All posts by Supply Chain Wayne™

Samurai & Cowboys – Cultural Perspective on Management Styles

Whether you support or detest change, it is happening. But how much impact do management styles in different cultures have on change?

East vs. West Management Styles

Do you have a Smartphone? Do you use Google? Do you use global internet sites to get information on clothes, food, travel, music, research, work opportunities? These sites influence people and bring countries closer together, especially countries that share a lot of trade and commercial contact.

These factors influence what you and your colleagues may see as the norm. You are open to influence whether you know it or not, to leading thoughts, persuasions, technologies, arguments, speeches, TV adverts, products. Nothing stands still.

Management Styles – East and West

Could all of this affect management styles? If you compare Japan and the USA there are, of course, differences. However, countries will find it difficult to maintain existing management cultures in the face of fast-paced change, and as technology makes the world smaller.

There is a belief that you can group countries with similar management styles – the USA, UK and Australasia in one group, and Japan and other East-Asian countries in another. Traditions, national roots and leadership are different, and this difference should be cherished. But could this have a negative effect on business?

When a multi-national company starts operating in Japan, Directors “back home” will see differences in culture. A Japanese firm, starting operations in the USA, is going to experience a culture shock when they hire local staff. Because of this, management styles cannot stay the same.

So which culture is better and will things change?

Values, Norms and Variances

There is a widely held belief that traditions and leadership styles in each country lead to the development of styles. National values, norms and education are instilled from an early age. These can lead to national variances such as:

  • Power of leaders to influence citizens
  • Pressure on a corporate employee if an error is made, and the outcome
  • Time scale to make decisions in a company, and by whom, a person or a group

Most will agree that management styles in some counties have changed over the years. People believe if you treat your staff well, they will perform better and go the extra mile. This is seen by customers, who tell others, and the company prospers. The ability to complete work to ‘best endeavours’ is initiated or halted by management – despite their wish to ensure good company performance.

But what or who influences the Directors and the Managers?

In a ‘Top Down’ style, the manner of the CEO is reflected across the organisation. But the leadership of a country can be influential too. Comparing Japan and the USA again, both have similar approaches and beliefs when it comes to market share, commerce and winning business. But there are variances that have evolved, which are more effective in their own regions.

Japan and the USA have traditionally strong trading links. Is there an argument for finding a cultural ‘middle ground’, where the best of both cultures are adopted by both parties in order to prosper? Is it a case of change and adapt, or fail commercially?

Power Distance

Current legal systems and education in each country lead to different responses by managers. Let’s take the concept of leadership and ‘power distance’ – the level of acceptance by society to the distribution of power. In some countries, an order might be met with “You must be joking!”, whereas in others the response will be “Yes, sir”.

It is said that ‘power distance’ and the process of decision making are inversely proportional. So, the more a person is deferential, the more that person looks for consensus before any decision is made.

If the citizen feels less influenced by their country or company leader, or traditions, they can make decisions faster, are able and prepared to take risk, and feel empowered to innovate and adapt rapidly to market forces.

In these countries when the economy thrives, the countries’ leaders tend to take the credit themselves, while, where there is a consensus or group response, leaders congratulate the group and see this as a mutual success.

Risk Avoidance

There are further differences when looking at risk taking or uncertainty avoidance in the USA and Japan. In Japan, the concept of a ‘job for life’ means there is traditionally high uncertainty avoidance.

In the USA, people will generally take these decisions, so when the company thrives, the employee receives the praise. Even if it turns out to be a bad decision, and the employee loses their job, a new employer may look favourably on the courage and innovation in the decision.

People don’t get it right every time – Thomas Watson, former Head of IBM, said in 1943 that there was a “world market for maybe five computers”. But if we don’t try, we will never succeed. The key is balancing the risk.

Long-term vs. Short-term

Gadget makers take ideas and concepts from multiple sources in order to make a better product, so too can management style benefit from taking the best from other models.

In any industry, there are people who are in for the long-term, and others who are in only for the short-term. In Japan, companies look at the long-term picture, and employees at the long-term ‘loyalty’ to a company, while in the USA, there is more focus on the short-term and individual careers.

However, this is changing in Japan, with candidates publishing Portfolio Career CVs showing skill sets, and not necessarily their list of corporate positions.

To take a simplistic view, we have one culture where short-term planning, individual confidence and easier movement between jobs, while the other focuses on long-term planning and thinking, collective confidence and the job for life.

But in 2016, the tide is changing, and a global perspective is required. Where the prevailing culture will end up is open to discussion but change is constant and more important, the pace of change is exponential – the rate of change is getting faster.

Chinese New Year – Avoid a New Year Dip in Profits

Chinese New Year is just around the corner, but is your supply chain prepared for the impact of a national holiday like no other?

Chinese New Year

First here are some facts about Chinese New Year 2016:

  • Chinese New Year will be celebrated on February the 8th
  • Estimates forecast 350 million people will travel in China during this period – an increase of 8.2 per cent over 2015
  • It’s the largest migration of people in the world at any one time
  • Many workers started their holiday before February 8th and many will extend it until after February 13th
  • Effects from reducing production during January, as well as ongoing issues, run until March
  • The event is calculated on the lunar calendar and dates change each year (Chinese New Year 2017 is January 28th)

You cannot avoid Chinese New Year – you have no other option than to plan ahead. The event is often a topic of conversation when companies are hiring Supply Chain Specialists. There is a lot to discuss, plus details on steps to take to avoid supply problems. Here are some of my observations and recommendations.

What are the Effects?

The Chinese New Year celebrations run from February 7th to February 13th. This period is also known as the Lunar New Year or Spring Festival. It is the most important Chinese celebration of the year. But its effects can be seen over a far longer period, and these add significantly to any financial impact. 

Travel for the 2016 celebrations started on January 24th and will last until March 3, meaning your supply chain will almost certainly be disrupted. Production sites will be closed for the entire week, but disruptions will last significantly longer.

Most workers travelled far to find their work, and their families still live far away, so they extend their holiday to spend more time back home. Travel by these workers to their home regions creates an enormous movement of people, and places huge strain on the rail network in China.

Companies often allow staff to leave work well in advance, sometimes up to two weeks before the New Year. Some companies also allow a holiday extension for a further week after New Year. This means many factories are not up to full production until late February or even March. This can mean 4 weeks or more of production outages.

There are also reports of workers not returning following the celebrations. This can lead to reduced production runs, as well as product delays and production quality issues.

Delivery Delays, Price Rises, No Product

Global carriers expect a reduced volume over this period. This is reflected in their shipping capacities, which can be cut by nearly 40 per cent. You should contact your logistics company and reserve space for your needs.

Companies who completed this task in advance, and secured their products at the port ready for shipping by no later than the middle of January, prevented many problems. Ports do stay open over Chinese New Year, but only with a skeleton staff. Prior to New Year congestion grows.

Review your other delivery options – even if they are more expensive, at least you can supply your customers and retain their goodwill. However, airports will look abandoned as ground staff and air crews are at home. No freight company can get over these issues. All the while you need to watch carefully for changes in transport rates. If there are price rises in this period, check they return to ‘normal’ in due course.

Lessons learnt from Chinese New Year also apply for holiday periods in other parts of the world. After all, supply chains often demand a global focus. Here, while we normally see the well oiled just-in-time ordering system working well, there is a spike in production (and demand) as New Year comes closer.

Production staff work hard to get ahead of demand and attempt to reduce future supply problems. Suppliers in the USA have taken more notice of Chinese New Year recently, as other labour issues in China, such as overall costs and labour shortages are amplified at this time. Unfulfilled orders damage profits – so ordering well in advance is important.

Cashflow

Like anyone else, Chinese workers value their holidays. They are seen as a really good benefit, especially when compared to US companies. Workers’ journeys home can take a number of days, but employers pay a bonus of one month’s salary. However, this may also impact your organisation, as your suppliers in China may ask for payment of all invoices before Chinese New Year.

You should also be aware that any e-mails you send to suppliers during the week of the celebrations will go unanswered. Senior staff do usually live closer to the workplace, but nevertheless you should plan for this email silence.

The Holiday Cost

Putting a cost figure on the national economy for a holiday in any country is not practical. It depends a lot on the sector. Production revenues suffer, but leisure, travel and tourism should benefit. In the retail sector, there may be purchases that are just delayed to the next day. There is also a potential positive result when workers work faster in the run up to the holiday in anticipation of the closure.

It also depends on the number of holidays per year in individual countries. In the UK, estimated costs for one extra national holiday vary – some predict a loss of £3 billion, while others showed a gain of £1 billion.

Long term impact for China?

There are those who report a change in demand, moving away from Chinese manufacturing. This is often reported to be due to increased prices and/or issues during and after Chinese New Year, which disrupts deliveries. But it is hard to quantify the real cost for this period.

A global view is required. This annual event has been clearly marked in diaries across China, but it is now recognised by more companies worldwide. The solutions to Chinese New Year logistics issues are not hidden and complex, but measures do need to be implemented.

We wish all those travelling a safe journey and a wonderful Chinese New Year.

Mergers & Acquisitions in the Transportation Industry – A 2015 Retrospective

If you are already working in this sector, you do not need me to tell you there have been significant mergers and acquisitions in 2015. More are expected and you may be affected. The blog today reviews some of these events.

Merger 2

If you have not been following this sector, you will find recent financial details that are astounding and outstanding. Do not be deceived by recent lower annual growth figures in this industry when they are reported only in terms of percentages. This distorts the real growth, as the annual revenues in this sector are so large.

Company revenues, in many cases, are growing rapidly year on year. The sector reported revenues, globally, totalling $750 billion in 2014. Thanks also, without doubt, to the fact that eighty percent of Fortune 500 companies use some form of logistics and transportation provider.

But, why have there been so many recent mergers and acquisitions in the Transportation industry? Answer – consolidation is a must to stay competitive. The key word is scale. This is heard again and again when executives in this sector are interviewed.

Participants and Key Players

The participants are the firms who provide logistics services to customers for part or all of their supply chain management functions. These third party logistics (3PL) providers typically specialise in warehousing and transportation services, scaled to customer’s needs. Sometimes a service provider also offers value-added services, such as production or procurement of goods, and is a third-party supply chain management provider (3PSCM).

Many of their customers are reviewing their Supply Chain Roadmap to allow it to fit better to their business strategies. By contrast, the end game strategy that has led to some of the recent mergers has left some observers puzzled. But of no doubt is the importance of these changes, especially when one notes the size of these mergers, both in terms of geography and their financial size.

These have included for example, CMA CGM taking a 67% stake in the APL container group for S$3.4bn. The CMA vice-Chairman stated that the focus is on “scale”, adding that this is now “more critical than ever to capitalise on synergies and capture growth opportunities whenever they arise”.

Although more freight is being carried, global rates for freight have seen a decline, but sharp declines (40%) in costs of bunker fuel. So for CMA CGM they saw group net profit over 9 months approach $613m as opposed to $392m in the same period last year.

Sector Inertia

DSV Group (subject to UTi shareholders approval that is expected Q1 2016) will acquire US based UTi Worldwide Inc., who operate in 58 countries with 21,000 staff and have revenues of US$3.9 billion. Once again, ‘scale’ is the word used by the UTi Chairman.

However, there are now reports a rival bid may appear. DSV had stalled on the acquisition plan some time earlier when reports in the financial press caused a share price rise in UTi stock. The share price then fell following revised UTi profit forecasts.

Then there is Kintetsu World Express and their purchase of APL Logistics. Singapore NOL selling its APL Logistics division, making the transaction one of the largest in recent years. The state owned shipping line of Singapore will collect $1.2 billion from the sale.

This will give Kintetsu a much larger footprint. NOL were keen to point out that when calculating a purchase price based on a company’s financial results, the sale price obtained was well above the current market average for acquisitions in the sector. NOL sold both its logistics arm and shipping line business this year.

Further inertia in the sector was proved with announcements from FedEx confirming plans to acquire TNT Express for $5 billion. Confirmation is expected in the spring of 2016. This will make the combined company the second largest delivery service in Europe.

TNT shares rose 10 per cent when reports surfaced, saying a green light is expected from the EU antitrust regulators. A formal declaration is due by mid-January, although UPS continues to lobby against this acquisition. The firm tried to buy TNT three years ago but were stopped by the EU Commission, due to the estimated 30 per cent control they would be seen to have of the total market.

Why now?

It will not come as any surprise that mergers and acquisitions are seen as the vehicles of choice to build company size. But these logistics companies are themselves seen as targets, with potential, by private equity investment firms.

Changes in the global financial markets may have led to brakes on acquisition plans prior to 2014, until such time that target company share prices had become weaker, or rather, not seen as being over-priced. This, together with other factors, has meant that 2015 has been a bumper year for M&A.

As if to confirm the pace of announcements, Japan Post recently announced they would buy Toll Holdings of Australia for $5.07 billion. Toll has come a long way from its roots in 1888 in New South Wales, delivering coal!

 

3PL companies are being asked by many of their largest customers to supply more services, and indeed many want to and know they have to. Companies want to offer a wider range of services to make them the one and only provider of transportation services to these major customers. This objective makes a wider geographical footprint a must have, and this, along with recent private equity involvement and strategies, also explains the 2015 dynamism in the sector.

Acquisition provides an easier route to achieve many of these aims, albeit with potential staff repercussions that are seen in any industry. Most commentators agree that these changes will continue. Whether the financial benefits that result from an acquisition match the forecast is another topic, but by that time the seller is out of the equation.