2.7 Case study & role play The Case

Modern Industrial Equipment (MIE) is a manufacturer of industrial electrical equipment. In addition to large domestic plants the company has several wholly-owned subsidiaries abroad. In 19XX the financial performance of the foreign subsidiaries was good with the exception of the Taiwan facility, which was losing money. Despite an infusion of $3 million from the parent company the Taipei office reported further substantial losses. After considerable study, the president of the Taiwan plant, Mr. Yang, was fired. He was replaced by Henry Tanaka, 38, a second generation Japanese-American who had formerly been vice-president of operations at one of the domestic plants. Tanaka was the youngest person ever to become a MIE president and during his three-year tenure he had initiated policies, including a managerial reorganization that had resulted in phenomenal growth.

Tanaka disposed of a part of the assets and inventory in order to offset liabilities, shut down the manufacturing of heating and cooling equipment, and introduced a radically new management system. As a result of that both the vice-president of operations and the plant superintendent resigned. The middle- and upper-level managers sent a letter to the President of MIE, James Hill, seriously questioning Tanaka’s policies.

The management of MIE is torn between the need for sweeping changes to restore the financial soundness of the subsidiary versus the need to maintain the confidence of the staff. Tanaka is in a difficult position. On the one hand a number of the problems need to be solved before any recovery can be achieved. On the other hand, he is replacing a seemingly popular Chinese national. Tanaka must make some decisions that are not likely to be readily approved of by his all-Taiwanese staff (he believes that the reason for the resentment between him and the staff is partly that he is a Japanese-American). If he develops an antagonistic relationship between him and his managers, his measures will hardly ever succeed. Still Tanaka assumes that renewed financial solvency will outweigh the present difficulties resulting from the reorganization.

Case Analysis

1. Summarise the situation at MIE-Taiwan both before and at the time Tanaka took over.

2. Write a brief summary of the financial situation at MIE-Taiwan inherited by Tanaka. Use chart 1.

3. Dwell on Tanaka’s qualifications.

4. Comment upon the position of Tanaka as “outsider”.

5. Consider Chart 3 and elaborate on the stagnant sales trend in heating and cooling equipment.

6. Sum up the changes in the Organizational Chart of MIE, proposed by Tanaka. Use Chart 2.

7. Prepare a report on the case.

Chart 1. MIE-Taiwan Balance Sheet (in Thousands of US$)

ASSETS (as of July 1, 19XX)
Current Assets
Cash	1,610
Short-term securities	222
Receivables	1,620
Inventory	11,830
Prepaid expenses	150
Other assets	140
Total Current Assets	15,572
Fixed Assets (at cost)
Buildings	4, 182
Machinery and equipment	8, 021
Less depreciation	(3,212)
Total Fixed Assets	8,991
Other Assets	410
Total Assets	24,973
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable (trade, usance credit and loans)	11,290
Accounts payable (local)	3,150
Loans and current portion of long-term debt	1, 130
Other current liabilities	130
Total Current Liabilities	15,700
Long-term debt	3, 294
Reserve for depreciation	1, 250
Other reserves	120
Duty payable	110
Other liabilities	129
Shareholders’ equity	4, 370
Total liabilities	24,973