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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[\
> ]{.underline}**

[Background]{.underline}

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 1990's. 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, Suh Doochil, was appointed.[^1]

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 HEG's 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.

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 order to explain the current status of
the company.[^2] Because there were 3 shifts of 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 "Open Communications Room"[^3] 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 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 **3**0 million units, front glass yield rate of **8**0 per
cent, rear glass yield rate of **9**0 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 representatives from 8 to 3, and put them back in production
lines.[^4] 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 Company'.[^5]

**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. 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

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

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

  Debt rate       40%            94%           174%          1,114%

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

  Domestic market 48%            45%           36%           25%
  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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[^1]: In 1999, the Daewoo Group's sold its stake to Asahi Glass of
    Japan, since the Daewoo Group was suffering from severe financial
    problem at that time.

[^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 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.

[^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.