!

" #
902A28

WORLDWIDE EQUIPMENT (CHINA) LTD.:

A SALES PERFORMANCE DILEMMA

Alan Yang prepared this case under the supervision of Professor June Cotte solely to provide material for class
discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial
situation. The authors may have disguised certain names and other identifying information to protect
confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written
permission. This material is not covered under authorization from CanCopy or any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey
Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London,
Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected].

Copyright © 2002, Ivey Management Services Version: (A) 2003-02-25

It was a hot Monday morning in July 2001. Frank Wang, regional sales manager of
the Beijing office of Worldwide Equipment (China) Ltd., received a fax from his
boss Edward Yu, the country marketing manager. The fax was about the sales
performance of the three sales offices in China for the first half of the year. Wang
found that the sales revenue of the Beijing office ranked lowest among the three
(see Exhibit 1).

Wang was not surprised at these results. Since the beginning of the year, when he
had hired sales engineer Li Weimin, the morale of the sales force in the Beijing
office had been trending down. Wang suspected Weimin was largely accountable
for the poor sales performance of the Beijing office but could not make up his
mind about what to do because Weimin had been recommended by Edward Yu,
Wang’s direct boss. Firing Weimin could potentially cause Yu to “lose face.”1

Yu’s fax reminded Wang that Weimin’s probation would expire in about two
weeks — a good time to let him go. But Wang wondered about the wisdom of the
bold decision to fire Weimin, especially if there were more serious sales
management problems than Weimin’s performance. Wang was also very

1
“To give someone a face” is a Chinese metaphor with the annotation of “making someone feel
respected and important.” As a contrast, “not to give someone a face” or “cause someone to lose face”
means to put someone in a disgraceful or awkward situation or even cause offence by not giving
someone the respect that they deserve.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 2 9B02A028

concerned about offending Yu. He further worried that if he made the wrong
decision, the morale of the Beijing office might continue to decay, performance
might suffer and consequently nobody in the office, including Wang, would be
likely to receive a bonus by the end of the year. Wang needed to decide what to do
to improve the sales performance of the Beijing office, considering the impact
Weimin had on sales results and team morale, but also considering his own
relationship with Yu.

WORLDWIDE EQUIPMENT INC.

History

Worldwide Equipment Inc. was a U.K.-based multinational in the heating,

ventilation and air conditioning (HVAC) industry. The company was originally
established as a small workshop making various kinds of agriculture-related
machineries such as water mills. At the turn of the century, the company began to
manufacture the components of the heating appliances supplied to many European
nations. The experiences gained in this process served as a cornerstone for
Worldwide Equipment to become one of the most innovative companies in the
HVAC field in the world. By 2000, the company had emerged as one of the largest
manufacturers of various types of chillers and refrigerators, with over US$2.5
billion in revenue and 13,000 staff in 80 countries.

Product and Market

The company had three major product lines: residential air conditioning systems
(RAC), light commercial refrigeration systems (LCR), and industrial chiller and
refrigerator systems (ICR). The RAC division specialized in making various types
of household air conditioning units. RAC’s traditional market was in Europe, the
Middle East and Africa. Despite of the effort made to penetrate more deeply into
the U.S. and Asian markets, the growth rate of market share in these markets still
remained below the overall corporate average.

The major products of the LCR division were centralized air conditioning and
refrigeration systems for various light commercial applications. LCR also made
different sizes of heat pumps, boilers, furnaces and air heating systems. The final
customers of these products were offices, shopping malls, hospitals, workshops,
restaurants, etc. The primary customers were usually distributors of other HVAC
products, contractors, engineering companies and other original equipment
manufacturers. The LCR division had been quite aggressive in the Asia-Pacific
market in the past 10 years, and it had established a very positive product image
for Worldwide Equipment.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 3 9B02A028

The ICR division made large scale chillers and air conditioning systems for
industrial applications as well as for vessels and land transportation. The customers
of chillers were manufacturers in a variety of industries, including pharmaceutical,
textile, electronics and petrochemicals. The ICR division was most active in the
international market, especially in the emerging market of the Pacific Rim nations.

For all three product lines, the company positioned itself at the high-priced end of
the market, selling a high price equals high quality message. In 1999, the ICR
division had, for the first time in the company’s history, became the No. 1 revenue
generator, outperforming the RAC division.

Organizational Structure

Worldwide Equipment had a typical divisional system: three senior vice-presidents

(SVP) at the corporate level were in charge of the three divisions. Each SVP was
supported by several area managing directors (AMD) — the chief officers in
various areas of the world — and these AMDs were also organized by product
lines. Each AMD had responsibility for profit and loss of their designated area,
which usually comprised a cluster of countries. Under each AMD were a number
of country marketing managers (CMMs) whose primary responsibility was to
create the annual sales budget of a country and make sure the budget was met
through various marketing and sales activities. Reporting to each CMM were a
number of regional sales managers (RSMs) who resided in sales offices in
different locations within a country.

RSMs usually managed both sales engineers and senior sales engineers as well as
the technical support staff. Usually there were three RSMs in each sales office —
one for each product line. The number of sales engineers and senior sales
engineers varied from office to office, depending on the business in the region.

WORLDWIDE EQUIPMENT (CHINA) LTD.

Organizational Structure

Worldwide Equipment (China) Ltd. was part of the Asia-Pacific area office located
in Hong Kong. Established in 1981, the company had experienced enormous
growth in the past 20 years in all three product lines; the revenue had grown from
less than US$6 million to nearly US$70 million. Presently, there were three sales
offices in mainland China: Beijing, Shanghai and Guangzhou.

The organization had a line management structure: three country marketing

managers were positioned in Hong Kong and were in charge of the businesses for
the three divisions in mainland China. In each sales office, there were three RSMs,
each in charge of a number of sales engineers and senior sales engineers in his own

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 4 9B02A028

product division. The office administration staff such as the receptionist, book-
keeper and secretary were shared by all divisions (see Exhibit 2).

ICR DIVISION — ASIA PACIFIC

The AMD for the ICR division in the Asia-Pacific area was James Emberse.
Emberse was in his early 40s and had been working for Worldwide Equipment
(Switzerland) for over 10 years. Worldwide Equipment was looking to the Asia-
Pacific area to increase both revenue and market share; the view was that this area
held great potential. In fact, ICR sales revenue had surged from $2 million to $47
million between 1981 and 2000 and was projected to grow at a rate of over 20 per
cent per annum for the next few years.

Directly reporting to Emberse in China was Edward Yu, the country marketing
manager for China in the Industrial Chiller and Refrigerator Division. Yu was
stationed in Hong Kong and was supported by three regional sales managers in
mainland China, including Frank Wang in the Beijing office. Each office (Beijing,
Shanghai and Guangzhou) covered a certain territory in China that included a
number of provinces.

Almost all the products that the ICR division sold in China were chillers which
were widely needed in the micro-electronic, oil refinery, pharmaceutical and food
and beverage industries. Prior to 1995, China had been relying on imports to
satisfy the needs of this market. Thanks to the continuous economic boom and
industrial restructuring in China, the demand for high-quality chillers continued to
be strong, and the opportunities in this emerging market had attracted many
international chiller makers to compete in China. However, starting in 1996, many
Chinese private enterprises began to manufacture similar products. These local
manufacturers focused primarily on the smaller customers at the low end of market
and were not strong enough to challenge the positions of the large international
players — although their product prices were sometimes only 60 per cent of the
import products with identical output capacity. During this time, some joint
ventures (JVs) between local Chinese companies and foreign investors, many of
whom were the established international brands of chillers, were also established.
Taking advantage of the low labor cost and favorable tax policy, the chillers made
by these JVs were sold at the prices roughly 20 per cent to 30 per cent cheaper than
the average of the imported products. Their market share had increased sharply in
the past three years.

Worldwide Equipment enjoyed a premium brand image in China and priced its
chiller at the high end of the market. The contract prices for Worldwide
Equipment’s chillers was, on average, 10 per cent higher than those of its major
international competitors, at least 30 per cent higher than those offered by the joint
ventures and 40 per cent to 50 per cent higher than the local manufacturers.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 5 9B02A028

Wang attributed Worldwide Equipment’s premium brand image in the Chinese

market to the following facts. First, it benefited from its global product image as a
premium brand. Second, Worldwide chillers were regarded as the most energy-
efficient products among its major competitors, both internationally and locally.
Finally, the company had entered China much earlier than its competitors, and it
had a relatively larger customer base; many of these customers were among the
most influential enterprises in China.

THE EMERGING TEXTILE MARKET

Starting in 1999, the textile industry had become an important emerging market
with great potential for chillers, thanks to the central government’s initiative to
capitalize on upgrading the textile industry. Some favorable policies in tax and
foreign currency were made to give textile mills, over 2,000 in total, incentive to
modernize their production. Wang estimated that at least one-third of these 2,000
were planning to update their obsolete production equipment and conditions to
improve the quality of their products. Many had already chosen air jet looms to
replace the old type of shuttle looms for better quality products and more efficient
production. Chillers were needed to provide good air conditioning for an optimized
production environment to ensure consistent product quality. The average size of
an order for chillers in a textile mill was around US$200,000 to US$300,000,
smaller than the single contract value in other industries such as micro electronics.
Nevertheless, considering the great potential, Yu still described the textile industry
of China as the “next propeller of our development,” and he asked the RSMs to
pay more attention to the textile industry. Yu also reminded RSMs in the three
offices that the growth rate in other industrial applications, particularly in
electronics, had started showing signs of slowing down; he hoped to give them
more incentive for their initiatives in the textile industry.

But due to the low-value nature of textile products and severe competition, the
textile industry of China was by no means a rich industry. Chiller customers in this
industry tended to be quite sensitive to the price of chillers. Managers at many
textile mills would rather spend money on production-related equipment such as
jet looms, spinners and after-treatment equipment than on peripheral equipment
like power and control systems, chillers, water treatment systems, etc. These
systems were regarded as cost centres only and their quality did not matter that
much. Driven by this mentality, most textile mills were primarily not interested in
the imported chillers. The most popular chillers in the textile mills were those
made by the joint ventures because they were regarded as the best value.

Facing this situation, Worldwide Equipment’s argument was that their chillers had
a very low operating cost resulting from energy saving designs and much lower
maintenance requirements compared with its competitors’ products. The benefit
from energy savings could be quite substantial, and the customers would end up

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 6 9B02A028

with a much better return on their investment in high-performance chillers.

Another argument of Worldwide Equipment was that the stable operation of the
chillers was critical to the textile product quality because even a very short down
time would compromise the quality of the whole batch of products that were under
way while the down time occurred. However, most customers to date still found a
30 per cent higher one-time upfront investment unacceptable, and most of them
still chose to buy the joint-venture products. Yet, as more textile mills began to
upgrade their production facilities, the total number as well as the share of the
imported chillers began to increase as well. Good quality and energy-efficiency
were the major drivers for buying the import chillers.

THE ICR DIVISION SALES FORCE IN THE BEIJING OFFICE

There were 35 employees in the Beijing sales office, including all three divisions
and the supporting staff. Nine employees belonged to the ICR division headed by
Wang, the regional sales manager.

Wang joined Worldwide Equipment in 1995 and was the first sales engineer to
work for the ICR division in the Beijing office. Yu promoted Wang to senior sales
engineer after 18 months, and he became regional sales manager (RSM) in another
16 months.

Wang became the first Chinese national to be promoted to this managerial

position. Previously, these positions were exclusively occupied either by
expatriates or by people from Hong Kong. Wang was also the youngest one in the
organization to assume RSM responsibility. He attributed this rapid promotion to
Yu, who Wang believed appreciated his strong motivation to override the
competitors and his ability to beat the sales budget. Wang was aware that many
people thought Yu had probably given Wang more than he actually deserved and
that Yu was favoring Wang. “I wanted to prove to everyone that I did deserve the
job,” Wang commented.

Wang’s major responsibilities included:

1. creating the region’s sales forecast and budget and fulfiling that budget;
2. sales engineer recruiting, training and organizational development;
3. sales performance evaluation and coaching;
4. daily sales/sales leads management and job assignment; and
5. contract negotiation and management of contract execution.

According to Wang, the most important and challenging part of his job was
contract negotiation:

Negotiating the contract is the most critical part. In fact, once you
are invited to negotiate, it means you are in the final choice set.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 7 9B02A028

You have at least 50 per cent odds. Negotiation skills, spontaneity

and experience really matter. For all the contracts with a value of
over $300,000, I must try my best to make myself available. We
couldn’t afford losing such material contracts.

But these days, more customers are adopting public bidding for
doing the purchasing, especially in the textile industry. The key
decision-making process was pushed to the “upper stream” of a
deal — preparing bidding documents, making sensitive quotes and
networking, and all of a sudden, you found that the negotiation
skills that we used to emphasize so much had become less
important. The rules of the game have changed: we are competing
on who has more connections, who creates more professional
bidding documents and who makes the best quotes. But
unfortunately, in the Beijing office we had not been trained on
tendering projects and customer rapport building. In fact, in most
cases, the sales engineers had to rely on their experience, which is
virtually zero in this respect, and even their gut feelings to deal with
the prices to set in a quotation.

SALES MANAGEMENT

The Roles of Sales Engineers and Senior Sales Engineers

Sales engineers’ responsibilities included generating sales leads, preparing sales

and technical documents, doing sales presentations and determining customer
technical and commercial needs. Some more experienced sales engineers also
made quotations, under the guidance of the senior sales engineers or, in some
cases, the RSMs. Usually the prices quoted to customers were standard prices from
the company’s database. In the cases of tendering projects, which were becoming
more and more popular, especially in the textile industry, the process for making
bidding documents and quotations was usually more complicated and lower prices
were quoted. Senior sales engineers assumed similar responsibilities as sales
engineers, but they were more committed to relatively larger projects. Besides,
they also had more involvement in the final nail-down stage of deals: negotiating
contracts. Therefore, they had to be very familiar with contract terms and
conditions and know how to integrate them to give the company the best
protection, both in commercial and in legal aspects.

In commercial negotiations, senior engineers had the power to give a discount of

up to 15 per cent against the standard quotations. The discount beyond that had to
be approved by the RSM whose ceiling discount-giving power was 25 per cent.
But even 25 per cent was not the bottom line. In the case of strategic projects or

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 8 9B02A028

key accounts, the RSM could bargain with the country marketing manager (CMM)
to ask for another five per cent to 10 per cent discount.

Recruiting

The criteria for recruiting sales engineers included educational background, where
a university degree, preferably majoring in engineering, was required. Other non-
core criteria included relevant working experience, willingness to travel frequently
within the region, a strong motivation to beat the competition, and strong people
and communication skills. These criteria had been in place for years, and people
like Wang used them in the hiring process. No one had questioned the viability of
these criteria under a changing environment.

Recruiting usually followed a very standardized procedure. First, the budget was
created at the end of the previous fiscal year, including the number of new sales
engineers to be hired. Then ads were placed in major newspapers such as the
Beijing Daily. Usually, about 100 respondents would apply for one position. The
resumes were collected and prescreened by the secretary who reduced them to half
the number of applicants. The remainders were screened by Wang himself to a
shortlist of roughly 20 candidates. Then Wang would conduct the interviews with
each individual candidate to determine the fit between the applicant and the job in
terms of personality, experience and education. He selected about five candidates
for a final interview. The final interview was conducted in a conversational style,
and Wang made his judgment primarily on this final impression.

Wang argued that his company was very selective in recruiting but justified this by
commenting:

The job market is getting tougher. The government reforms, with

targets to raise the efficiency of state-owned enterprises (SOEs),
have slashed a lot of jobs. However, multinationals always pay
much better than the SOEs, there is a very large salary gap. Say we
are willing to pay someone RMB5,0002 to be a sales engineer; an
SOE could barely pay up to a thousand, let alone the fringe benefits
such as travelling allowances and an annual bonus. Worldwide
Equipment is as good as any of our competitors in terms of
benefits.

Once a sales engineer was recruited, a probation period of six months was applied.
The company was free from any legal responsibility if it decided not to enter into a
formal contract with an employee before that time was over. Only in very rare
cases would an employee receive a probation period of less than six months. There
was usually a 20 per cent premium over the probationary salary once the formal
2
Exchange rate: US$1 equals RMB8.3 (Chinese local currency).

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 9 9B02A028

contract was signed. So far, everyone in Wang’s sales office who had completed
the probation had got their formal contracts.

Compensation

The entry level position was that of a sales engineer. The sales engineer was paid a
straight salary plus an annual bonus. (Bonus calculations are based on sales office
performance, as explained below.) Every year, one sales engineer from each sales
office could be promoted to senior sales engineer, but the company allowed the
sales office with the best sales performance to enjoy one extra “quota for
promotion.” The criteria for position advancement in order of importance are:

1. seniority
2. sales performance
3. sales leads generated
4. team spirit

Wang admitted that while the first three criteria could be easily quantified, team
spirit was something hardly measurable.

Sales engineers all earned more or less the same salary with a 10 per cent
adjustment made for educational background and work experience. After
promotion, a senior sales engineer could expect a 30 per cent to 40 per cent
increase in salary. Besides salary, the sales staff could also expect to receive a
performance-based sales bonus by the beginning of the next year. The amount of
the bonus varied significantly among offices and individuals.

Performance Measurement and Incentive: The Bonus System

Worldwide Equipment had an indexed dual system for measuring the performance
of each sales office: absolute measurement and relative measurement.

Absolute Index

The absolute index measured the absolute sales revenue of each sales office. In
practice, it referred to the percentage of the sales budget fulfilled. In the beginning
of a year, usually in January, the statistics for the actual sales revenue (in U.S.
dollars) in the past year for all sales offices would be announced by the country
marketing manager. The actual performance (invoiced sales revenue) was
measured against the budget and the resulting proportion (actual/budget) served as
a factor of the bonus base. For example, if the actual sales revenue of a sales office
was US$11 million and the budget was US$10 million, then the office was 110 per

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 10 9B02A028

cent (110 ! 100 " 100 per cent) over the budget. This factor of 1.1 would serve as
the factor of bonus base for the year: the average bonus of the staff in a sales office
would, in this case, be 1.1 times their monthly salary. If a sales engineer had a
monthly pay of RMB5,000, then the year end bonus base would be RMB5,500
(5,000 " 1.1).3

Relative Index

The relative index was related to the ranking of the sales performance of the three
sales offices in China. The staff in the office with the top sales performance would
get a bonus equivalent to three times of the bonus base; the office in second place
got two times the bonus base, and the last place office got one (under the condition
the budget was fulfilled). Suppose the Beijing office was in the second place in
the ranking; for a sales engineer in the Beijing office with a monthly salary of
RMB5,000 and a bonus base of RMB5,500 (bonus base factor 1.1), that person
would get a bonus equivalent to two times the bonus base: RMB11,000. The staff
in the last-place office would still get an annual bonus equivalent to one month of
bonus base, under the condition that the office should at least meet the year’s
budget. (If the bonus base for a staff was RMB5,500, then the actual bonus, due to
the relative index of one, would be RMB5,500.) Otherwise, there would not be any
bonus for the staff in that office.

The bonus structure for the regional sales manager was slightly different: RSMs
could expect to get a bonus equivalent to five times, three times and one base of
bonus for the different positions that their sales office achieved in the rank (see
Exhibit 3).

Wang agreed that the system was well designed and sophisticated, but he still
didn’t believe it was good enough. For one thing, he believed there must be
significant differences in the net contribution of each sales office. However, the net
contribution, or margin, was not a criteria in the measurement:

I think the Beijing office must be much higher in contribution for

two reasons. In the first place, I seldom went to Yu to tell him a
story in order to fish for a special discount for a so-called strategic
or key customer because I don’t think price competition is the right
approach for a premium product like ours. Instead, the guys in the
Beijing office worked harder and provided customers with more
technical options and showed them the detailed pros and cons of
each option. This process of convincing the customers is lengthy
and painful but usually paid off. The final contract prices were also
quite satisfactory. Last year, I asked for only one special discount

3
The average bonus base factor for the Beijing office in the past years was 1.32.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 11 9B02A028

of an additional three per cent from Yu. But, as far as I know, the
RSMs in the other offices asked for a special discount at least five
times each, not to mention those secret deals that I don’t know
about. Yu tried to block the release of such information and
communications about any special discount because he was afraid
that “sooner or later, every project will become a strategic project.”
Although Yu sometimes joked that he had “no more candy in his
pocket,” he still, more often than not, approved a special discount
when asked. But he was not happy with this practice and once
asked the other RSMs to “learn from the Beijing office” and “stop
being a crying baby.”4

Besides, the expenses in the Beijing office are much lower.

Everyone in the Beijing office has a strong sense of saving as
requested by Yu and enforced by me. During corporate training
sessions and meetings, the sales people from different offices
gathered together and treated each other and then billed these
dinners to the company. The sales engineers from the Beijing office
were always laughed at as timid and cheap because they tended to
order fewer and cheaper dishes relative to those from Shanghai and
Guangzhou. Liu Hongyuan, a sales engineer from Beijing office,
once joked with me, “Frank, don’t be so cruel with us, learn from
Peter Ding. He is a great guy and flexible. It’s not your money
anyway.” The travelling cost and accommodation in North China,
where the Beijing office was located, was also much cheaper.

So we have better prices and low expenditures, but where is the

benefit associated with that? I have no idea about the margin
because the transfer price sort of thing is none of my business. But
my point is that if we could make more money and save more for
the company, we deserve at least part of that, right? But currently,
no, absolutely nothing. It’s unfair.

Sales Force Deployment

Wang had hired nine sales engineers in the past three years. One of them had been
promoted to senior sales engineer. Two current candidates for promotion, Jiang
Lei and Liu Hongyuan, had been with Wang for two years, and they both had
impressive performances in terms of sales revenue.

Each sales engineer was assigned to a certain territory, usually a province, and was
in charge of serving customers based on the leads they got. For some provinces or

4
From Chinese proverb of “crying babies always get more milk than the silent ones” with the assumption
that the other RSMs were taking advantage of the policies and procedures to make their own life easier.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 12 9B02A028

areas with an exceptionally large base of accounts, such as Beijing or Tianjin,

more sales people were deployed. To avoid conflict, the sales engineers assigned
to the same territory would focus on different industries, based on their expertise
and experience.

Sales leads came from four sources: repeat orders, referrals, promotion-generated
leads and network-based leads. Repeat orders came from existing customers who
either wished to expand production capacity or were looking for replacement
equipment. These leads usually went to the sales engineer who concluded the
original deal. The referrals largely came from potential accounts referred to
Worldwide Equipment by an existing customer. Wang usually assigned these leads
to a sales engineer, based on the geographic location of the account. But
sometimes, considering the subtle relationship between the referring company and
the sales engineer who concluded the original deal, Wang might also let the “old
guy do the new business” with the new account. Leads generated from trade shows
and seminars the company held were usually treated with a shotgun approach and
were often assigned to the sales engineers strictly on a location basis. The most
effective and reliable information came from the social network. These leads
were direct and manageable due to the connections or associations with the
individuals in the leads. By the same token, the leads acquired through networking
were also more likely to lead to a final contract.

Senior sales engineers were assigned to the territory in the same way as the sales
engineers. But in the case of key accounts, Wang usually assigned a senior sales
engineer to help sales engineers.

LI WEIMIN

The Initial Hiring Decision

At the end of 2000, Yu recommended Weimin to Wang, saying:

Frank, I have noticed there are more and more projects in the textile
industry in North China. We need someone to work on these
emerging textile accounts. But up to now, none of our staff in the
Beijing office has a background in the textile industry. Our network
in the textile industry is almost invisible. I have a good candidate
here. He has years of experience with the textile industry and a lot
of connections. Give him an interview.

Wang had never recruited a sales engineer through a recommendation, but he still
gave Weimin an interview because first, he must give Yu face, and second, he
wanted to have someone with good knowledge and connections with the textile
industry. The result was very disappointing: Weimin was silent and introverted. He

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 13 9B02A028

seemed to have little ability to engage with people at all. Wang decided that
Weimin would be better suited to research than to sales. He decided not to hire
Weimin. However, Yu, from his office in Hong Kong, after listening to Wang’s
report over the phone, said:

Wang, the first impression is not always correct. Of course it’s up

to you to decide whether to hire Weimin or not, but I think we
should at least give him a chance. By the way, his uncle is the
director of the engineering department in Jinchuan Fiber. It’s a
large project and we could not afford losing it. We need his uncle’s
help.

Wang knew Jinchuan Fiber was one of the largest potential accounts of the
Guangzhou office. The sales team in Guangzhou had been chasing this project for
over two years. The regional sales manager in the Guangzhou office believed the
order for 10 sets of chillers, amounting to a contract value of US$3.5 million,
would be placed in the second half of 2001. Finally, Wang reluctantly offered
Weimin a position of sales engineer with a focused responsibility on the emerging
textile industry-related projects.

The Handan Projects

After four weeks of training in Shanghai, Weimin went back to the Beijing office,
looking excited and more confident. By that time, Liu Hongyuan, the sales rep in
charge of Hebei province, was preparing a bidding document for a tendering
project: five sets of chillers for Handan #4 Textile Factory. Hongyuan was inspired
by the project because he heard from a director of the factory that they had a big
budget this time and they planned to buy the best equipment to make their
workshop an “all-star team.” Hongyuan was sure he would get this order because
he had been following this project for a long time and had worked hard to get to
know the people who would use the equipment, as well as other buying influencers
in the factory. According to Hongyuan, most of the technical specifications in the
invitation-to-bid documents were based primarily on Worldwide Equipment
standards, and competitors would have to quote one size larger in order to ensure
an adequate output.

The only thing that Hongyuan was not sure of was the price he should quote. He
simply didn’t have any experience creating quotations without a negotiation.
Usually, Worldwide Equipment enjoyed a 10 per cent to 15 per cent premium
against the major international competitors for identical models in normal deals.
But because Worldwide Equipment had no experience in tendering in this industry,
neither Wang nor anybody else in the company had any idea of how to quote on
this specific project. Hongyuan argued that five to 10 per cent more discount than
normal should be given, considering the size of the order and this company’s

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 14 9B02A028

potential as a reference in the area. In addition, Handan #11 Textile Factory was
preparing another tendering project that included two units of medium-size chillers
in the next two months. The choice the customer made in the #4 Factory in the
same city would absolutely influence their decision for the #11 Factory. Wang
tended to support a lower quote price because of the win-or-lose nature of the
bidding process.

At this point, Weimin brought good news to Wang and Hongyuan: one of his
classmates at the university was now a chief in the Bureau of Textile Industry of
Handan and was also a member of the bidding evaluation committee. According to
Weimin, the classmate promised Weimin to help Worldwide Equipment become
the final winner and even said that “Worldwide Equipment is almost sure to get
this order.” Weimin therefore persuaded Wang and Hongyuan to quote a normal
price rather than giving more discount. When Wang questioned the reliability of
the promise, Weimin looked insulted and said, “Frank, you are free to fire me if we
lose this order.” Wang took Weimin’s suggestions seriously and agreed to quote
US$219,500 for each unit.

In three weeks, the result was known: Opticool, a U.S. chiller manufacturer and
the major competitor of Worldwide Equipment, won the bid with its unit price of
US$193,200. Astounded at the result, Weimin picked up the phone and called his
friend to ask for an explanation. Wang didn’t know what Weimin’s friend said, but
listened as Weimin lost control and verbally attacked his friend. Everyone in the
office was shocked.

Two months later, Worldwide Equipment also lost the order in the #11 Factory,
even though the price quoted was a record low — roughly the same as that of
Opticool. Hongyuan knew from his connections that because Weimin had hurt his
classmate so deeply in the #4 Factory deal, that the man was now determined to
doom Worldwide Equipment.

Morale Issue

The failure of the two projects in Handan greatly influenced the morale of the sales
team. Coupled with a sense of frustration was a discussion about the fairness of
hiring Weimin. His background and his mysterious connection with Yu were all
topics of daily discussions among the sales engineers. They felt resentful and
wondered why the Beijing office had to keep Weimin to benefit the Guangzhou
office. What did Weimin do to contribute to the budget fulfilment of the Beijing
office?

Although Wang didn’t fully agree with these complaints, he did think that
Weimin’s performance was not up to par. Usually, a new sales engineer was not
expected to have any substantial deliveries of contracts in the first three months.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 15 9B02A028

The primary thing to do was to generate sales leads and learn how to knock on
doors and speak professionally. Usually an average new hire was able to generate
three to four leads per five-day trip, and roughly one of them was a valid lead for
every two trips made, a lead that could be concluded as a contract in less than half
a year. A good engineer was able to generate five or six leads per trip. Sales
engineers in the Beijing office travelled about 10 days per month on average.
Weimin travelled even more, but the results were disappointing: he had gathered
only 17 leads in the past six months and none of them had resulted in a new
contract (Exhibit 4). Worldwide Equipment hadn’t received any invitations for
second-round discussions from the leads that Weimin generated, let alone getting
to the commercial and technical negotiation of the final round. Recounting the
reasons for Weimin’s poor performance, Wang said:

To some extent, Weimin is innocent. He doesn’t have the sense of

urgency. You know, in the state-owned companies, the guys with
less than five-year experience are still green horns. People are
talking about the time in units of years or decades. But here it is
different; this is an international company and we cannot afford this
long time orientation. As Yu always reminds us, we are not a
charity or a philanthropic organization and we cannot afford to be
making no money. Weimin probably thought he had a lot of time to
learn the ropes, but the reality is “no way.” Besides, Weimin
probably relied on Yu’s backup as political support. So I think he
was not feeling worried. I should have reminded him of the danger
of being a non-performer, but I refrained from doing so because he
was introduced by Yu.

Our training program can teach you the technical stuff, and it can
also teach you how to conduct a negotiation properly. But it doesn’t
teach you how to dress. Suppose you wore a suit and a pair of
sports shoes to give a technical presentation to the vice-president of
a joint venture (which Weimin actually did), what would they
think? Don’t forget we are selling a premium product. Our chillers
are the most expensive of all the competitors. Furthermore, Weimin
has no style. He is simply plain vanilla, a kind of boring guy.

Liu Hongyuan and Jiang Lei seemed particularly angry because they were the two
sales engineers with the greatest likelihood to be promoted to senior sales engineer.
The direct result was that sales engineers became less willing to travel and were
less committed to their projects. They complained that “working hard is not as
useful as having a good uncle”5 and “there is no hope for the bonus already; why
should we bother to work harder?” Some even questioned “why should we bear
this non-performer to benefit Guangzhou, our rival for the relative bonus?” In fact,

5
Referring to Yu’s influence in Weimin’s hiring.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 16 9B02A028

the Guangzhou office had historically been behind the Beijing office in sales
revenue.

WEIMIN’S EFFORTS

Weimin was not indifferent to the unfriendliness of his colleagues. He made more
trips, networked with more people and asked Wang to involve him more in the
technical presentations and commercial discussions. Wang was pleased to see
Weimin’s initiative to improve himself but was still reluctant to give him
individual coaching from time to time:

Sometimes, I find myself in a dilemma. I always ask myself,

“What’s the benefit for me?” I may as well use the time more
efficiently for more value-added projects. Yes, I’m supposed to
develop the organization, but what resources do I have? Do I have a
budget for training? No. Do I get an extra bonus for developing
people? No. How could upper management know whether the
people are developed or not? What are the measurements?
Nothing. The logic is simple — if you do more sales, you must be
well trained. Otherwise, you must have a lack of training. This is a
pragmatic world, isn’t it? Besides, the job market is now a buyer’s
market; it’s not easy to find a three-legged turtle, but it’s so easy to
find a qualified two-legged sales engineer. Why should I bother to
waste my time? I think I’m already good enough to my staff in
terms of teaching and coaching them. At least I still teach them
how to conduct sales talks, how to manage sales leads and pipelines
and how to do presentations. Look at the RSMs in the Shanghai and
Guangzhou offices. They teach their staff almost nothing. It’s well
known that “the best way for a master to survive and thrive is not to
teach anything to their apprentices.” So their advice to their staff is
always “touch the stone at the bottom of the river to cross the
river.”6 The interpretation is “learn by yourself.”

However Wang did agree that Weimin’s performance had begun to pick up a bit.
Although none of his leads had materialized, some of them did have substantial
potential. He agreed that Weimin seemed to be on the right track. Wang also
noticed that Weimin knew a lot of people in the textile industry, but he seemed to
be uncomfortable translating these contacts to potential business. As Weimin put
it, “Friends are friends; business is business.” Wang described Weimin’s outlook
as a typical planned economy mentality.

6
Deng Xiaoping’s motto meaning that one should learn to solve problems by oneself rather than always
relying on the experience of others.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 17 9B02A028

Wang also agreed that the cycle time for a lead to become a real contract tended to
be longer in the past few years. It was three and half months five years ago, five
months two years ago and six months now. It could be even longer than six
months when it came to a new application or industry such as the textile industry.

DECISIONS

As he looked over the mid-year budget fulfilment report, Wang recognized the
seriousness of the issue: he had to try very hard to avoid last place in sales
performance by the end of the year. The office morale was obviously not positive,
and he had to do something to turn the situation around. Wang suspected there
were problems with the sales management process and wondered what he could do
to improve the Beijing office’s performance. Wang also believed he needed to
think about the Weimin situation. He wondered if there was a serious problem
here, what to do if so, and how to keep this type of situation from recurring. One
option could be firing Weimin, but how would Yu react? What if Yu refused to
fire Weimin? Wang also remembered that some people attributed his own career
success to his good relationship with Yu. What would happen to Wang’s career if
Yu became upset with him?

Since Wang had no experience with firing people, he didn’t even know what
process to follow in deciding whether to keep Weimin or not. Wang was also
curious to know whether Weimin’s poor performance was the reason for the low
morale, or was it due to the frustration the sales team had encountered in the face
of an emerging but unfamiliar market?

There was less than two weeks before Weimin’s probationary period ended. Wang
knew the decisions he was going to make could be the most important ones he had
had to make since he started working for Worldwide Equipment. He needed to
improve the Beijing office’s performance, and he needed to do this quickly.

The Richard Ivey School of Business gratefully acknowledges the generous support
of The Richard and Jean Ivey Fund in the development of this case as part of the
RICHARD AND JEAN IVEY FUND ASIAN CASE SERIES.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 18 9B02A028

Exhibit 1

SALES RESULT AND ANNUAL BUDGET OF THREE OFFICES

For January to June 2001

Revenue Annual Budget

Office
(US$ in millions) (US$ in millions)
Beijing 7.19 18.32
Shanghai 9.28 20.92
Guangzhou 8.02 16.55

Source Company files.

Exhibit 2

ORGANIZATIONAL CHART
WORLDWIDE EQUIPMENT (ASIA PACIFIC) — ICR DIVISION

James Elberse
Area Managing Director

Edward Yu CMM CMM

(CMM China) (Thailand) (Korea)

Frank Wang RSM RSM

(RSM Beijing) (Shanghai) (Guangzhou)

2 Senior Sales Engineers

7 Sales Engineers

Source: Company files.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.

Page 19 9B02A028

Exhibit 3

HISTORICAL SALES RECORD FOR THREE CHINA SALES OFFICES

(US$ IN MILLIONS)

Office/Year 2000 1999 1998 1997 1996 1995

Beijing 15.10 12.87 9.29 6.73 2.82 N/A
Shanghai 16.95 14.21 12.12 9.04 6.71 2.76
Guangzhou 13.41 9.90 6.15 3.21 N/A N/A
Source: Company files.

Exhibit 4

PERFORMANCE OF SALES ENGINEERS IN THE BEIJING OFFICE

(January to June 2001)

Sales
Travelling # of Revenue
Name Position Leads
Days Contracts (US$000s)
Generated
Shen Cong Senior Sales Engineer 51 51 6 1,820
Huang Dahui Senior Sales Engineer 50 42 5 1,229
Liu Hongyuan Sales Engineer 58 41 6 1,085
Jiang Lei Sales Engineer 53 35 5 955
Shi Minsheng Sales Engineer 53 36 4 686
Zhao Tiehan Sales Engineer 48 32 3 605
Zhong Ling Sales Engineer 51 31 4 545
Fu Xiaolong Sales Engineer 49 27 2 266
Li Weimin Sales Engineer 57 17 0 0
Total 470 312 35 7,191
Source: Company files.

Copying or posting is an infringement of copyright. [email protected] or 617-783-7860.