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Beifang Chuang Ye Vehicle Group
Author(s):
Lin , Thomas W.
Merchant, Kenneth A.
Van der Stede, Wim A.
Functional Area(s):
   General Management
   Management Control Systems
   Organizational Behavior
Setting(s):
   Developing Country
   For Profit
Difficulty Level: Beginner
Pages: 3
Teaching Note: Available. 
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First Page and the Assignment Questions:
On January 1, 1999, the municipal government of Beijing (People's Republic of China) mandated a new vehicle emission control standard. The new law, in essence, required all passenger vehicles sold within the Beijing city limits to be equipped with a fuel injection system, rather than an older carburetor system.1

This new law did not come as a surprise to the managers of Beifang Chuang Ye Vehicle Group, a large group of companies that included four automobile dealership locations in Beijing. They had become aware of the impending new law about a year earlier. However, like most other Beijing dealers and the manufacturers who supplied the vehicles, they did not believe that the Beijing government would actually enforce the new law. But it did! The government would not register any vehicles that did not meet the new, tighter emission standards. As a consequence, in early 1999 the Beifang dealers had no cars meeting the legal requirements to sell. In January 1999, their new car sales fell to zero.

Now, in early February 1999, Ming Zhou (vice director and general manager), had to decide, among other things, whether he should compensate his dealership managers and sales personnel as if this unfortunate external circumstance had not happened or whether they should be made to share the company's losses, and if so to what extent.

THE COMPANY

Beifang Chuang Ye Vehicle Group (Beifang) was a holding company comprised of 14 companies, most of which operated in segments of the transportation market in Northern China. Among the Beifang companies were three taxi companies (operating 3,600 vehicles), a car rental company, an automobile association (with 160,000 members in Northern China), an advertising company, a vehicle importer, three automobile dealerships, and an automobile repair company.

Beifang was formerly 100% owned by the Chinese central government, but the company was privatized. By the year 2000, the government owned only 10%. The other 90% was owned by private investors, the most prominent of which were members of Ming Zhou's family.

Assignment

To what extent should Mr. Zhou compensate his employees, even though his company is losing money? Why? What factors did you take into consideration in making your judgment?