RONA KG

Summary
Rona KG is a family-owned business in the machine tools industry in Germany. The company
has engineering plants in Britain, Spain, the United States of America and Brazil. Sales and
engineering offices are located in many countries around the world. A total of 15,000 people are
employed world-wide. A sales and engineering office was started in Portugal during the 1960's.
The office is located in Porto, and employed 30 people when the case study was written. The
case describes the history of the relation between Rona and its Portuguese office. It discusses the
influence of the differences in culture between Germans and Portuguese on the operations of the
company.

1. Corporate History
Rona KG is a small family-owned company in the machine tools business. The company was
founded after World War II by a young entrepreneur who had ideas for improved tools and new
applications. The first machines used for production were old lathes, which had been
safeguarded through the War. During the 'miracle' years of German economic growth, the
company increased dramatically from a few hundred to a few thousand employees. The original
plant and headquarters are situated near the city of Nuremberg in Bavaria, south
Germany. The company first expanded, by building a few other plants in Germany, and it located
sales and engineering offices in almost all big German cities. The firm was very innovative and
became one of the world leaders in specialized tools for textile machines and other mechanical
products, such as linear-movement technology products, gears and bearings for the automobile
industry. World-wide there were only three other competitors in the same specialized branch.
Export markets became more important, and in the late fifties and beginning of the sixties the
president and owner of Rona decided to expand to other European countries and overseas. The
expansion was mainly through greenfield operations and partially also through acquisitions.
Today the firm has plants in France, Great Britain, Spain, the United States and Brazil. Sales and
Engineering offices are located in many other countries and cities around the world. The total
number of employees is about 15,000 world-wide.

2. The Corporate Positioning

Rona's international image has been built mainly on the high quality of its products and its
innovative technology. Rona has developed many new and unique products in its field of
mechanical engineering. The firm has always pursued a strategy of high prices and high quality,
while being permanently committed to new product development. Usually new products were
developed to satisfy the needs of their biggest customers, which were in most cases also German
companies. During the years of prosperous economic growth, internal expansion was almost
inevitable, product design and innovation were enough to attract markets and clients.
However, the current recession and the continuous increase in Japanese competition are reasons
enough to revisit the corporate strategy. Japanese companies are penetrating many market
segments in the field of mechanical engineering, which for decades had been a traditionally
German domain. Now, generally speaking, Japanese products are perceived worldwide as being
of equal quality to products from German manufacturers. Often they offer the same standards of
quality and similar new technologies for better prices. Sometimes Japanese companies even
enjoy a higher reputation because of their better service and superior customer orientation. Rona
still retains one competitive advantage: its innovation and tools for special applications. Sales of
many mass-produced products have decreased substantially due to fierce competition from Japan
and two other large European competitors. A common practice among competitors, who are
currently also suffering from overcapacity, is that of introducing dumping prices in order to gain
a share of the market. Relatively high fixed costs mean that economies of scale are of prime
importance for most of the market.

3. The Corporate Structure

Rona is a hierarchical and patriarchal structure still dominated by the personality of its founder.
The international personnel structure is very static. The importance of Human Resource
Strategies has been always neglected, like in many other similar German companies. Country
managers normally have life-time employment and job rotation is not company policy.
Interchange between the subsidiaries and the parent is usually limited to the training of managers
and technical staff in Germany.
The subsidiaries have a high degree of independence and could be almost seen as autonomous
companies. The country managers only report to the vice president and general country manager
at the headquarters in Germany and also to the president and owner of Rona. They are asked to
follow the general direction of the company's strategy while they have almost complete freedom
in local pricing policies, recruitment and customer services.
Many of its products have reached maturity, and competition is intense. To gain competitive
advantage, managing costs had become the most important factor. Many cost-cutting measures
have been introduced into the operations of German plants. However, no tangible cost advantage
over the major competitors has been achieved. Therefore the company continues to build on its
quality image, and also by emphasizing the development of new and unique products. Newly
developed products are primarily destined for the domestic market, since the main customers are
situated in Germany. A similar situation appears in those countries in which Rona has factories.
There the local plants manufacture mainly to meet the needs of local customers. R&D is carried
out exclusively in Germany, hence special tools and new products are produced in Germany
only, and then exported.

4. The Portuguese Subsidiary

Operations started in Portugal in the early sixties. The Country Manager Mr. Reuteman, a Dutch
engineer, had emigrated to Brazil in the fifties. Then in the early sixties he decided to return to
Europe. He had worked for some years for "Rona do Brasil" in the sales department in Sao
Paulo. Back in Europe, Rona's president proposed that he should start operations in Portugal.
This would be a sales and engineering office, combined with a warehouse. Reuteman's
experience, language skills, and insight into different cultures, made him the right person for the
job.
Portugal was a very limited market for high-technology products. Nevertheless, Rona saw its
main customers in the textile industry, which had significant weight in Portugal's economy.
Reuteman thought that with a broad supply of mechanical tools he would be able to establish
Rona in Portugal. In order to offer a complete product range, Rona Portugal was also allowed to
sell competitors' products not manufactured by Rona. The basic operations in Portugal consisted
in building up a broad stock acquired mainly from the parent, and in servicing customers with
advice for the various applications. The selling process required a good working knowledge of
production methods in the buyer's industry as well as a thorough knowledge of the company's
own products and their capabilities. Deciding whether a product was suitable for a certain
application required a great deal of experience and often involved complicated calculations.
Reuteman chose to build the main office in Porto, the country's second largest city, in the north
of the country. Since the textile industry and many other small and medium-sized companies in
the field of mechanical engineering were concentrated in the North of Portugal, this location was
the most appropriate to start operations. Reuteman slowly built up a team of local sales people
and technicians. After some time, in the late sixties, a second sales office with a warehouse for
inventory stock was opened in Lisbon. The core activities remained in Porto. Today Rona
Portugal has about 30 employees, mainly sales people, technicians, and also warehouse
employees, who are also in charge of delivering products to customers.

5. Training of the Sales Force

Qualified sales people and technicians were crucial for Rona's success in Portugal. Almost all of
them were trained mainly by Reuteman himself, training in Germany was reduced to a few
seminars. Most of the time a German engineer from the parent would come at regular intervals to
train the technicians, advise them on application problems and to introduce them to new
products. A major obstacle was the language barrier. At that time, none of the people spoke
German. Reuteman and his secretary were the only bilingual Rona personnel in Portugal, they
were the basic link between Rona Portugal and its parent in Germany. To a large extent,
therefore, the company was centered around one person, the success of Portuguese operations
was highly dependent on Reuteman's capabilities as a manager and sales engineer.

6. The Influence of Culture

Cultural differences were seen by Reuteman as very important to the organizational
effectiveness. He adapted himself very quickly to the Portuguese mentality, a culture in which he
felt very comfortable. His belief was that the success of Rona's integration in Portugal was very
dependent on the diversified service and the ability to adapt operations to local customers. This
sometimes created conflict situations with the parent, who had a different understanding of
operations.
One of the most notorious differences between the German and Portuguese cultures is the way
they react to an external stimulus. Germans tend to overreact, while Portuguese tend to 'under
react', in an almost fatalistic way. Portuguese are much more flexible than Germans and have a
much easier way of coping with uncertain or unexpected situations. Germans have a much higher
need for security, Portuguese are greater risk-takers. For example, in many cases where a certain
new tool for machine is to be fitted, the Portuguese technicians tend to rely more on their
intuition, without doing the feasibility calculation. In addition, any mistakes made are much
more easily 'forgiven'. Personal relations are of major importance in business and society in
general. Characteristics such as friendliness and modesty are seen almost everywhere. Conflicts
are usually avoided, if possible.
The employer-employee relationship, in this case the relation between Reuteman and his
employees, is perceived in moral terms like a family link. Employees usually have life-time
employment. Reuteman is the undisputed authority and at the same time a kind of benevolent
father. Loyalty and commitment to the responsibilities associated with their own particular jobs
are expected from employees. Often, therefore, employees would offer their free time to the
company, i.e. a Saturday or holiday, when it was required, without receiving any overtime
payment. In years with high profits employees expected to receive bonuses.
6.1 Relations with Clients
Since there were no big customers, the success of Rona Portugal was dependent on relations with
many small customers. Many of those small and medium-sized companies were family owned
business. Throughout the years many friendly relationships between Rona people and clients
were established. These relationships were one of Rona's accomplishments in Portugal. Friendly
relations were highly appreciated, and business was strongly connected to those relations.
Because of Rona's high pricing policy, similar products from competitors were often a lot
cheaper. Therefore Reuteman and his staff could only compensate for this price difference
through better service to the clients, and by convincing customers of the superiority of Rona's
products. This was not always easy because many small businesses had little technical
understanding, and always tended to buy the cheapest products. The notion of quality was not
always well understood and hence small businesses tended to ignore standards in quality.
Nevertheless, over the years Reuteman was able to establish Rona's image of superior quality
and service. Many clients were not only convinced of Rona's products, but also felt committed to
their relation with Rona. Visiting clients regularly without any specific purpose was a time
consuming but necessary activity. Having lunch or dinner with a client is an essential Portuguese
way of doing business. Establishing informal relations was one way to captivate clients.
Important clients were regularly invited to trips to Germany, usually to visit a factory of the
parent company and the Hanover Industrial Fair.
Importing goods from Germany was often subject to delays. Sometimes spare parts were
urgently needed for a client, whose machine was standing idle due to a defect. In one case a
client's machine was not working because of a defective bearing. It was a very expensive
machine and every hour of idle time was costing the client a lot of money. Rona sent an
emergency request to Germany to despatch a new bearing without delay. The parent, with its
bureaucratic structure, was unable to respond to the request immediately. When the bearing
eventually arrived, it was the wrong one. The client was very upset because he was suffering
severe losses from the machine being idle. Keeping this client was very important for Reuteman,
therefore he decided to invite the client and his two sons, who were working together with the
father, on his next trip on the Hanover Industrial Fair.

Questions
1. Based on the information in this case, how would you characterize the German and
Portuguese cultures?
2. Which typical German and Portuguese values best fit the new business environment of the
machine tool manufacturing industry?
3. Is a synergy of values at the inter-cultural level possible in the business world?
4. If your answer to the previous question is "Yes", how would you go about creating this
synergy?
5. Explore the potential of the synergetic integration of cultural differences as a source of a
sustainable competitive advantage at Rona KG.