europe, DAK Polska needs to remain wary of the volatile nature of the car industry in Europe. Although DAK reported its first annual sales gain in the USA since 1999, 2010 offered mixed success for the corporation. After successful restructuring, DAK in North America made a profit of US$5.75 billion in 2010. In the same year, the corporation also reported its first full year profit as a global company since 2004. However, its European subsidiaries continued to struggle with overall DAK Europe losses reported at US$1.76 billion in 2010. Industry experts believe that despite these current losses, the European division will break even in 2011 due to its strategy of increasing exports from Germany. This view is supported by a positive outlook for vehicle sales in 2011 compared to previous years. However, for the industry to return to its pre-crisis level of demand, more years of success are needed (Emerging Europe Automotives Insight, 2011). Poland represents a potentially good market for DAK vehicles sales since car ownership in Poland remains relatively low (Poland Autos Report, Q4, 2011). In addition, the Polish economy successfully survived the global economic crisis and was not affected as strongly as other countries. Nevertheless, global trends and events make DAK as vulnerable as any car producer in the international arena. For example, the ongoing tensions in Libya lead to ongoing concerns regarding rising oil prices. DAK remains vigilant and has already started devising a strategy in 8 the event of oil prices reaching US$120 per barrel. Since the corporation was already shifting its strategy towards medium and small car production, the global turmoil may turn out to be an advantage on which the company could capitalise. Source: www.emerald publishing company http://dx.doi.org/10.1108/20450621211256247

Question Three (30 Marks) Taking into consideration DAK's plans to open its factories in China, were culture and socioeconomic context is dramatically different, analyse how DAK could prepare its managers for this new challenge?

Please include atleast 5 referencing methods (Websites and/or books) using the Harvard referencing method.