INTEGRATIVE CASE STUDY 14

BAOSTEEL EUROPE
OVERVIEW
The South Korean Ministry of Education (MOE) recently announced plans to spend $2 billion providing
tablet PCs with digital textbooks to a vast majority of students in South Korea by 2015. Many textbook
publishers are also beginning to identify the massive opportunity that digital textbooks provide. While
publishers certainly face challenges in adapting and developing content for digital textbooks, the most
compelling reason to enter this market is quite simple: increasing demand. Based in Dallas, Texas
Instruments (TI) offers both hardware and software solutions for educators and students alike. As
textbooks go digital, TIs brand identity, reputation for quality and integration-ready software platform
facilitate a much smoother transition than firms attempting to develop education software from scratch.
CASE DISCUSSION QUESTIONS
1. What location-specific advantages did Hamburg, Germany, provide Baosteel? Evaluate other
European locations that might offer similar advantages.
Baosteel is Chinas largest producer of steel. The main plant in Shanghai is considered to be one of the
most modern and most efficient manufacturing sites for steel products in the world. Unlike many Chinese
SOEs, it was not burdened with the legacy of the Chinese communist past and has built long-lasting
relationships and numerous joint ventures with other global players. Baosteel had been conducting
business in Germany for a long time, and therefore had a foothold in the market, and some experience
with market conditions, when senior management decided to expand and founded Baosteel Europe GmbH
in 1993.
Baosteel selected Germany for a very specific reason: the local courts provide European customers and
suppliers with more legal protection than if business were to be conducted in Hong Kong or China. In
other words, using the institution-based view, Baosteel considered the legal infrastructure and
enforcement across countries and made its location decision. Its decision to locate the business in the
Hamburg metropolis was based on both economical motives (such as direct access to shipping routes as
Hamburg is a port city) and cultural aspects. Additionally, the workforce, technology, and infrastructure
in Germany are known to be world class. Further, earning the trust of German clients and selling Made
in Germany steel parts in China have benefited the company greatly.
Other European port cities that are port cities that have a strong steel industry presence include
Rotterdam in the Netherlands and Antwerp in Belgium. Antwerp is the main steel port in Europe, and has
good accessibility for distribution and an infrastructure that supports the transport of steel products.
2. How did Baosteel manage its entry into Europe? What factors have enhanced its success?
Baosteel has been conducting business in Germany for a long time, though its activities have changed
significantly over the years. In the beginning, it was impossible to think about selling steel products;
rather, its main task was to supply Chinese companies with vital replacement parts sourced in Germany
for domestic production. This changed in 1993, when senior management decided to expand and founded
Baosteel Europe GmbH.In Hamburg, Chinese expatriates work side by side with Germans. In other
subsidiaries in Europe, employees from the various host countries are in the majority. The working
language is Chinese, and in keeping with international business practices, English is used when
communicating with the outside world.

A number of factors related to human resources have enhanced its success. Baosteel implements a very
thorough recruiting process. Candidates for its comprehensive examination procedure are selected from a
large number of applicantsof which all of whom are university graduates. Baosteels senior
management has come to realize the importance of a common corporate culturefor both Chinese and
foreign employees. To stress the high opinion and importance of the local workforce, all German
employees of Baosteel Europe were invited to stay in Shanghai for a week. The German employees have
also been included in the Chinese bonus system in order to encourage their participation in the success of
the company. The high one-off bonuses for special accomplishments confirm the appreciative attitude of
the senior management. Therefore, employee turnover is quite small low in comparison to with other
companies within this industry.
Baosteel Europe has developed a great relationship with the Hamburg city government, especially with
its departments involved in economic development. Baosteel continuously manages this relationship by
staying in touch with the media and having company representatives participate in and sponsor public
events. The majority of customers value Baosteels quality, reliability, punctual delivery, and service.
3. How did Baosteel Europe overcome the challenges of managing a subsidiary?
Baosteels senior management has come to realize the importance of a common corporate culturefor
both Chinese and foreign employees. An essential basis for further expansion in the international sector
is a systematic development of HR beginning with recruiting, and leading to career planning and further
education.
To stress the high opinion and importance of the local workforce, all German employees of Baosteel
Europe were invited to stay in Shanghai for a week. The German employees have also been included in
the Chinese bonus system in order to encourage their participation in the success of the company. The
high one-off bonuses for special accomplishments confirm the appreciative attitude of the senior
management. Therefore, employee turnover is quite small low in comparison to with other companies
within this industry. More recently, Baoteel has expanded the scope of its HRM, becoming more strategic
in nature. In addition to regular assessments, the skills of its employees are continually being enhanced
by means of systematic training. Further, preparatory country-specific or culture-specific instruction for
foreign assignments is now available, as are returnees programs. Finally, the mentoring system is well
organized and highly valued. Talented young executives are watched over and given advice by mentors
appointed to look after and guide them.
4. What are the lessons on how to manage human resources in a subsidiary that we can draw based on
Baosteel Europes experience in Germany?
Baosteels senior management came to realize the importance of a common corporate culturefor both
Chinese and foreign employees. An essential basis for further expansion in the international sector is a
systematic development of HR beginning with recruiting, and leading to career planning and further
education. Baosteels German experience underscores the value of cultural integration and cultural
exchanges in integrating employees from differing backgrounds and allowing them to work at maximum
efficiency. Baosteels German employees have been given a thorough grounding in Chinese work
practices and the organizational culture, both through training as well as visits to the companys
Shanghai plant. Chinese executives clearly try to respect German habits and customs by not expecting
German employees to stay in the office until late in the evening, as is often the case with Chinese
expatriates. Baosteel has come to understand and acknowledge that despite different work habits, in the
end, the efficiency is the same.

5. Why does Baosteel devote considerable resources to corporate social responsibility?

Corporate social responsibility (CSR) has become increasingly important in recent years. Baosteel is
ahead of this social trend, embracing CSR and bankrolling numerous social projects as early as 1990.
For example, the establishment of Baosteel Education Fund is one of the most visible education awards
nationwide. Its foundation has set up 38 Hope elementary schools and provides support for sustainability
and environmental projects. To further substantiate its dedication to CSR, Baosteel is the first Chinese
company to publish annual sustainability reports, which have appeared since 2005. Moreover, in 2006,
the management announced a new slogan and goal centered around CSR. The slogan, Green Baosteel,
our common home, is aligned with its goal of turning Baosteel into the cleanest and most sustainable
steelmaker in the world.
CSR activities allow Baosteel to demonstrate its commitment to stakeholders. Although there is no
conclusive evidence on a direct, positive link between CSR and economic performance such as profits and
shareholder returns, an instrumental view suggests that CSR activities simply represent a useful
instrument to make good profits. CSR offers Baosteel a source of differentiation in the international
market, and can generate goodwill for the company among customers and regulatory agencies.