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Michelin China: Case Study

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Updated: Sep 24th, 2019

Introduction

Michelin is a leading French firm in the global tire industry. The company focuses on the production and sale of car and truck tires in various parts of the world. In 2001, Michelin joined the Chinese market in order to expand its market share (Shengiun 2005, pp. 26-32). The company entered the Chinese market through a joint venture with the Shanghai Tire & Rubber Company (STRC).

The venture deal appeared to be lucrative because it would enable Michelin to access STRC’s distribution channel and to serve its existing customers. Nonetheless, Michelin faced many challenges in the new market due to the cultural differences between China and France. This paper focuses on the Michelin China case study by analyzing the cultural and managerial issues that faced the company in the Chinese market. In addition, it will critically evaluate how well the challenges were addressed.

Cultural Challenges

Organizational culture refers to a “communicatively constructed, historically based system of assumptions, values, and interpretive frameworks that guide and constrain organizational members as they perform their roles and address the challenges of their environment” (Pfister, 2009, p. 14).

Cultural conflicts usually arise in most multinational corporations because their employees are from diverse cultural backgrounds. Michelin China faced cultural challenges because its employees from China and those from France held different values, beliefs, and assumptions. The challenges include the following.

First, Chinese culture is based on power distance in which businesses use a rigid hierarchical organizational structure. In this regard, managers make decisions through a top down approach (Shengiun 2005, pp. 26-32). Moreover, the Chinese considered age more important than ability when promoting their employees.

On the contrary, Michelin’s organizational culture was based on respect for people. Concisely, the managers focused on delegating work to junior employees as a sign of trust in them. Consequently, junior employees had the authority to make decisions and to take actions that improved the competitiveness of the company.

Promotions at Michelin were based on talent and interest rather than seniority. The importance of this strategy is that it enabled Michelin to enhance innovation through its employees. Since Michelin did not have an established hierarchical organizational system, it faced a lot of trouble in implementing its career management system in China.

Second, Chinese culture emphasizes the importance of upholding a good self-image or saving face. Thus, Chinese employees avoided to point out the mistakes made by their colleagues in the spirit of saving face (Shengiun 2005, pp. 26-32).

On the contrary, Michelin’s culture emphasized open-mindedness by encouraging employees to speak freely and to give immediate feedback to the management. However, the Chinese employees did not like the immediate and direct feedback from the expat managers concerning their performance. This is because the feedback made them to lose face.

Third, Chinese value personal relationships in which a person helps another with the expectation of a similar favor at a future date. The French managers, on the other hand, did not value personal relationships at the workplace (Shengiun 2005, pp. 26-32). Thus, their Chinese counterparts considered them ineffective.

Fourth, Chinese communication style is high-context and non-verbal. In this regard, the Chinese did not exchange much information in their conversations since some issues were considered common knowledge. Additionally, they used symbolic language and indirect statements to communicate.

This created communication challenges because the French preferred direct and verbal communication. Finally, the expats believed that using the established organizational processes and structures was the best way to execute managerial duties. This involved entrusting several junior employees with various managerial duties and using a step-by-step approach in solving problems. However, Chinese employees believed that following established procedures would slow down decision-making processes.

Response to the Cultural Challenges

Michelin’s management addressed the cultural challenges by introducing an internal integration process, which was implemented as follows. First, the company retained the managers and nearly 90% of employees from STRC (Qi 2005, pp. 35-36). This strategy was meant to enable the company to win the trust of its Chinese employees, thereby dispelling any fears of job insecurity.

Michelin’s decision to adopt a localized human resource management system was effective due to the significant cultural differences between China and France (Liu 2005, pp. 33-34). According to Schein’s model of organizational culture, localization of human resource management enables expats to understand the espoused values of the host country (Williams 2010, p. 523). In this regard, it would enable French managers to understand the values and goals that are important to their Chinese counterparts.

Consequently, the expats would be able to understand the artifacts of the Chinese business culture such as organizational structure and decision-making approaches. According to Qi (2005, pp. 35-36) localization has enabled Michelin’s managers to understand the Chinese culture, whereas the Chinese employees are willing and ready to adopt Michelin’s culture. Moreover, both French and Chinese employees believe that they can achieve a common goal despite their cultural differences.

Second, Michelin focused on extensive training of Chinese managers and employees in order to improve their technical or management skills and their understanding of the company’s culture. This involved arranging for overseas studies for the Chinese employees and managers.

According to Griffin and Moorehead (2011, p. 213), this strategy is effective because it would enable Michelin to ensure consistency, involvement, and adaptability. The trainings facilitate consistency by ensuring that employees share core values, which promote a cohesive internal culture. This helps mangers to coordinate, to agree, and to reconcile their differences concerning important issues (Proehl 2006, pp. 37-44).

Adaptability would enable the Chinese to accept Michelin’s culture that focuses on satisfying market needs through innovation and staff development. Similarly, involvement would encourage the Chinese to abandon their hierarchical organizational structure in favor of a flexible system that empowers employees to initiate and take actions that improve the competiveness of the firm.

According to Schein’s model, cultural artifacts and values are not easy to change because individuals hold them in high esteem (Griffin 2012, p. 348). In this regard, the training programs might take a very long time to change the Chinese culture. This explains Michelin’s inability to complete its integration process, which begun in 2001 (Qi 2005, pp. 35-36).

Third, Michelin did not implement its career management system in 2001 when it joined the Chinese market. The company’s management believed that its Chinese employees would not understand or accept the system before they trust the new management. Consequently, Michelin’s management focused on building trust before introducing the career management system in 2004.

The importance of this strategy can be explained by Schein’s model, which suggests that people have assumptions that reflect their cultural values (Yergler 2012, pp. 421-423). Concisely, the Chinese perceive their managers as authoritative administrators rather than career coaches. In this regard, they were likely to consider Michelin’s career manager as an enemy rather than a career coach. Consequently, it was necessary to help the Chinese to understand the role of a career manager before introducing the position.

According to Hofstede’s model of organizational culture, the French have a high uncertainty avoidance index. Consequently, Michelin’s management had to ensure that the career management system would work before implementing it. Additionally, Hofstede’s model indicates that focusing on building trust is essential for ensuring long-term relationships with employees (Minkov & Hofstede 2011, pp. 10-20).

Thus, it was important for Michelin to build trust rather than to implement the career management system that would create tensions, low morale, and high labor turnover. Qi (2005, pp. 35-36) illustrates the success of Michelin’s decision to build trust before implementing the career management system by stating that the system has began to take shape. Concisely, the career and the line managers have begun to engage the Chinese employees in discussions concerning their careers and Michelin’s culture.

Managerial Challenges

Michelin faced the following managerial challenges in China. To begin with, the Chinese believed that technical knowledge and skills were essential for one to become a manager (Shengiun 2005, pp. 26-32). They did not recognize the importance of soft skills in managerial work.

Consequently, some Chinese managers had excellent technical skills but lacked interpersonal skills. In this regard, integrating the Chinese managers in the management team was difficult because Michelin required people with soft management skills in order to promote collaboration between the human resource department and other departments.

Most of the Chinese employees were from state owned organizations, which guaranteed job security and promotions (Shengiun 2005, pp. 26-32). On the contrary, Michelin’s management believed that it was necessary to retain only high performing employees.

Thus, it used annual performance reviews, as well as, a periodic development process to appraise the performance of its employees. The results of the appraisals informed decisions concerning staff training and development. Nonetheless, implementing the appraisal systems in China was difficult because the Chinese were likely to see them as a threat to their jobs.

Managing the employees from state owned companies was also difficult due to their cultural orientation. Concisely, the employees were used to a hierarchical organizational system in which the decisions of managers were final (Shengiun 2005, pp. 26-32). Thus, the employees were less proactive.

Finally, most Chinese managers were not familiar with modern management concepts (Shengiun 2005, pp. 26-32). There was a short supply of experienced and talented managers in China. The short supply was caused by the increase in foreign direct investment in the country, which led to high competition of for highly skilled managers. Consequently, Michelin was among the companies that were affected by high staff turnover and escalation of salaries.

Responses to the Management Challenges

The management of Michelin responded to the managerial challenges that faced the company through the following strategies. First, Michelin sent several expats to China to lead the company because most of their Chinese counterparts were not familiar with modern management styles (Shengiun 2005, pp. 26-32).

The expats were in charge of technical duties such as supervising the installation of new equipment and implementation of new business processes. They also streamlined the company’s distribution system and trained its retailers on various aspects of sales such as product knowledge.

This strategy helped to address the problem of insufficient skills among Chinese employees. Since Michelin follows a role culture, it had to train its employees so that they can execute their duties effectively.

A role culture involves delegating duties and responsibilities to employees according to their interests and qualifications (Kanungo 2006, pp. 23-31). According to Charles Handy’s model of organizational culture, companies that follow a role culture must focus on staff training and development in order to achieve their strategic goals (Hite 2008, pp. 573-574).

Despite its benefits, sending expat managers to China was not done in the right way. This is because the expats disregarded the responsibilities of their Chinese counterparts (Zhaolin 2005, pp. 37-38).

The Chinese managers should have been included in the processes of making key decisions concerning the company’s strategy and staff development. This is because the Chinese managers have adequate business experience and high capability in learning. Thus, ignoring their roles denied the company the opportunity to utilize the market knowledge that the Chinese managers had.

Second, Michelin’s management implemented the integration process by directly engaging the Chinese employees. The integration process was meant to bridge the cultural gap between the Chinese and the French employees. However, the integration process has been progressing at a slow pace.

The delay in the completion of the integration process is partly explained by the fact that Michelin’s managers did not seek the support and cooperation of their Chinese counterparts (Zhaolin 2005, pp. 37-38). Chinese managers have a good understanding of the needs and cultural orientation of the Chinese employees. Consequently, they should have led the integration process.

The slow pace of the integration process is not advisable because divergent interests can arise, which might derail it. This is because China is a masculine society that is characterized with high competition (Fan 2000, pp. 3-10). According to Hofstede’s model, a masculine society defines success in terms of winners and losers (Bolen & Kleiner 2006, pp. 3-8). In this regard, the Chinese managers are likely to focus on achieving their interests rather the company’s goals if they are not properly engaged in the integration process.

Finally, Michelin embarked on systematic introduction of its management culture rather implementing a radical change in China. The company avoided a radical change in order to prevent resistance from the Chinese employees. In this regard, the implementation of Michelin’s management system was based on its core value, which emphasizes the importance of respect for people. Concisely, the company focused on respecting the Chinese mindset and culture.

importance of this strategy is that it would enable the company to enhance harmony and cohesion in the workforce (Armstrong 2008, p. 71). Nonetheless, accepting the Chinese culture and respecting their views is likely to create cultural pluralism in the company. According to (Ashkanasy, Wilderom & Peterson 2010, p. 451) cultural pluralism can only be beneficial in organizations with effective diversity management programs.

Contrary to this perspective, Michelin focused on global integration by developing core values that are shared by its employees across the globe. Thus, the company’s strategy of pacifying the Chinese by accepting their way of thinking might succeed in reducing cultural conflicts in the short run. However, it might fail in the long term as the company introduces the French values, which some employees are not likely to accept.

Michelin’s management ignores the importance of effective communication in addressing its managerial challenges. Despite the differences in the communication styles between the Chinese and French employees, the company has not established a clear strategy for addressing the communication challenge.

Lack of effective communication can lead to misunderstandings, thereby creating more management challenges and slowing the integration process (Salaman, Storey & Billsberry 2005, p. 74).

Additionally, Michelin’s integration process disregards the company’s overall strategy. Concisely, the integration and culture change process should be tired to the mission and vision of the organization. This will enable the Chinese to perceive the change process as an initiative for improving performance rather than just adopting new values or culture (Cooke & Saini 2012, pp. 16-32). The resulting buy-in will enhance the commitment of the Chinese employees in the integration process.

Conclusion

The aim of this paper was to analyze the cultural and managerial issues that are facing Michelin China and the solutions that have been developed to address them. The main cultural challenge to the company is the fact that its French employees and their Chinese counterparts have different values, beliefs, and mindset.

This cultural difference limits the company’s ability to use its core values to guide its operations in China. Lack of adequate managerial skills among the Chinese managers and employees is the main managerial challenge that the company is facing. Michelin should strengthen its integration and staff training programs in order to address the challenges it is facing in China.

References

Armstrong, M 2008, Strategic Human Resource management, Oxford University Press, London.

Ashkanasy, Neal, Wilderom, Celeste & Peterson 2010, The Handbook of Organizational Culture and Climate, Palgrave, London.

Bolen, L & Kleiner, B 2006, ‘Managing Diversity in the Workplace’, International Journal of Cross Cultural Management, vol. 3 no. 4, pp. 3-8.

Cooke, F & Saini, D 2012, ‘Managing Diversity in Chinese and Indian Organizations’, Journal of Human Resource Management, vol. 3 no. 1, pp. 16-32.

Fan, Y 2000, ‘A Classification of Chinese Culture’, International Journal of Cross Cultural Management, vol. 7 no. 2, pp. 3-10.

Graffin, R 2012, Management, Routledge, New York.

Griffin, R & Moorehead, G 2011, Organizational Behavior, John Wiley and Sons, New York.

Hite, L 2008, ‘Managing Diversity: People skills for a Multicultural Workplace’, Equal Opportunities International, vol. 27 no. 6, pp. 573-574.

Kanungo, R 2006, ‘Cross Culture and Business Practice’, International Journal of Cross Cultural Management, vol. 13 no. 1, pp. 23-31.

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Liu, G 2005, Think Globally, Act Locally, China European International Business School, Shanghai.

Minkov, M & Hofstede, G 2011, ‘The Evolution of Hofstede’s Doctrine’, International Journal of Cross Cultural Management, vol. 18 no. 1, pp. 10-20.

Pfister, J 2009, Managing Organizational culture for Effective Internal Control, McGraw-Hill, New York.

Proehl, R 2006, ‘Groups in Workplace 2000: A Multicultural Perspective’, International Journal of Cross Cultural Management, vol. 3 no. 1, pp. 37-44.

Qi, L 2005, Learn to Agree to Differ: The Integration of Progress of Michelin China, China European International Business School, Shanghai.

Salaman, G, Storey & Billsberry, J 2005, Strategic Human resource Management, Oxford University Press, London.

Shengiun, L 2005, Michelin China, China European International Business School, Shanghai.

Williams, C 2010, Management, Eddie Bowers Publishing, Boston.

Yergler, J 2012, ‘Organizational Culture and Leadership’, Leadership and Organizational Development Journal, vol. 33 no. 4, pp. 421-423.

Zhaolin, Z 2005, When Tendency is Clear, Changes Must be Made, China European International Business School, Shanghai.

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