Human resources situation in Jiangshan Machinery:

Jiangshan Machinery Works is a state owned enterprise (SOE) in China. The company was established in December 1949 and is one of the biggest premier manufacturers of machine tools in China.

The human resource selection in a Chinese SOE is limited as compared to a western private enterprise. SOE’s are committed to the idea of “full employment” and often people are hired because of their relations, not their skills. Nor is there a tradition of firing people, when personnel is hired they expect to have a job for life. This creates a surplus of employees (overstaffing), low productivity, low morale and higher labour costs. To occupy every employee, additional functions are created or more persons share one position. Before the reform had the SOE’s a large part of social responsibility care of the employees. After the reform, this is not required by the government anymore. However, it is necessary to care for the employees when the government support is limited. The SOEs are facing a dilemma in managing the international competition vs. managing the additional cost related to the social welfare of the employees. In Jiangshan Machinery, there was a strong corporate culture among employees and there was no distinction between work and private life. Employees lived together in servant houses; they were like a big family.

 In the past under the planned economy in china where government controlled enterprises, Jiangshan as SOE was supposed to follow the guidelines given from government. 

Why challenges? – Macro-environment changes

After China entered into WTO (world trade organization), many international companies established their business in China. The international companies do not have the history and culture of the SOE’s and is therefore free to follow efficient work processes and HR policies. New guidelines given by the government is also in contrast with existing corporate structure and it will require fundamental changes.

 The changed external environment, in terms of open market for foreign companies’ competition, is causing worries for Mr. Wang the CEO of Jiangshan. It was time to make decisions about company future in order to make a clear strategy about their future course, to survive in the emerging market economy of China. It was extremely important for Jiangshan to re-define the corporate culture and ethical standards in order to become more innovative and efficient to meet the increased competition. 

Different challenges in the market segments:

Jiangshan had mainly two types of production, tailor-made and standardized. Sales revenue for standardized production was much higher due to high sales volume, but profit margins were higher for tailor made production. (need different processes?)

Challenges in Standardized product segment:

Jiangshan was supposed to meet the competition from domestic companies in standardized product segment due to:

*      Many of these domestic companies were subsidized by the local government, which gave them a strong financial position.

*      Domestic companies could offer lower prices and Jiangshans`s revenue in this segment was reduced   

Challenges in Tailor made product segment:

Many foreign multinational companies having well known brand and more innovative products were established in China and it was a major threat to Jiangshan`s tailor-made product segment due to:

*      Foreign companies were strong in technological innovation.

*      Multinationals forced Jiangshan to cut the prices. 


Managing director of the company Mr. Wang Hongguo analysed the situation and concluded that material cost counted for 70 % in the business, therefore he focused on improving the efficiency of the purchasing department. To overcome several problems faced by Jiangshan such as the inefficient work methods and high material costs described below, he came up with the idea of converting the purchasing department into a separate unit with its own overall responsibilities.

Authority and material cost

The purchasing department was suffering from overstaffing and bureaucracy with no clear vision or structure reflecting the tasks and functions needed to buy the material in an efficient manner. The department saw themselves as an order-taking function not as a value-adding integrated part in the supply chain. The stuck bureaucratic pattern had led to unnecessary high material costs and inefficient workflows.

The new employees, replacing the older retired, did have relevant education, but they did not have the authority to implement changes and perform managerial roles actively. The company’s bureaucracy and culture, where age was respected above tasks and positions, limited its performance.

Performance measurement systems and reward systems

The overstaffed, bureaucratic and inflexible organisation creates irrelevant functions and latent work. This together with the interpersonal relationships has created an unstructured organization with no clear responsibilities. Internal performance measurements systems do not exist when there are no measurable tasks. The lack of measurement systems causes a lack of reward systems. When there is nothing to measure, it is difficult to reward performance. There are no incentives systems motivating the individual to perform, and the ones that have self-initiative for performance are blocked by the bureaucratic organization. The system causes lack of motivation and low performance. 

Summary - Challenges:

There were number of challenges Mr. Wang was supposed to address:

*  Increased transparency, accountability in the company and unclear responsibility

*    Increase communication, there is no interaction among business units/departments.

*    Slack performance of the purchasing department. (Cost effectiveness, minimise inventory, replacement of manual order processes system with IT systems).

*    How to increase the profit margin?

*   Motivation, stimulating employees to become more creative, innovative and start thinking out of the box.

*    How to improve work processes, increase the efficiency of the internal operations

*    Increased productivity

*    The problem of overpaid employees as compare to the other companies in the same segment.

*    Overstaffing

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