The Privatization of the Tiger Leaping Guest House in Nanjing, P.R.C.

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Decision Problem: The Liang Brothers, Xin and Jiang, must decide how to privatize their family guest house heritage from a mainland China SOE. Four urgently emerging human resource issues arose from this case: First of all, the old SOE employees were poorly motivated and there were no incentives in place at all. There was no pay mix internally aligned with any pay structure. The goals of employees were not aligned with the company’s vision and long-term management strategies if there were any. Low employee morale and productivity combined with corrupted business model severely affected the occupancy rate and profitability of the guest house. Secondly, the internal and external competitiveness are both off the balance and unfair. Senior management would abuse their authorities to hire their relatives and formed clique, which promoted unhealthy anti trust organizational culture. External competitiveness was irrelevant to the old SOE employees as the pay was subsided by the government. However this would become very relevant under privatization. Thirdly, the corruption of Guanxi not only affected the internal human resource management but also posed a greater challenge for privatization. A few senior managers are well connected to the local authority. Removing these managers from the house would potentially cause a greater threat to the future development and affect Guanxi with important parties there will be key to the brothers’ business. Guanxi is rooted in the Chinese history for thousands of years. It is part of the culture heritage. It can be an advantage for the brothers to leverage but could also be a big road blocker. How to deal with these “king of Guanxi” employees would require the brothers leverage their own Guanxi and develop their own Guanxi web quickly. Lastly, the old SOE was lack of all the HRM essentials. Since it is state owned, taking customers surplus, i.e. profit making is not their top priority. At very high level, there is no corporate...
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