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Korea - FMCS

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Korea - FMCS ...

    RESPONDING TO CHANGE IN THE WORKPLACE:

    INNOVATIONS IN LABOR-MANAGEMENT-

    GOVERNMENT COOPERATION

    Survival in the Face of Crisis:

    Hankuk Electric Glass Co., Ltd.

    KOREA

    June 25 26, 2001 Mexico City, Mexico

    Survival in the Face of Crisis: Hankuk Electric Glass Co., Ltd.

    By: Dr Chan Young Hur

    Background

    The Hankuk Electric Glass Co., Ltd (HEG) is a glass manufacturing company that initially began in 1974 and focused on the production of black and white cathode ray

    tubes for Television monitors. As technology advanced, HEG began to produce both TV

    and Computer monitor glasses and its global market share was at 8 percent in the

    1990s. HEG has 1,600 employees and 75 percent of them are unionized.

    In 1997, Industrial Relations were strained and forced a temporary shutdown of HEG‟s production. In an attempt to overcome the operational difficulties, the company

    chose to take a negative measure and shutdown operations of the company, instead of

    taking long-term measures to increase sales through the development of new products

    and quality improvement. In March of 1997, after 120 workers on an assembly line were

    ordered to be placed on a different line due to the shut down of furnace No.1, the trade

    union declared that they would not abide by the company‟s decision. They were

    attempting to obtain job security through unity and struggle.

    They were at a stalemate and neither side would compromise. This led to an extreme situation that resulted in a 77-day strike by its workers that lasted from June 16

    - September 30, 1997, and cost the company approximately $46 million US dollars.

    Moreover, due to the inconsistency in supplies, Korean customers had to import TV and

    computer monitor glasses from Japan. They were also obligated to sign a 6-month

    contract with the Japanese suppliers. Consequently, HEG not only lost the current

    business, but also lost future business.

    Although the strike eventually ended, labor relations have been damaged ever since. The company was also suffering from a heavy deficit and high debt ratio and was

    eventually taken over by the Daewoo Group in December of 1997, and a new President, 1Suh Doochil, was appointed.

    When President Suh first came to HEG, the company was in turmoil and heading

    towards bankruptcy due to an astronomically high debt ratio of 1,114 percent. The total

    amount of HEGs debt was about $270 million US dollars, which was almost twice the

    amount of its gross sales in 1997, and most of this debt was due to short-term loans.

    Further complicating the situation, the country was faced with the International Monetary

    Fund (IMF) financial crisis. Hence, with such a high debt ratio, the company could not

    obtain any further loans from the banks.

     1 In 1999, the Daewoo Groups sold its stake to Asahi Glass of Japan, since the Daewoo Group was

    suffering from severe financial problem at that time.

Since the labor dispute that occurred earlier in 1997, HEG continued to face severe

    problems with its employees, as well as, low productivity levels. HEG employees

    suffered from low morale, which arose from the uncertainty of their job security, and

    thus, employees did not have the will to work. Low moral by employees was

    compounded by the fact that HEG was heavily dependent on overseas technology that

    provided essential production line components necessary to complete internal

    production. In addition, the royalty that was assessed on imported products created a

    tremendous financial burden, compounding the already existing heavy debt load.

    Consequently, HEG was forced to turn away clients from its services because the

    factory could not meet any new sales demands.

    At this point, the president established a new company policy that emphasized

    manufacturing of products only at the best quality level for the best price. This common

    sense approach was based on the simple logic that improved quality could open world

    markets and thereby, ensure financial profit and success.

    In order to put this new policy to work, the president introduced the new policies on

    personnel management with the Company Reform Plan.

Company Reform Plan: New Policies on Personnel Management for HEG

    President Suh believed that a company is a place where people come and work

    together. Hence, the success of a company is highly dependent on the work attitude by

    its employees.

    First, President Suh offered job security to all employees. During the inaugural

    ceremony, President Suh stated, “No one will be laid off unless he or she wants to be.

    This provided employees on the production line with peace of mind and gave them a

    sense of job security that increased work morale.

    Second, President Suh implemented an “open book” management policy and

    disclosed all the information. An open book management policy provides an

    opportunity for employees to receive information about the company in an open and

    direct manner. Here, HEG gave provided information to their employees as if they were

    the chief director so that they would start to think and act as if they were the chief

    director, vested in the company‟s results. President Suh believed that when information

    about the company is transparently disclosed to its employees, the employees would

    participate in thinking of ideas to overcome any obstacles.

     All kinds of information were disclosed through various channels. For example, in the

    beginning, President Suh had meetings with employees just after their work shifts, in 2order to explain the current status of the company. Because there were 3 shifts of the

     2 The president said, To Be frank with you, the salary you received on December 10 was provided by

    borrowing money form the bank. For the oil we need to operate the furnace, we received a notice from the

    production line, he met them three times a day, at 3:00am, 9:00am, and 6:00pm. He made a promise to the employees that he would not lay off anyone unless he or she wanted to be laid off. In return, he said that employees must do their best to achieve a sufficient level of competitiveness that would provide the best quality products at an affordable price. Also, he explained the reasons for the HEG crisis, and presented how much the production rate had to be increased in order for the company to survive. These meetings lasted three months.

    As employees began to understand the severity of HEG‟s situation and trust the new

    president, these meetings were reduced to a quarterly basis. President Suh continued to explain the operation status, the results of the current quarter and what the vision for the following quarter would be.

    In addition to quarterly meetings, every Tuesday and Friday, a company bulletin called 3“Open Communications Room” was published, where the president disclosed all of the

    management and production information for the week. Special emphasis was placed in this newsletter on communication between the employees and management, and the president provided space for information sharing, and the exchange of opinions. The labor-management joint meetings engaged in joint problem solving and decision-making related to quality, production, payment system and other industrial relations problems. Also, the company provided a process for evaluating management to union leaders by inviting them to attend and participate in management strategy meetings. Another demonstration of the open book management style was the decision to include family members. By choosing to disburse information directly to family members through newsletters and meetings held twice a year, the severity of HEG‟s financial situation

    was explained to the families of the employees. As the families began to gain a better understanding of the workplace situation they encouraged the working members of their families to work comfortably without having worry about their families. Through the open book management initiative, even field workers were able to get as much, and in some cases, even more, information than the managers about the company's operations. This dissemination of information was essential because the product quality of the HEG is entirely dependent on the hands of the employees. Upon realization of the company‟s operations and its value, the attitudes of employees changed and the production rate drastically increased.

    Third, President Suh motivated the employees by presenting clear visions of the company. He outlined the vision for the company with a 3-year timeline: Year of

    Innovation -1998, Year of Emergence - 1999, Year of Success - 2000. In 1998, the Year of Innovation, the President encouraged workers to start anew from ground zero, reduce costs by half, increase production by twice the current amount, and begin the healing process among work place attitude. In 1999, the Year of Emergence, the goal

    oil suppliers that as of December 17, we would need to pay cash in advance. Our company is in the worst situation ever in its history. 3 A copy of this publication is attached in Appendix.

was to make HEG the top company in Korea. Finally, the year 2000 was to be the Year

    of Success, and it was envisioned that HEG would be the best company in the world.

    President Suh was confident and assured employees that HEG could become one of

    the world‟s best companies within 3 years, as long as the Goals of 3890, were attained.

    The Goals of „3890” were: annual production of 30 million units, front glass yield rate of

    80 per cent, rear glass yield rate of 90 per cent, and claim rate of 0 per cent. Initially, the Goals of 3890 were viewed as an impossible mission, because, production of 30

    million units was more than twice the total output of 12.5 million in 1997. Moreover, the

    front glass yield rate for the best company in the world was only 70 per cent. However,

    the President persuaded the employees that it could be done through the Company

    Reform Plan. Finally, after successful implementation of its 3 year Company Reform

    Plan, the goals of 3890 were achieved early in 2000.

    Now, the president hopes to continue his visionary success and he has identified goals

    for another 3-year plan: Re-emergence 2001, Revolution 2002, and Accomplishment

    2003. The theme of Re-emergence for 2001 focuses on building a foundation for new

    business, meaning the start-up of a new business, TFT-LCD. In 2002, the company will

    focus on Innovation since constant change and adaptation to the world markets, are

    necessary to maintain international competitiveness with the deployment of the new

    business. Finally, the year 2003 is the Year of Accomplishment and HEG has a set a

    goal to attain 20% of the world market share and for every worker to enjoy the highest

    level of working conditions.

    The Company Reform Plan of HEG First, HEG restructured the equipment line into a “total in-line” system, so that

    completed products can be forwarded to the next process without waiting in

    storage, thereby reducing the loss time. In addition to increasing efficiency, HEG drastically reduced the cost of processing and protective devices needed by employees

    on the assembly line.

    Second, HEG commenced production of more valuable quality by implementing a

    change from small/mid size TV glass to the production of mid/large size glass.

    Moreover, HEG recognized the increasing demand for computer monitor glass and

    began to concentrate on this production, in addition, to their current TV glass monitor

    production. HEG invested in reestablishing production lines 30 million US dollars in

    1998, 41 million US dollars in 1999, and 47 million US dollars in 2000 respectively. The

    financial resources of these equipment investments were provided mainly with net

    profits of each year.

    Third, HEG restructured its use of technology. In order to increase efficiency of HEG,

    the President encouraged the Research Center to develop new technology so that the

    company did not have to rely on overseas technology and could reduce the financial

    burden incurred from the royalty on imports. After its employees concentrated on this

    new strategy, they succeeded in developing their own solution to the problem and became technologically independent.

Efforts at Reform

    At HEG, efforts of reformation began with a commitment to change by all employees at every level. The president has never had a day of rest since he came to HEG, spending 365 days of the year in office. Even senior management officials and supervisors came to work at 6:00 a.m. to get an early start on the production line. In fact, the entire company resigned their paid vacations and holidays, since all the workers were convinced that hard work, rather than a worker‟s strike, was the only way to secure their

    jobs. In addition, the trade union and workers voluntarily proposed a new work schedule. The one-hour work and 30 minute break to cool down from working next to a hot furnace was changed to 2-hours work and a 10-minute break. With this proposal, the company installed air-conditioning in the work places to encourage a more productive work environment.

    Moreover, researchers spent sleepless nights at the technology research center to develop their own production technology. As a direct result, they were able to save $54 million US dollars by avoiding the cost prohibitive royalty charge on overseas technology in 1998.

    In order to reduce labor costs, the trade union cut down the number of full-time 4representatives from 8 to 3, and put them back in production lines. While the trade

    union agreed to a suggestion of the top management that offered job security through pain-sharing, union leaders released a statement of Joint Efforts to Save the 5Company.

Results & Outcomes

    Customarily, when a company is undergoing restructuring, it sells off its shares and lays off its employees. However, HEG underwent restructuring by increasing the production efficiency. As a result of consistent efforts by all 1,600 employees, gross sales increased by almost three times, and net profits rose from $-46 million US dollars in 1997 to $132 million US dollars in 2000. While its loan was decreased from about $270 million US dollars to zero, HEG reduced its debt rate from 1,114% to 40% in just 3 years.

     4 In Korea, this can be a way of reducing labor costs, since the company pays all the full-time union representatives salary. 5 The main contents of the statement were as follows; TU will take the responsibility for the improvement of productivity and quality; TU will lead the cost-cutting movement; and TU will co-operate with the management to build a constructive Industrial Relations culture.

As a result of these successful managerial performances, all workers received 400%

    and 650% of their monthly salary as part of profit sharing in 1999 and 2000, respectively.

    Categories 2000 1999 1998 1997

    546 million 440 million 372 million 183 million Gross sales US$ US$ US$ US$

    132 million 57 million 23 million -46 million Net profit US$ US$ US$ US$

    Debt rate 40% 94% 174% 1,114%

    66 million 150 million 270 million Loan None US$ US$ US$

    Domestic 48% 45% 36% 25% market share

    Profit sharing 650% 400% 0% 0%

Lesson Learned

    The major implications of this case study can be summarized as follows. First, in order to achieve the real goals of restructuring, workers need to be satisfied and further

    motivated by the restructuring plan, because the success of a company highly depends

    on employees work attitude. For example, as long as workers worry about their job

    security, their preoccupation prevents them from being the most productive employee.

    Therefore, downsizing through layoffs may not be the best way of restructuring. This is

    especially so, since Korea has relatively poor social safety net for unemployed workers,

    and the external labor market is not yet developed properly.

    Second, the dissemination of information about the company to the employees is

    essential for improving labor productivity and developing co-operative industrial relations.

    This Korean case clearly shows that under the open book management policy, the

    employees did their best on the production lines and trusted the management.

    Third, much time and effort is required from top and senior management to develop a

    constructive Industrial Relations culture. That is, the Industrial Relations department

    cannot achieve the development of co-operative Industrial Relations by itself. The labor-

    management relationship should be viewed as a profit-creating relationship, rather than

    a cost-creating one. Thus, top and senior management have to deal with industrial

    relations matters as a core of management activities.

Appendix A sample of Open Communication Room‟

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