Gold Peak Industries (Holding) Limited was established in 1964 and have since grown to be an Asian multination group which is listed on the stock exchange in both Hong Kong and Singapore. In 1992, the group acquired two UK companies- KEF Audio and Celestion International to “leverage on their technology, continual technology development, distribution channels, talent, R&D expertise and markets” to develop their own brand of loudspeakers. This marks the Group first foray into international R&D.
To ensure a smooth transition after the merger and acquisition and also to create a conducive environment for knowledge sharing, the Group has put in several measures to facilitate exchange and knowledge transfer. Weekly and monthly in-person meetings were held in China sites to discuss issues, problems and progress of projects. It is noted that UK personnel are not always present during these meetings due to geographical distance. However, weekly videoconferences between both China and UK sites have been implemented to overcome this distance barrier. Furthermore, the Group has also set up an internal website to expedite approval process and document milestones in product development. All these measures were put in place on top of the standard means of communication such as emails and telephone calls.
While there were considerable efforts by the Group to integrate the newly acquired companies into its existing business, the extent of international R&D between these companies are still very limited. Till date, 20 years after the acquisition, majority of the high end acoustic products are still produced by the UK division which defeats the objective of the acquisition which was for the Group to produce their own high end acoustic products.
There are several reasons for this huge divide in technological innovations from both countries. Firstly, it was hard to hire and retain Chinese with the right caliber to create high end products. This also leads to difficulties in creating an environment to exchange knowledge creation and innovation in the China sites. Secondly, language barrier and cultural differences between personnel from both countries inhibits the free exchange of knowledge and creation of knowledge to facilitate product innovations and a chance for the Chinese to learn from the British. The next reason for this huge divide is the reluctance for the British to share their knowledge and expertise with their Chinese counterparts as they are still apprehensive about their job security. This fear is further compounded when the number of engineers in China has grown exponentially to 240 while in UK; there are only 22 to 26 engineers.
In the following parts of the paper, we will be elaborating further on the problems that are barriers to international R&D and what are some of the measures that the Group can put in place to overcome them.
Analysis of GPE global R&D Organisation and main issues
Before giving recommendations in a second part, we will first analyze GPE Global R&D organization issues. We will start by looking at the cultural difference and communication issues before moving on to the managerial problem and finish by analyzing the company global R&D organization.
Cultural differences and communication issues
GPE have acquired two loud speaker manufacturers in search for expertise and experience to make it differentiate from competitors. As a result of this international environment, a number of issues brought in operating in multinational R&D units with regards to creating and sharing the knowledge each other. Those are physically separated to Hong Kong,China, UK.
GPE’s R&D unit globalization entails a shift in the culture and knowledge. The innovative cooperation in different R&D units in different regions has been disturbed by the culture of power distance and different cultural practices.
Chinese workers are found to be conservatives to risk taking, lacking of open discussion and subject to put weights on hierarchical values. In a educational aspect, they have been taught more about memorizing facts and theory rather than problem solving and co-work.
The other factor that came into play is the different context between Western and Asian culture.
In low-context communication everything is verbally explicit and specifically described. High-context individuals often read between the lines, and they also expect others to understand their true intention in the statement.
Workers in UK more likely to be in individualistic culture tend to use the low-context communication style. They are in favor of being free to proceed with the project without waiting for confirmation from management as well as members and get the job done as quickly as possible. Chinese style of work is opposite from UK’s way of work. They are waiting to start the project until get the confirmation from all members and management. Another attribute in higher context in Chinese culture is importance of relationship also known as “Guanxi” in Chinese. It is the right “Guanxi” that makes all the difference in ensuring that business will be successful. By getting the right “Guanxi”, the organization minimizes the risks, frustrations, and disappointments when doing business. The relationship oriented features in high context bears Chinese workers adversity to collaborate with western workers. On top of it, making it hard to build up trust between Chinese and UK workers. Likewise, homeland China’s employees are inclined to recur the idea of globalization of R&D being considered as loosing their brain.
Vice versa the UK workers are reluctant to share their knowledge with concern of job security. In fact, UK electronics industry has experienced downsize of 39% from 1997 to 2003 thanks to low cost, better turnaround times in China.
To reduce the problem stemmed from cultural differences, GPE conducted a employee exchange program to make a year transition. Up to six Chinese engineers were sent to UK and vice versa. As a result, Chinese engineers faced little problem to settle down. On the other hand, UK engineers had lots of problems to get used to Chinese environment.
As the GPE set up the R&D units in three different sites, not only culturally but also geographically R&D units are situated far from each other. To overcome hardship of communication and collaboration among three different locations, GPE utilize a number of communication methods to enhance communication among those. In person Meeting for all three units is held monthly, but UK managers attend only if they are available. As setting up internal web site for
Updating process of project and gaining approval from management. E-Mail is used to deal with non urgent issues.
Video conference is conducted weekly. Just for emergency, telephone is used in general. However, the amount of information and frequency of meeting is never substantial due to the lack of spontaneous face to face meeting, as well as difference in time. Even though the help of many communication tools, still it is hard for UK management to join mainland meetings time differences and prior engagement.
GPE’s technology Acquisition Strategy
Several considerations should be taken into account in the Gold Peak acquisition strategy.
First, at the time that Gold Peak decided to become a medium-sized electronics manufacturer in 1992, Honk-Kong’s business sector was still continuing to pursue their low technology strategy.
As we have seen in the precedent sections, R&D capabilities were not developed in the late 1990’s in Hong-Kong.
Second, this acquisition strategy should allow the company to differentiate themselves from their South-Korean, Taiwanese and Chinese competitors.
Third, Gold Peak Electronics did not have the possibility to develop in a rather short period a well functioning R&D department. Indeed, as Gold Peak pursued a low cost strategy for years and did not invest in R&D facilities in the human asset necessary to their exploitation.
Therefore Gold Peak seized the option to acquire external technology by acquisition. This seemed to be a well founded business strategy at this point, as one of the company’s objectives was to obtain high-end product development as fast and effectively as possible. The main driving force for this cross-border acquisition was the access to new technology, knowledge and the brand recognition of the target companies. The acquisition was an event that changed overnight the company’s organization.
Gold Peak should have considered that the consequences of a failed integration process of the target firms can have considerable impacts of the company’s well being and can even set off the potential gains of synergies and growth.
Therefore one of the main issues of mergers is to manage the post-acquisition consolidation process of the new company. The difficulties and complexity of this process are tightly linked to the degree of the established organizational structures of all participating companies. Each acquisition requires a customized integration process. The objective of a company which acquires high-tech firms is to retain the key employees and their knowledge, to entail successfully a new product development process. Furthermore as Gold Peak was interested in creating specialized R&D departments in China, one of their main objectives was to create an environment favorable to knowledge sharing between the different sites.
The Human Resource department has to consider some main issues during the post-acquisition process. Indeed, the people management will make the difference and constitutes the key factor for maximizing the value in this operation because managing technology is managing human asset before all.
In fact it seems that the conditions for a knowledge sharing environment were not settled when Gold Peak reduced directly after the deal cut down Celestion International team’s from 16 to 10 employees and even if the KEF kept all their employees. As a matter of fact, the UK employees of Gold Peak were relatively concerned about keeping their job or not from the beginning on. The transfer of engineering workload to China could only participate increasing their feeling of uncertainty. This feeling could clearly not contribute to a knowledge sharing and demotivated the employees in the British division. The problem was that Gold Peak was in no way accompanying those employees in the acquisition process or in the after-acquisition period to explain what the acquisition was meant to achieve: knowledge sharing.
British employees were more or less keeping their technical high-end knowledge in order to be sure to keep their job position.
It is undeniable that Gold Peak failed their job to integrate the new employees when we are considering that even 16years after the acquisition of the UK companies, the majority of innovative design for acoustic products were coming from UK division.
It must also be evident that 10 British employees among around 255 employees from China and Hong-Kong will feel like an outstanding group of the company and may have difficulties to identify to the firm.
Human issues are recognized today as the main reason for failed mergers and acquisition and can be imputes to weaknesses in the Human Resources department. Gold Peak clearly neglected the psychological impacts on the new employees, was not able to manage the employees stress due to the new situation and missed adequate communication during the consolidation process. The human issues were simply not integrated in the strategic planning process of the acquisition and today Gold Peak is paying the cost of this missed integration.
GPE’s global R&D organization Model
We’ve seen previously that GPE didn’t not have internally the R&D resources to move up to the high end product line. The company has therefore acquired two British companies which would bring GPE the resources it needed. By doing so, GPE pursue a home based augmenting R&D strategy. Basically the company would invest in a foreign country to master technology it didn’t have at home or have access to labor pool or resources it was unable to access at home, and bring the technology back to the home country. This is exactly what happened here: GPE unable to find skilled and experience enough workers to develop high end loudspeakers decide to invest in UK where a country well known for its premium loudspeaker brands. Acquiring both UK companies, GPE found abroad the resources and technology it needed to continue its development. However, GPE failed in the process when the time came to transfer the knowledge back to its home country. More than 15 years after the acquisition of the British companies, GPE is still dependant on them when it comes to the development of the new premium loudspeaker products. Even if it was GPE who acquired the firms and should have control over them, we can actually see the opposite happening. KEF Audio and Celestion International because the knowledge was not transferred back to the Chinese R&D facilities, still have the control over the development of new premium products and retain a considerable power over the company’s future.
We’ve just seen that GPE has pursued a home based augmenting strategy trying to create pole of competencies in the UK and then in China. However we will demonstrate now analyzing its R&D organization model, that we asymmetries remain and its R&D organization model does not fit its global R&D strategy. GPE R&D centers are organized following a reverse hub model. In other words, even if all the managerial decisions concerning the company are made in Hong Kong, all the competences and strategic R&D decision concerning new premium products are made in UK. The R&D center in UK is acting as innovation hub for the company’s high end products where in the other hand the new R&D centers in China and Hong Kong act as specialized R&D sites and perform specific R&D functions.
Looking at GPE business, we can see clearly that R&D and especially R&D concerning high end products is a core part of its value chain. High end products are where the company wants to go and focus efforts in the future. It’s what represents the profits the company needs to develop and therefore will determine its future. However, as of today, GPE doesn’t really have control over its high end product R&D. Moreover, having such strategic and essential part of its business dealt with so far away with no really control over represent a huge risk for the company. GPE should rethink the way it deals with its Global R&D Strategy and its Global R&D Organization Model; we are going to see what the company can do in the recommendation part of this paper.
We’ve seen and analyzed GPE’s global R&D organization and tried to understand better the cultural, communication and managerial issues linked with it. In order to answers Li’s questions about how he can overcome the distance and foster collaboration between different GPE’s R&D sites, we will now give some recommendations and surmount the issues highlighted previously.
Below is a table summarizing the main issues of this case and the recommendations we will give to address those issues. Please note that several recommendations can address the same issues and therefore their order, or position, in the table does not have any relevance.
R&D organization model
Move from hub model to real network model
Culture difference &communication issues
Reduce culture difference
Managerial Issues due acquisition of British firms
Change in management style
Staff training and development
Change product development/innovation process
Special focus in promote knowledge transfer
Change R&D organization model
Before taking anymore measures, GPE should look at its global R&D organization and make some structural changes. We have seen in the first part of this paper that the way the R&D operations were organized in GPE represents a huge risk for the company. Moreover, its R&D sites in UK and China (Hong Kong included) are pretty much isolated from one another and do not work together in any collaborative way. In order to foster collaboration in the future and reduce the risk of having essential assets controlled by overseas subsidiaries, GPE have to change its R&D organization model.
Right after acquiring both British firms, GPE created R&D centers in China to transfer back the knowledge close to its home base in Hong Kong. However it didn’t work as planed and the new R&D centers act as support of the British site. The company has to change that and to move its R&D organization model to a real Network Model with three centers of competences in UK, Shenzhen China and Hong Kong. In order to do that GPE has to integrate more the Chinese and Hong Kong sites in the new high end product development. The three R&D center have to have different task that combined will give synergy to the company. The goal here, being not to compete with each other but to work together as a whole entity. Maybe if the company would move the high end product production facility to China with the others production, it will reduce the power that the British sites have over the new products and integrate more the Chinese. Having the production site within China, they will have to get more involved in the process and design of the new product. They will have as well to work hand in hand with the British marketing team in order to give the end consumer what they want.
Reduce culture difference
The challenges that can appear when manage teams and transfer knowledge within MNCs are related to cultural diversity, communication issues and building a trust.
To refrain potential problems from different culture and barriers in communication, GPE can utilize the bonding of two different cultures to bring mutual understanding and trust.
The workers to be expatriates are going to learn about difference in culture of where they are to be at prior to being located.
Even after they’re sent to the other units, let both parties have opportunities to know about each other throughout both formal and informal meetings.
The company may help workers along with family members get used to new cultures and surroundings to hold regular gathering between local staff plus their family members and expatriates as well as their family members. In the long run, they may find more mutual trust between homeland staffs and U.K. staffs.
Trust will bring both R&D unit into all information sharing about the knowledge and expertise.
Language skills are pivotal to draw better recognition within communication processes. When there is fluency in the language skills in the workers in two different sites, information will be accurate and clear for homeland and UK units.
With respect to integrity to the work, cross -site cooperation would have same ideas and information on work in process. As enhancing the common language skills among all workers, it will be easier to communicate and understand each other. To exercise higher language skills in reality, they should recruit people with higher fluency in English or Chinese in the first place. For those who are already working, the company can conduct language skill training session to improve staff’s language skills.
Here is how GPE can reduce the limitation in communication in remote sites project. It is difficult to explain many things but easy to show in person.
In person meeting enables easier explanation, illustration of what is needed. In this sense, at least for the initial stage of project, different sites management assembly at the same time to make simultaneous collaboration to build up the plan.
After the commencement of project, more remote communication through telephone, e-mail, video-conference will be playing a sub role to in person communication.
When the project come to an end, in person meetings would be held for the sake of assessment and feedbacks.
Finally, to bring trust and understanding upon all employees in the company no matter what they do or where they live, GPE should shades both different cultures and create a corporate culture of its own. The goal here is to show everybody that they are all in the same boat, part of the same project and heading to the same direction. To help mold that culture, GPE should integrate this will in the company corporate values and deliver the message to all employees throughout all communication channels. GPE could also implement annual meeting or trip will all R&D employees to make them get to know each other in another environment than work.
Change management style
Taking into consideration the problems GPE faced in acquisition strategy, we recommend the following actions.
Firstly, GPE should change its management strategy to encourage knowledge sharing between business divisions. There should be frequent meetings between employees, where they can freely communicate with each other and openly discuss problematic issues. The purpose of the meetings will be to bring together Chinese and UK employees, so that they will feel the unity of the company and will understand the positive opportunities of knowledge sharing. Also after meeting forum can be organized. It has a lot of positive features like less visible language barriers, opportunity to everyone to express his ideas or proposals, and ability to handle big amount of information. All these could be potential avenues of gaining mutual respect across borders that allows sharing completely all information relating to the current project development.
Even though GPE already restructured its Human Resource management into one senior management team, the company still has different working styles and management requirements, and contrasting policies. Therefore we consider that HR department of GPE should develop new organization structure with common policies in all locations. This will help to establish clear and well-defined reporting relationships so that employees will clearly see direction in which company leads. Also HR department should identify employees who will be crucial to the success of the company and who would be difficult to replace. Long-term incentive grants could be provided to critical employees to entice them to stay with the new organization and reassure UK employees about their position in the company by providing higher salary and additional bonuses to eliminate scare and anxiety feelings about the future. Since UK site feels protected it will be more willing to build better relationships with Chinese site and improve business productivity.
Further more training process of new R&D team should be organized in China. This will equalize knowledge distribution between different sites. China won’t be in such dependence from its UK division and in production of specific products will rely more on its local stuff. As a result there will be common culture of innovation in UK and China.
Staff training and development
GPE is willing to become highly reputable electronics brand with established research and development capabilities. In production of innovative and high-end products GPE heavily relies on its business division in UK. GPE faces a big problem since there are no employees that have experience or even knowledge in production of specific goods. If there are no talents they can consider creating them by themselves in the Chinese R&D centers.
First of all GPE can announce scholarships in engineering for high-school students with further employment at the company. Special competition between students should be organized, and then the winners will be provided with scholarships in top international universities, the payment for such generosity is obligation to work to the company for 7 years. This will help to GPE to retain talented youth in China and to attain confidence in future workforce.
Also GPE can organize further study for its current employees, master and PhD degrees sponsorship. This will bring benefits not only to employees but to the company as a whole. Educated employees will increase firm’s chances for success in an electronics marketplace. Postgraduate degree sponsorship will also attract top talents to the company and make it a desirable place to work in the country.
Knowledge and skills are very important but lack of experience makes them useless. Therefore GPE should encourage its employees to undertake research projects on international level. This will help to employees been introduced to foreign work practice better, enlarge knowledge in innovative technologies, and bring new practices of R&D management to China.
For further improvement in seeking innovation internally, GPE could provide specific training to people in its R&D sites. Such training could be given by well know professors or by the UK R&D experienced team. The point here is for the young engineers working in Chinese R&D labs to develop creativity, help them start thinking by themselves and make them understand that making mistake is ok when not even necessary when seeking innovations.
Change product development/Innovation process
In order to bring synergies between sites, it’s imperative that GPE change its innovation process especially when it comes to the new high end product development.
The first thing GPE should do is to initiate Standard PDP (product development processes). By standardizing practices and processes, the company will make sure that all employees will work the same way. More over it will facilitate management task to keep track of what’s going on in each sites. It will also enable people from other sites to get to know where other sites are in the development process as well as helping share information and knowledge. All employees should have face to face training on Standard Processes to make sure that they understand them and are ready to apply them while working. Afterwards, it will be the role of the management to monitor employees and guarantee that they properly use the new processes.
The second dimension GPE should consider about innovation processes is to increase Chinese R&D sites involvement. If we look at the actual process GPE is using we can see that Hong Kong and China are involved but just as support bases. It is crucial that both new R&C centers take a more important part in the new process. This will facilitate knowledge sharing as well as better integration in high end products. The new sites will have bigger responsibility in the development process which will reduce UK’s site control over it and boost synergy.
Finally, GPE can think about molding up international teams consisting of 5-6 people from different sites. Those teams would have specific goals, which achievements will be encouraged in the form of higher salary or additional bonuses to it. So employees will be highly encouraged to work better.
Special focus on promoting knowledge transfer
On that last recommendation, we will put a focus on knowledge transfer. We’ve seen in the analysis that GPE have troubles with the communication between its R&D sites and in transferring the knowledge from UK back to its homeland basis. It is therefore very important that the company concentrate on its knowledge transfer strategy.
What GPE has to do first is to implement standard codified knowledge transfer processes. It is the best way it can classify, store and exchange its tacit knowledge. The new R&D sites in China we after have access to the explicit knowledge that need to work on their projects.
Second measure GPE should take is to foster exchange on tacit knowledge. Tacit knowledge, as it is, is not self explanatory and clear for other to assimilate and understand. You cannot transfer it through paper or formulas and is therefore much difficult to pass on to others? The company should then engage in a lot of different actions to facilitate this knowledge transfer. First of all it is crucial that the company create an open atmosphere within itself for communication to transit easily and peacefully. Then, though different kind of programs such as expatriation, in meeting person, informal meetings, tripsâ€¦, the company will brings its employees to meet and get in contact more often.
After the conditions for tacit knowledge transfer to be realized, the next step will be to support this transfer. The company should encourage R&D employees to supply and demand knowledge through incentive and reward best practices.
Conclusion and underlined questions
We have seen on this paper that GPE had a lot of issues when transferring technology knowledge from the British acquired firms back to its homeland country. The company also experiences trust and communication problems between its R&D sites which prevent collaboration and synergy from happening. We give recommendation in order to correct the situation and foster collaboration and synergies between different R&D sites.
However, some underlined of hided questions remains: can GPE really overcome its problems due to the acquisition of the British companies such a long time after acquiring them? If not, what should the company do? Should it get rid of those assets and focus on internal R&D? Should it look at acquiring new companies closer from its home country with similar culture?
GPE has been trying to make things work smoothly and transfer back for almost twenty years now. The company has spent a lot of money and time in doing so. Even if we implement a new strategy, it seems that employees, in the UK as well as in China, will be very reluctant to go along and accept those changes. Therefore, the company should thing at alternatives in case of failure. Our recommendation concerning this matter will be to sell off the British companies. By doing so, GPE will be able to raise cash and invest internally to develop its own R&D capacities. With new fresh funds the company will can attract highly skilled and experienced international engineers to lead the innovation of its own high end product line and finance new research.
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