“There are major differences which separate American management practises from the Chinese perspective. In America, managers try to be objective. They assess peoples’ performance. In China, they judge employees by other criteria. What is their personality like? Are they friendly? How well can they talk? Let me give you an example. I recently asked one of our employees to mop the floor. He told me that it had just been mopped. When I pushed him on this he admitted that he really didn’t know when it had been mopped. Finally, after some arguing he agreed to mop it “again.” However, when I returned later I saw the job had not been done. Again, he used the same argument that “it was mopped earlier”. What can you do?”
They need to supervise employees was a constant strain on local management. Most of them only wanted to be posted here temporarily, they saw this as an undesirable position. This required the need to be continually searching for competent managers. When disputes arose between management and staff the employees ran to the partners for help which put more pressure on their relationships. The partners felt that it was their duty to advise and direct on daily operations but as far as KFC was concerned there usefulness was running out. They were integral in the start-up of operations but not were becoming more of a nuisance. Another pressing matter was there supply of chicken was already at its maximum and if KFC wanted to expand it would have to find another supplier if they wanted to expand.
In April 1988 the decision was made to open to second location in Beijing. The building that was selected had 60 employees, but only 17 met KFC’s hiring requirements. Then in an unprecedented move the Chinese government found positions for the remaining 43 workers. KFC partnered with the Bank of China in the summer of 1988. This new partner brought new opportunities to access further hard currency. They also helped them for alliances with other poultry suppliers.
In the summer of 1993, KFC operated 16 restaurants in China. KFC continued to receive invitations from other cities. Among their KFC stores their was only one Chinese owner. All the other were joint ventures. This was a very important measure to ensure a high standard of quality.
Major Learning Points
? Make sure you read your company’s wishes before proceeding with a venture. Among other things, this includes understanding the parent’s level of commitment to the project, preferences regarding operating mode, and performance expectations.
? Make sure that you have a commercial way to retain control of the venture. This can be achieved by introducing technology, expanding the operation, moving locals abroad, etc. Maintain the option to establish Joint Ventures with other partners elsewhere in China
? Take care in calculating foreign exchange earnings
? Recognize the managerial commitments/opportunity costs associated with the investment. Would other options provide higher returns?
? Discounted cash flow analyses do not help much in situations of this kind. There are simply too many variables to make an accurate assessment. Be willing to take a “leap of faith”