The impacts of closing and relocating the operations of a company could disrupt the organizational culture and environment of a company. Restructurings and relocations could result in the physical changes in the locations of company headquarters and distribution centres, change of company leadership, merging of some operations into one centre among other changes (Flecker, 2005). HS Engineering is a UK based firm that deals in making engineering tools. The company, mainly run by the founder’s family members, has been in operation for the last 40 years.
HS Engineering has a hierarchical structure of management where the three plants-Leeds, Wolverhampton and Oldham are run from by a central executive management team. A hierarchical structure manages an organization from a central body with a lot of delegation of duties to lower ranks (Ramioul, 2006). Moreover, there are fewer consultations during decision-making. The matrix structure on the other hand is marked by more decentralization of management duties to lower ranks (Zilka, 2009). Only the supervisory roles have been delegated to the lower departmental levels and the plants. The company has a CEO and a managing director at the helm. There are positions for the production director, marketing director, financial director among others form the executive management team. The organization currently produces low end products for the automotive and general industries at the Leeds and Wolverhampton plants. The other market targets precision and aerospace market and is based at the Oldham plant. This consolidation of operations into one plant and the establishment of a plant oversees will enhance a matrix organizational structure which is more responsive to the market dynamics affecting HS Engineering.
As a result of the dynamics in the engineering tools industry, HS Engineering plans to close its Wolverhampton and Oldham plants and move all precision manufacturing operations to its main Leeds plant. This kind of restructuring will compound the current hierarchical management structure as all the major manufacturing operations shall be completed under one roof and management. This paper examines the dynamics of restructurings and relocations in light of HS Engineering and draws from similar occurrences in other companies in order to comprehensively address the issues that may arise from these business strategies.
The Leeds manufacturing plant to which many operations will be based, has a clear and well-structured organizational structure comprising of a team leader for each area of production and structured upwards to the Managing Director. The Leeds plant has its employees properly unionized and it also gives its employees loyalty bonuses, pensions, sickness schemes and wages that are favourable to the local market. The company will need to restructure its organizational and leadership structure to accommodate the operations previously done by its Oldham and Wolverhampton plants. The restructuring of the facility to suit the increased manufacturing operations puts pressure on the plant and in future, non-precision manufacturing will be done in Malaysia where the cost of labour is cheaper and also the accessibility to markets is easier (Huws & Ramioul, 2006; Grimshaw, et al., 2002).
The option to have non-precision manufacturing operations in Malaysia will call for outsourcing for those services from a Malaysian-based engineering company. Examples of these companies are Yakcheong Metal Industries Sdn Bhd, Int Technology Sdn Bhd among others (Huws, 2006). HS Engineering could get into a deal with one of these industries and have it manufacture non-precision tools in their premises and then ship them to the HS Engineering’s UK Leeds Plant for distribution. The deal with the Malaysian outsourcing company could also involve distribution and modifications of sales rights to allow the outsourced company to market a percentage of the manufactured tools to the local market. Malaysia has a high and vibrant population that provides affordable labor to industries as compared to the UK (Marchington et al, 2005). The country is also growing fast in the industrial sector thereby providing a large market for HS Engineering’s tools. The presence of cheap labor reduces the cost of production thereby increasing the profits margins of the company (Porter, 1990).
There are several companies that have outsourced from Malaysia. The most prominent are American based computer manufacturer IBM and Hewett & Packard (HP) which outsource for several computer parts from Malaysian based technology companies. Computacenter is a European based Information technology (IT) infrastructure Services company originally headquartered in Hartfield, UK. The company outsources for computer parts from Singapore for use in servicing its clients’ systems. The outsourcing of parts from Singapore reduced the company’s wage bills due to the downsizing of its workforce (Grimshaw, et al 2005). It also gained more focus on its primary function of servicing computers and therefore gaining a more loyal client base due to specialty and improved services.
The Wolverhampton site of HS Engineering was started to supply high volume engineering bearings to the Midlands market. Relocation of this facility could result in great expenses in transporting and installing machinery. The company could be forced to hire more staff to handle increased demands before all machinery is installed to make operations much easier (Gereffi, Humphrey, Sturgeon, 2005). Large HR teams have proved to be expensive and could damage the reputation of the company by calling for strikes. This could affect the new market and prevent the company from recovering the investment on operational machinery.
The relocation of the Oldham site could lead to loss of key clients such as BAe whom the company has been providing with aero-engine parts for most of the 7 years the company has operated in Oldham. The new site could be further from the company headquarters at Leeds and make it difficult for HS Engineering to serve its customers in its former location. The company had also established a clean manufacturing environment and will require sometime to achieve the same in a new location. The relocation could also mean loss of dedicated operational staff. The overall impact of relocation is increment in cost of production which directly lowers the profits margins of the organization (Drucker, 1999).
Other organisations have undergone restructuring and relocation of operations overcoming big challenges and eventually enjoyed greater competitive advantage over other companies in their field. Sunterra Corporation one of the largest vacation ownership companies in the world faced the challenges of high employee turnover over the period of relocation leading to the loss of talented and experienced employees. The company was restructuring its operations in USA and Europe with the aim of exploiting its growth potential. According to Zilka, (2009) many companies restructure and relocate with the aim of improving operating efficiencies and reducing overhead costs that are associated with running big companies.
Sunterra Corporation, a leading vacation ownership company appointed an interim financial management team experienced in financial and restructuring turn around to assist in its restructuring operations. The company sought to restructure its North American operations and its global corporate management team into Sunterra USA and Sunterra Europe. According to the company CEO, the move is expected to exploit the company’s growth potential. The restructuring of Sunterra Corporation was aimed to improve the operating efficiencies and also reduce the overhead costs associated with the running of big companies. The company however, faced the challenge of having its dedicated and experienced staff agreeing to relocate to the new working places. The relocation would allow the employees to embrace the opportunities that came with relocating to new places such as job promotions, opportunities for personal development such as furtherance of education, pursuance of a hobby among others (Gereffi & Korzeniewicz, 1994). Sunterra Corporation assured its clients that the relocation and restructuring would not adversely affect its ability to deliver outstanding vacation experiences. In fact, the company executive expected better services and world class vacations to be the ultimate fruits of the restructuring process due to the resulting efficiencies.
The restructuring of India’s Reliance Industries Limited which included mergers of the different companies such as Reliance Petrochemicals Ltd., Reliance Communication ventures among others led to great relocations. The relocations enhanced brand identity under the name “Reliance” and brought about improved profits, all round optimization of products, systems, and processes (Nag, Ganesh & Pathak, 2001). The exercise was however costly taking up more than half of the companies’ combined annual budget.
Other companies that have relocated or conducted massive restructurings include computer manufacturer, HP based in USA. The company has established a Research and Development (R&D) centre in Taiwan. The new plants handles research work into the development of improved notebook laptops and improve desktop computers. The result of this relocation of operations is increased efficiency. The American HP headquarters handle administration while the US based plants handle manufacturing operations. The Taiwan based R&D branch of the company benefits from a highly trained and relatively cheaper workforce from the youthful local population. However, the relocation of the R&D operations brought about the resignation of US based senior managers who were opposed to repatriation. The company has been able to overcome this challenge by promoting junior, experienced managers to head the Taiwanese operations. The Taiwan centre has grown tremendously and currently provides employment to more than 700 people (. This augurs well with the local population and attracts a larger market for HP products.
These examples of successful relocations and restructurings attest to the benefits and challenges of these business strategies. The relocation of operations within the same country has lesser impacting repercussions such as high employee turnover. This is because there are hardly any significant cultural changes to cause employees to refuse to relocate to newer places. As such, the relocations and restructurings planned by HS Engineering mean that the company has a high chance of retaining its talented and experienced workforce while still standing a chance to enjoy the benefits that come with restructurings and relocations.
According to Leonard-Barton (1995) other challenges of relocating and restructuring that HS Engineering should consider include accrual accounting. This takes into consideration of the tax payable on new buildings, land among others. While moving, unpaid rent, furnishing new premises, expenses of getting services such as internet and communication technologies all add up to make the relocation venture very expensive (Bessant,1991). If these costs are not settled they become accrued liabilities which impact negatively on a business.
In all, relocations and restructurings should be informed by huge market potentials, reduced cost of production, and increased accessibility to affordable labour among other key factors. In the case of HS Engineering, the restructuring and merging of operations into one major plant fits in the long-term goals of the company and puts the company in a strategic position to compete effectively with market entrants. The company shall also minimise the operation and production costs and therefore stand to make higher profits, conduct more aggressive marketing and gain larger market shares.
Bessant, J. 1991. Managing advanced manufacturing technology. Manchester/Oxford: NCC/Blackwell.
Drucker. P. F. 1999. Management challenges for the 21st century. New York: Harper Business, 20, 22, 148,193.
Flecker, J., 2005: Networks or just a new breed of Multinationals? Relocation of eWork and the global restructuring of value chains. Paper presented at the “ICT, the Knowledge Society and Changes in Work”, Workshop, The Hague, June 9-10, 2005.
Gereffi, G.; Humphrey, J.; Sturgeon, T., 2005: The governance of global value chains. In: Review of International Political Economy 12/1 (2005), pp.78-104
Gereffi, G.; Korzeniewicz M. (eds.), 1994: Com-modity Chains and Global Capitalism. London: Westport / Greenwood
Grimshaw, D.; Ward, K.; Rubery, J. et al., 2002: Organisations and the transformation of the internal labour market. Work, Employment and Society 15/1 2002, pp. 25-54
Huws, U. (ed.), 2006: The transformation of work in a global knowledge economy: towards a conceptual framework. WORKS project. Leuven: HIVA-KUL, 242 p.
Huws, U.; Ramioul, M., 2006: Globalisation and the restructuring of value chains. In: Huws, U. (ed.): The transformation of work in a global knowledge economy: towards a conceptual framework. WORKS project. Leuven: HIVA-KUL, pp. 13-27
Leonard-Barton, D. 1995. Wellsprings of knowledge: Building and sustaining the source of innovation. Boston: Harvard Business School Press.
Marchington, M.; Grimshaw, D.; Rubery, J. et al. 2005: Fragmenting Work, Blurring organizational boundaries and disordening hierarchies. Oxford: Oxford University Press
Nag, G.C., Ganesh, S.R., and Pathak, R.D. 2001. Case studies of technological change and organizational culture. Journal of Transnational Management Development, 6 (3/4).
Porter, M., 1990: The competitive advantage of nations. Basingstoke: Macmillan
Ramioul, M., 2006: Organizational change and the demand for skills In: Huws, U. (ed.): The transformation of work in a global knowledge economy: towards a conceptual framework. WORKS project. Leuven: HIVA-KUL, pp. 97-166
Ramioul, M.; Huws, U.; Kirschenhofer, S., 2005: Offshore outsourcing of business services. Euro-pean Foundation for the Improvement of Living and Working Conditions – European Monitoring Center of Change, Dublin
Zilka, C. 2009. Business Restructuring An Action Template for Reducing Cost and Growing Profit, Epub Edition. John Wiley & Sons Inc.