ETHICS OF BUSINESS

TURNAROUND
MANGEMENT
GLOBAL TRADE WAR (US – CHINA)

GROUP

GROUP MEMBERS:
Amit Saboo, B18008
Ashlesh Mangrulkar, B18014
Ayaz Ahmad, B18016
Ekansh Sharma, B18022
Amim Fatmi, H18131
 1. Choose the industry involving the selected problem and do an industry analysis as in
Appendix 1.1. [20 Marks].

B18014 Ashlesh Mangrulkar

Adam Smith, the father of economics, said: "It is the maxim of every prudent master of a family never
to attempt to make at home what it will cost him more to make than to buy". The New World order has
been built on the maxim ‘more trade and freer trade is economically better’. The benefits are
accumulation of wealth across countries, cheaper goods, and economies of scope. In the post-modern
era free trade is being targeted by many politicians, academicians and citizens.
Biased, unfavourable and asymmetric trade agreements against the West has caused wanton destruction
of local players and sectors, as they directly compete against nations that ‘dump’ their inventories and
pay low wages while simultaneously operating on economies of scale. Further, improper and unfair acts
such as currency manipulation, dumping, Intellectual Property theft is practiced by countries like China,
which are notorious for being callous in their approach.
The industries that have been chosen for this analysis are:

Industries

Steel Automobile Semiconductor

APPENDIX A.1.1.1

Semiconductor and Chipset Manufacturers

Company Rank Annual % Delta from
Profits ($B) Employees Assets ($B) Stock($B) M.V. ($B)
Data 2018 2017,2018 Sales($B) 2017
Intel 146;135 70.5 13.00 21.053 127.963 74.563 228.54
1,07,400
Qualcomm 133;137 22.732 2.00 -4.865 32.268 0.928 91.44
35,400
Huwaei 61;72 109.6 22.10 8.953 96.98 33.88 0.396
1,88,000
Lenovo 240;212 51.037 13.00 0.596 29.988 3.396 11.5515
57,500
Broadcom n/a;150 20.848 18.10 12.259 50.124 26.657 119.8
15,000
Total 274.717 68.2 37.996 403300 337.323 139.424 451.7

Mean 54.9434 13.64 7.5992 80660 67.4646 27.8848 90.3

Std. Dev 32.9 6.75 9.04 61859 38.6 26.6 82.78

Maximum 109.6 22.1 21.053 188000 127.963 74.563 228.54

Minimum 20.848 2 -4.865 15000 29.988 0.928 0.396

Median 51.037 13 8.953 57500 50.124 26.657 91.44

1
 Steel Manufacturers
Company Rank Annual % Delta
Profits ($B) Employees Assets ($B) Stock($B) M.V. ($B)
Data 2019 2017,2018 Sales($B) from 2017
US Steel 246;222 14.18 15.70 1.12 29000.00 10.98 4.20 2.62
Steel
1207;1105 11.82 23.90 1.26 8200.00 7.73 3.93 7.25
Dynamics
Nucor 151;120 25.07 23.80 2.36 26300.00 17.92 9.79 17.03
China
Baowu
204;162 59.26 27.10 21.90 176518.00 114.50 37.61 21.00
Steel
Group
Hebei Iron
1115;1060 30.35 -12.00 458.00 37345.00 30.00 8.51 4.41
& Steel
Total 140.67 78.50 484.64 277363.00 181.13 64.04 52.31
Mean 28.13 15.70 96.93 55472.60 36.23 12.81 10.46
Std Dev 16.99 14.35 180.71 61265.22 39.87 12.61 7.25
Maximum 59.26 27.10 458.00 176518.00 114.50 37.61 21.00
Minimum 11.82 -12.00 1.12 8200.00 7.73 3.93 2.62
Median 25.07 23.80 2.36 29000.00 17.92 8.51 7.25

Automobile Firms
Company Rank Annual % Delta No. of
Profits ($B) Assets ($B) Stock($B) M.V. ($B)
Data 2018 2017,2018 Sales($B) from 2017 Employees
Ford 22,30 160.39 2.30% 3.7 256.54 36.7 38.07
1,99,000
General
32,21 147.05 -6.50% 8.02 227.4 36.2 57.83
Motors 1,73,000
FAW Group 87,125 89.8 29.2 2.67 66.69 1.2 2.25
1,42,451
SAIC 39,36 136.4 5.90% 5.45 114 33 42.675
1,47,738
Dongfeng 82,65 90.94 -2.50% 1.6 66.4 20.25 9.435
1,67,258
Total 624.58 29.19 21.44 829447.00 731.03 127.35 150.26

Mean 124.92 5.84 4.29 165889.40 146.21 25.47 30.05

Std Dev 29.22 11.68 2.26 20137.42 80.62 13.52 20.94

Maximum 160.39 29.20 8.02 199000.00 256.54 36.70 57.83

Minimum 89.80 -0.07 1.60 142451.00 66.40 1.20 2.25

Median 136.40 0.02 3.70 167258.00 114.00 33.00 38.07

2
 APPENDIX A.1.1.2

Y-
Totals
( 1-
Company Corporate Underperformance Criteria Verified ( Y = yes; N = no) 24)
by #

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
US Steel Y Y Y Y Y Y N N N N Y Y Y Y Y Y Y Y N N Y N Y N 16

Steel
Dynamics
N N Y N N N N N N N Y N Y N Y N N N N N N N N N 4

Nucor
N N Y Y N N N N N Y Y Y Y Y Y Y N N N N N N N N 9
China
Baowu
Steel
Group Y Y Y N Y N Y Y Y Y Y N Y N Y N Y N N Y Y Y Y Y 17

Hebei
Iron &
Steel
N N N N Y Y N Y N N N N N N N N Y Y Y Y Y Y Y Y 11

Y-
Totals
( 1-24)
Corporate Underperformance Criteria Verified ( Y = yes; N = no)
Company
by #

2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 4
Ford
N N Y Y N N Y Y Y N Y Y Y Y Y Y Y N N N Y N Y Y 15
General
Motors
N N N N N N Y Y Y Y N N N N N N N N N N N N N N 4

FAW
Group
Y Y Y N Y Y N N N N Y N N N N N Y Y Y Y Y Y N N 12
SAIC
N N N N N N N N Y Y N N N N Y N N N N N N N N N 3
Dongfen
g Y Y Y Y Y Y N N Y N Y Y Y Y Y Y Y Y Y Y Y Y Y Y 21

3
 Y-
Tot
als
Company
( 1-
by #
Corporate Underperformance Criteria Verified ( Y = yes; N = no) 24)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Intel
Y N N N N N Y Y Y Y N N N N N N N N Y N N N Y Y 8

Qualcomm
Y Y Y Y N N Y N N N Y Y Y Y Y Y N N Y Y N N N N 13

Huwaei
Y Y Y N Y Y N N N N Y N Y N Y N Y Y Y Y Y Y Y Y 16

Lenovo
N N Y Y Y Y N N N N Y Y Y Y Y Y Y Y N N Y Y N N 14

Broadcom
N N N N N N Y Y Y Y N N N N N N N N Y N N N N N 5

APPENDIX A.1.1.3

ROI P/E
# Company EPS
(%) Ratio Financial Underperformance Criteria Verified (Y= Yes; N=No) Y -Totals
25 26 27 28 29 30 25-30
1 US Steel 2.88 1.28 7.48 Y N Y N Y N 3
2 Steel Dynamics 13.32 6.53 6.25 N N N N Y Y 2
3 Nucor 20.91 0.0135 106.15 N N Y Y N N 2
China Baowu
4 Steel Group -17.79 0.444 8.23 Y Y Y N Y N 4
Hebei Iron &
5 Steel -2.92 0.2265 4.2 Y Y Y Y Y Y 6

ROI P/E Y-
# Company EPS Financial Underperformance Criteria Verified (Y= Yes; N=No) Totals
(%) Ratio
25 26 27 28 29 30 25-30
1 Intel 2.88 1.28 7.48 Y N Y N Y N 3

2 Qualcomm 13.32 6.53 6.25 N N N N Y Y 2

Huwaei
3 20.91 0.0135 106.15 N N Y Y N N 2
4 Lenovo -17.79 0.444 8.23 Y Y Y N Y N 4
5 Broadcom -2.92 0.2265 4.2 Y Y Y Y Y Y 6

ROI P/E
# Company EPS Financial Underperformance Criteria Verified (Y= Yes; N=No) Y -Totals
(%) Ratio
25 26 27 28 29 30 25-30
1 Intel 2.88 1.28 7.48 Y N Y N Y N 3
Qualcomm
2 13.32 6.53 6.25 N N N N Y Y 2
Huwaei
3 20.91 0.0135 106.15 N Ns Y Y N N 2
Lenovo
4 -17.79 0.444 8.23 Y Y Y N Y N 4

Broadcom
5 -2.92 0.2265 4.2 Y Y Y Y Y Y 6

4
 APPENDIX A.1.1.4

Y- Totals of Criteria Numbers: Y- Totals along Criteria

# Company

1-6 7-12 13-16 17-24 25-30 1-12 13-30 1-30

1 US Steel 6 2 4 4 3 8 11 19

2 Steel Dynamics 1 1 2 0 2 2 4 6

3 Nucor 2 3 4 0 2 5 6 11
China Baowu Steel
4 Group 4 5 2 6 4 9 12 21

5 Hebei Iron & Steel 2 1 0 8 6 3 14 17

Y- Totals of Criteria Numbers: Y- Totals along Criteria

# Company

1-6 7-12 13-16 17-24 25-30 1-12 13-30 1-30

Intel
1 1 4 0 3 3 5 6 11
Qualcomm
2 4 3 4 2 2 7 8 15
Huwaei
3 5 1 2 8 2 6 12 18
Lenovo
4 4 2 4 4 4 6 12 18
Broadcom
5 0 4 0 1 6 4 7 11

Y- Totals of Criteria Numbers: Y- Totals along Criteria

# Company

1-6 7-12 13-16 17-24 25-30 1-12 13-30 1-30

Ford
1 2 5 4 4 3 7 11 18

General Motors
2 0 4 0 0 2 4 2 6

FAW Group
3 5 1 0 6 2 6 8 14

SAIC
4 0 2 1 0 4 2 5 7

Dongfeng
5 6 3 4 8 6 9 18 27

5
 APPENDIX A.1.1.5
Correlation & P- Value Table ( Steel Industry)
Performance - Underperformance Criteria Numbers:
Criteria Numbers 1-
6 7-12 13-16 17-24 25-30
Pearson's r:
0.373508940416998 ; 0.448210728500398 ; 0.349385621484342 ; 0.0747017880833996 ;
1-6 * 0.272152440014005 0.234708879918814 0.283295036702975 0.36346189315804
0.285714285714286 ; 0.116926793336686 ; -0.0714285714285714 ;
7-12 * 0.309993339783182 0.357571033617509 0.363811627939984
-0.634745449542008 ; -0.785714285714286 ;
13-16 * 0.131042159176451 0.0538182881568024
0.952118174313012 ;
17-24 * 0.00321124253506356
25-30 *
Kendall's Tau
1-6 * 1;0.4344643634634 0.45342432423432;0.59 0.36;0.79 0.23;0.75
7-12 * 1;0.5912 0.34;0.98 0.05;0.99
13-16 * 1;0.2827 -0.589;0.26
17-24 * 1;0.017
25-30 *
Spearman's Rho
1-6 * 1; 0.334 0.553; 0.498 0.406; 0.089 0.395; 0.133
7-12 * 1; 0.436 0.46; 0.966 -0.026; 0.966
13-16 * 1; 0.236 -0.649; 0.236
17-24 * *
25-30 *

Correlation & P- Value Table (Semiconductor Industry)

Performance - Underperformance Criteria Numbers:
Criteria Numbers
1-6 7-12 13-16 17-24 25-30
Pearson's r:
-0.902125150538462
; 0.807214807025274 ; 0.708496546537698 ; -0.730496146506462 ;
1-6 * 0.0127391334105118 0.0446155649913865 0.0911664648716723 0.0799448933189193
-0.575223741635528 ; -0.879986081495673 ; 0.504184173365516 ;
7-12 * 0.164560070032723 0.0187107844332293 0.204438316637041
0.185058302549401 ; -0.448210728500398 ;
13-16 * 0.34280883748923 0.234708879918814
-0.564026792884856 ;
17-24 * 0.170894259053882
25-30 *
Kendall's Tau
1-6 * 1;0.068 -0.89;0.4201 0.471;0.13 0.737;0.193
7-12 * 1;0.42 0.471;0.12 -0.72;0.42
13-16 * 1;0.79 0.223;0.59
17-24 * 1;0.61
25-30 *
Spearman's Rho
1-6 * 1; 0.014 -0.947; 0.236 0.649; 0.089 0.821; 0.133
7-12 * 1; 0.236 -0.649; 0.089 -0.821; 0.362
13-16 * 1; 0.604 0.316; 0.498
17-24 * *
25-30 *

6
 Correlation & P- Value Table (Automobile Industry)
Performance - Underperformance Criteria Numbers:
Criteria Numbers 1-
6 7-12 13-16 17-24 25-30
Pearson's r:
-0.339683110243379 ; 0.375635399825354 ; 0.980784942056159 ; 0.41726148019814 ;
1-6 * 0.287626218617483 0.27114570246044 0.000532448421874749 0.250707263044893
0.540061724867322 ; -0.176776695296637 ;
7-12 * 0.18441441062141 0.344939497721577 0 ; 0.367552596947862
0.531906107450231 ; 0.68527391613577 ;
13-16 * 0.188994750009726 0.10340129297324
0.451003345727216 ;
17-24 * 0.233236072037128
25-30 *
Kendall's Tau
1-6 * 1;1 -0.105;0.5912 0.353;0.037 1;0.796
7-12 * 1;0.433 0.447;1 -0.105;1
13-16 * 1;0.591 0.353;0.179
17-24 * 1;0.79
25-30 *
Spearman's Rho
1-6 * 1; 0.741 -0.205; 0.498 0.406; 0 1; 0.573
7-12 * 1; 0.42 0.474; 0.741 -0.205; 0.935
13-16 * 1; 0.498 0.406; 0.096
17-24 * *
25-30 *

2. Based on Chapter 01, describe the stages of its earlier success if any, and then the stages
of its current underperformance, downturn, decline, distress, cash crisis, insolvency and
bankruptcy.

Ekansh Sharma, B18022

The first sign of organizational underperformance, as suggested in chapter 1, is when the
product/business cycle starts increasing decreasingly or when it turns flat and starts decrease after
that. At this point, there is a need for a business turnaround.
Automotive Sector
Donald Trump has initiated a tariff on Chinese imports. This led China to increase tariffs on US-made
autos to 40 percent. Let’s see how the companies fared in terms of sales/profits of their businesses
before and after the Global Trade War.
 Ford  Ford incurred headwinds of $750 million in tariff-related issues in 2018. Increased
commodity costs and lower sales volume, including tariff-related effects, added $500 million
to first-quarter costs over the prior year. This prompted Ford to build a plan to set up plants in
China to serve the automobile needs of the Chinese economy.

 General Motors  GM projected $1 billion in extra costs for tariffs and raw materials this
year. Aluminum and steel prices have eased, but prices for other raw materials such as
palladium have risen to make the car manufacturing process expensive.
There are market predictions of how GM sales are going to get affected due to the trade war.
In a scenario, the effect on GM’s Gross Profit and valuation was ascertained if China volume
were to fall by 25% in the Fiscal Year 2019 primarily because of the trade war between the

7
 US and China and also due to a slowing of the Chinese economy. Consequently, the company
will be able to sell 2.73 million cars against 3.65 million last year in China, which would lead
to a loss of revenue and gross profit of $600 million.

 Tesla  Tesla has also started to feel the effects of the trade war. China is Tesla’s biggest
market, and the revenue in 2018 dropped 13% to around $1.8 billion.
During the trade war between the US and China that kicked off in July, China imposed an
import tax of 40% on the company, with a Tesla vehicle costing $20,000 more at one point, as
a result. The tax was later lowered, though Tesla cars were still subject to a 15% import
tax until March 1.
Steel Sector
The steel sector was hit equally bad due to the trade war. Below, we visit how sales of some big steel
companies were impacted during the trade war.
 Nucor Corp.  The company’s first-quarter profits of 2019 were low due to lower average
selling prices of steel sheets and delayed in shipments to customers in the construction sector.
The tariffs imposed by Donald Trump on steel imports, mainly from China, have increased
domestic production, leading to a drop in steel prices.
Electronics
 Apple Inc  Apple cut its fiscal first-quarter sales forecast, owing to slowing iPhone sales in
China where uncertainty around U.S.-China trade relations has hurt the economy. In May
2019, however, after Apple slashed prices, sales picked up, and Apple cited the enhanced tone
of the trade war for a stronger outlook.

 Intel  The chipmaker also cut its revenue forecast for 2019, citing a slowdown in demand
from China.

Organizational Underperformance
As mentioned in chapter 1, Joyce, Nohria and Roberson studied 160 companies across 40 different
industries and based their choice on total shareholder returns over a ten-year period, as the criterion
that separated the “winners” that outperformed rivals and “losers” that underperformed, “climbers”
that improved over time, and “tumblers” that deteriorated over time. It can be seen, that in terms of
shareholder returns from the above companies during 2018-19 (period of trade war)

8
 Figure 1 Intel's returns to shareholders

Intel’s shareholder returns have only grown stronger despite the US-China trade war.
With a high dividend yield of 6%, Ford stocks can also deliver strong total returns over the next
several years. This is because Ford has been investing in new models and technology to drive future
growth. The company is also shifting investment toward higher-margin products.
This indicates that while these firms witnessed lower sales in 2018-19, they were far from a decline.
The text also suggests that organizational underperformance occurs when there is:

 No clear definition of vision and mission; No timeless core values; No enduring purpose
 Compromising standards for the sake of expediency
 No well-planned long-term strategies; Mostly ruled by tactics to make quick money
 Short-term gains at the cost of long-term losses
 Expansion into non-core business areas; Over-diffusion of expertise and talent
 No great innovations or market breakthroughs
We know that all the above firms have survived the test of time and have grown stronger by sticking
to their core values, innovating constantly, and having a clear mission. Trade War announced by the
Trump administration was unanticipated, but the above firms have coped well.
That said some many small enterprises and factories had to be shut down due to the trade war. We do
not have much data available on the above factors like whether they lacked timeless core values or
maybe it was due to the lack of customers and resources to absorb the shock. However, most of those
that shut down did not have any long-term strategy that led to their underperformance and eventually
bankruptcy.
Organization Decline
Prolonged organizational underperformance leads to organization decline. Symptoms of
organizational underperformance and decline include protracted erosion of sales, market share,
reduced customer base, or substantially depleted product demand, and hence, financial losses.
As can be seen for firms above, the sales did go down. But their businesses are so diversified that they
are not too dependent on the Chinese market. They also immediately recovered by setting up plants in
the Chinese market to escape the high tariffs on Chinese imports, to serve the Chinese market. We
cannot say that Ford, GM, Intel, Apple, Nucor and the like have witnessed organizational
underperformance and organizational decline would be a far cry from the temporary loss in revenues
and profits witnessed by them.

9
Not to forget, however, that the tariffs trade war has just been 2-year-long and while many firms have
appeared to have recovered from the minor and temporary slump it will be interesting to see how
many of them will continue to survive if the trade war persists.
It would be safe to say that the small firms/enterprises that shut down during the trade war did not see
any business sense in continuing with the venture due to lower market shares and reduced customer
base leading to them not being able to make enough revenue and incurring financial losses as a result.
JLab, e.g., cannot afford to absorb the costs of a 25% tax on Chinese imports and has contractual price
commitments with customers. The company would have no choice but to cut its staff. It would
immediately have to lay off 12% of employees.
Moving production can be time-consuming, expensive, and isn’t always an option for small-to-
medium companies. For Econoco Corporation, a manufacturing company, e.g., it would theoretically
take at least three years. Mark Zelniker, president of the Hicksville, New York-based company, said it
would realistically "not survive" the associated costs and would be forced to close.
Organizational Downturn
Organizational downturns are macro industry-nation-global specific events that impact sets of firms in
a given industry and are linked to external problems. Organization downturn may precede and cause
organization decline.
There are two types of the organizational downturn: latent and manifest.
The manifest downturn is when there is visible degrowth in sales, profits, or growth in costs, etc.
observed over a long period. ‘The long period’ is rather subjective. For big corporations like Intel,
Apple, Ford, GM, etc. this long period could be five years, given the number of resources they have.
For small enterprises, the ‘long period’ can be as low as a few months. There was a manifest
downturn for all the small enterprises who shut business due to the trade war.
Process of Organizational Downturn
1. The Blinded Stage: Decline begins when the organization fails to recognize negative
pressures either internal (e.g., underperformance, inertia, entropy) or external (e.g.,
environmental threats of inflation, competition or stagnation). This is a stage which many big
corporations failed to notice during the trade war. Donald Trump had announced well before
that he shall be bringing more jobs to Americans by incentivizing production here. This
should have served as a warning signal for firms who produce outside of America or are
reliant on imports. But no company paid heed to the early signs.

2. The Inaction Stage: Decline becomes noticeable when the organization may recognize the
problem but fail to decide on corrective actions and measures. Only when the Trump
administration increased tariffs did the corporations realize how their P7L accounts will not
get affected. Some were hit on only a few fronts and thought they could do with the current
legislation without the need for any major restructuring. But soon the tariff increases were
announced on other imported items as well, which meant that the corporations now found
themselves under extreme stress.

3. The Faulty Action Stage: Decline continues as the organization responds ineffectively or
inappropriately to internal or external contingencies. Many big corporations now began to
deal with the government authorities of both America and China. Some firms, like Apple,
who had major manufacturing plants in China, were readying their production plants outside
of China, in proactively preparing for a worsening trade war. But other small enterprises were
busy cutting costs and laying off people instead. They were reacting to the situation instead of
being proactive. Their action was very short-term, and in addition to cost-cutting, they could
not think long term that led to their demise.

10
 4. The Crisis Stage: Decline worsens owing to faulty decisions of the previous stage because of
which resources are seriously diminished. This is the last chance for reorganization and
reversal.

5. The Dissolution Stage: Decline precipitates until the organization ceases to exist as a distinct
viable entity. Slow demise sets in if the environment is supportive; rapid demise takes place
in an unforgiving environment.

Organizational crisis:

They are a) highly ambiguous situations where causes and effects are unknown; b) they have a low
probability of occurring but still pose a major threat to the survival of an organization and its
stakeholders; c) they offer little time to respond; d) they often surprise organizational members and e)
present an organizational dilemma that needs to be resolved

Trade war and the tariff increase was something many firms could not anticipate. It took them by
surprise, and for the small enterprises, especially, there wasn’t much time to respond either.
For big corporations, however, the impact was not as big due to their diversified business and
plentifulness of resources.

Organizational Distress

Organizational distress is a state of exhaustion or weakness with a strain of any sort. Prolonged
organizational underperformance, organizational decline, and downturn, coupled with organizational
sickness and crises can generate organizational distress and strain and can render day-to-day
production, distribution, promotion, and retailing operations inefficient and ineffective

Organizational distress is measured by various performance metrics like a loss in sales, loss in market
shares, and loss in profits. The steel, auto, agriculture, and electronics industries in the US and China
are experiencing distress like never before. As was highlighted in the sales data of select few firms
representing these industries, it was evident that the sales and profits have reduced massively for the
firms.

Organizational Death

Organizational death is insolvency, bankruptcy filing, liquidation, and closure.

There are a) efforts to avert the demise b) death announcements c) process of disbanding d) process of
reconnecting e) final transition to death.
What most small enterprises did during the trade war like restructuring, layoffs, cost-cutting was their
last efforts to avert the demise. There were also many appeals to the governments to stop the trade war
as they continued the process of disbanding but to no avail.

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