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Background
Mike Harrelson:
He is the president of Silica Incorporation, which is an U.S. based firm, had just made an offer for one of the glass-manufacturing firms of this Thringen region. The Christmas tree ornament, which he held in his hand, was the product of the world-renowned glass artistry of the Thringen region of Germany, until recently East Germany. The Treuhandanstalt, the German government agency in charge of the privatization effort for enterprises of the former East Germany, had not really rejected the offer, but made a counterproposal. The crystal ornament was elegantly simplistic; this acquisition was not. Mike wished to re-evaluate his strategy.

Beginning of the story:

President Mike Harrelson was looking at the sparkling fireworks of the Christmas tree. He was amazed and he was quite amazed by its magnificent looks, charms and the artistry was a fabulous combination of art and glass. He kept on looking at it. It was 15th December, 10 days to go for Christmas. The ornament made the charm in his eyes is made by a world-renowned glass artistry of the Thringen region of Germany. That made Mr. Mikes eyes reflecting the same sparkle with the great idea. The firelight boomed in the mind of Mike, Recently Silica had just made an offer for one of the glass manufacturing firms of this Thringen region

Silica Glass Incorporation:

It is a U.S.-based firm, is a worldwide leader in the production of glass fiber. Silica fiber is a synthetic fiber of proprietary glass composition. The glass fiber is in turn used in many different industrial applications. But some time the glass fiber can be used within the division of the same company. Silica has pushed itself for better quality products and also in terms of sales over last few years. Silica managed to achieve both with a steady performance. However, the firm itself had undergone a number of significant ownership and strategy change.

Primavera buys Silica:

Back to the 1980s that the primary product line was developed under Silica Products. Later, in 1984 it was bought out by a takeover specialist who sadly used Silica Products as a cash cow squeezing the last dime for cash flows. The pounding continued, but the firm did very little when it came to reinvesting. Two years down the road, in 1986, Silica was finally sold to Primavera, which was a southeastern holding company. When Year 1986 ended Primaveras plan was longterm. Silica was to produce series of products. Primavera saw more long-term growth potential for the series of products manufactured by Silica. Primaveras strategy was first of all to expand sales. Then it wanted to acquire additional operations which would increase the overall value of the total Silica operation.

Market of Silica Glass:

There were many markets but the glass fiber was one of the most highly specialized. The number of existing glass producing company was in minority. Silica divided its promotion in two ways. 1. Intra divisional sales (50%) 2. External sales (50%)

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Where extra sales was sub alienated by 3 parts y y y United States (75%) Western Europe (20%), and The Pacific Rim (5%)

Primaveras founding:
Primavera found the boundary with silica in: 1. Narrow product line 2. Limited market Like primavera wanted to grow the firm. The product lines of Silica were very narrow. Even the market expansion for the company was limited. But still several of the Silica divisions showed healthy profitability. Merger and acquisition was the best policy for Silica. This tactics could help the company to obtain a rapid growth. So they did not go for a direct sales growth. Moreover, sales, particularly in the domestic market, were being squeezed by new competitive products.

The scenario of 1989:

In the year 1989 Silica had a gross sales of nearly dollar twenty-five million. In the similar year Silica held a huge amount of market share throughout the whole world in the glass fiber market. Approximately twenty-five percent market share worldwide in these specialized glass-fiber products was hold by Silica. World markets in general were expected to grow in the coming decade. The growth was expected at a ten to fifteen percent per year rate.

Threats from Non-glass synthetics:

Decline of internal sales was certain, as the new non-glass synthetics would make the products of several other corporate divisions obsolete. The only other way to make up for lost sales was to find sources of new sales outside the firm. To Mike Harrelson, at first, the solution seemed to be in a pretty simple decision. He wanted to focus on external sales growth through increased market share.

Competitors Challenges:
Silica got two competitors: y y Glass pro Sonnenberg Glaswerks GmbH

GlassPRO: Silicas major competitor was GlassPro is a foremost Midwestern U.S. corporation, both in the United States and worldwide. GlassPro is a firm of substantially larger size and product scope than Silica. As far as GlassPro was concerned Silica was no match as GlassPro was a substantially larger firm and also had a greater product scope.

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But GlassPro had one major weakness. It currently had only one glass-fiber production facility which was located in Ohio. GlassPro often experienced excess capacity in short periods of sluggish sales. It would be very unlikely for GlassPro to be expanding its horizons to Europe any time soon. They do not have any kind of expanding plan to that region at least in the foreseeable future Sonnenberg Glaswerks GmbH (from Europe): Sonnenberg Glaswerks GmbH was relative small competitor for silica glass. This company was located in Sonnenberg, East Germany. In Germany Gesellschaft mit beschrnkter Haftung (GmbH) is the German designation of a limited-liability company which is privately held. Aktiengesellschaft (AG) is the German designation for a limited-liability company which is publicly held; only AG-class firms may trade shares publicly. Although Sonnenberg produced glass fiber, sales were limited to the Eastern Bloc. The sales to the Eastern Bloc were prior to German unification. With unification, however, Sonnenberg could constitute new competition for both U.S. firms throughout Western Europe.

Planning to expand the business in Europe:For the years

Silica has been experiencing balanced rapid growth both in the United States and in Europe. Mike Harrelson noticed that an opportunity quickly lurking and wanted to make the best of it. He called for immediate manufacturing expansion and in top of the list of ideas of how to do so was to initiate production in Europe y y The recent growth in the European market The possibility of a single-Europe, the 1992 program, also created increasing debate over a possible Fortress Europe.

Silica has some reasons to believe it. They were aware to make any conversation with EC and French glass fiber producer. y A world leading glass-fiber production was French producer. But this French glass-fiber manufacturer did not fabricate the technologically complex fibers. The EC is looking for the high quality glass fiber and high value added glass fiber.

Journey started in Europe:

Mike started that exploring with the support of Primavera Corporation. But at the beginning they felt the question of: y y Where to produce? How to entre?

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The initial plan:

First, Mike thought about Green field investment, He started the exploration by searching first in the United Kingdom, France, western Germany, and then Luxembourg. But the problem they got from this thought is it is so costly and not encouraging. The second approach was for the acquiring an existing firm and which is running still in glass manufacturing industry- one with a glass furnace in place which might allow a cheaper production start-up.

Sonnenberg with Silica:

In the spring of 1990 only after a complete speculation the true picture of Sonnenberg appeared for the very first time. If Sonnenberg were to survive the transition to a capitalist market economy it, technology, and marketing skills. Sonnenberg no longer had its glory and was going down as far as standards were concerned. It only produced a mediocre glass fiber. Mike Harrelson was the first to see the opportunity that lay before him and was quick to seize it. He tried to salvage all that he could out of Sonnenberg history and its production capabilities. This was also an opportunity for Silica to start off its European production line in the eve of the unification process of Germany.

West Germany approach:

The eastern part of Germany could be absorbed into the whole rather than be independently industrialized like other Eastern European economies. West Germany approached much of the redevelopment with triage analysis, quietly separating the previous East German enterprises into the following three sectors: y y y Those which would not be competitive; Those which were well-positioned and prepared for competing with western businesses;

Those which might survive if provided with infusions of capital, technology, and expertise. The major problem and motivation for selection and action was maintenance of employment. Eastern Germany was falling into a depression and fast.

Privatisation process:
The Treuhandanstalt was charged with winding up over 8,000 firms. The process had some requirements. Like the winding up process required the formation of western-style balance sheets. And it also needed operating statements for every firm. It was also necessary to quickly assess which firms required immediate cash injections. The cash injection was provided in order to stay afloat until they could be sold to other company or closed. As a result of this process Sonnenberg Glaswerk GmbH was held by a regional holding company. This regional holding company was known as Glasring Thringen AG. Glasring Thringen AG held many companies. Sonnenberg was one of seventeen different enterprises for which Glasring Thringen was responsible. This was done for a special purpose.

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Way to Acquisition:
Initial exploratory meeting was held on the spring on 1990. A second and more crucial one was to be held on September, and all the tentative arrangement was made. Silicas proposal for the acquisition was pretty simple. It proposed the acquisition of Sonnenberg Glaswerks, with

y y

75% ownership by Silica, and the remaining 25% remaining with Sonnenberg, which was actually its present management.

The 75% which Silica had proposed was only because of the fact that 75% ownership level was necessary in order to obtain tax benefits under European Community law.

Silicas investment plan:

Silicas offer was to invest a huge amount of money in Sonnenberg. First of all it wanted to invest approximately DM 1,500,000 which was in terns worth dollar 1,000,000 at the present exchange rate of DM 1.5000 per dollar. They wanted to invest this money in new capital and technology. They wanted to provide all marketing and sales expertise also as needed. The new capital Silica wanted to invest a fourth of this capital would be required for new plant and equipment. Along with an additional thirty percent financial support package provided by the German government for specific health, y safety, y environmental, and y Machinery needs. The remaining DM 1,125,000 would provide working capital. The working capital Silica wanted to give was for expanded operations. Silica had also some present contracts which were going on. Present contracts such as one with Naumburg Glasfaser would continue. Silica continued with those contracts because these would provide some minimal cash flows during the transition and would help the acquisition package with the Sonnenberg Glaswerks.

Agreed at two firms for one price:

As if things were not bad enough as it is Silica would now be expected to split production between the two different facilities. Like, this would result in direct and indirect operating costs to shoot through the roof. The only logical solution to the problem that Mike could come up with was to try and merger the two operations together. But as the saying goes, it was easier said than done. Glasring Thringens interests were firmly in the maintenance of regional employment without worker dislocation. However, there was just one incentive which seemed to have kept the negotiations running. In exchange for the acquisition of the second facility, Glasring Thringen agreed to the same purchase price; two firms for one!

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Finally came up:

Mike Harrelson was threading deep waters now. He had serious doubts about the final offer made to him in this rapidly increasing acquisition. They identified the problems, y y y High operating cost High not identified cost Still no balance sheets or operating statements

He had to decide very soon and 1992 did not seem so distant anymore. He was still thinking positive and the thought that crossed his mind was the quote from the Parker Hannifin executive, who said that the luckiest thing that ever happened to them was when the Treuhandstalt would not give them the plant for nothing.

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Theme
The internal sales of Silica Glass was declining at a significant rate because of the introduction of another substitute product called non-glass synthetic in the market. As a result Silica Glass takes an immediate strategy of manufacturing expansion for external sales in Europe, considering it rapid sales growth in this area. After a lot of speculation Silicas CEO found acquisition of Sonnenberg, a historical glass manufacturing company in East Germany would be a feasible market entry strategy. But problem may arise if the notion of single-Europe, the 1992 program get implemented and impede foreign firms exporting high quality glass fiber to protect European companies. Meanwhile, East Germany felled into depression and many firms were being privatized for more capital investment and advanced technology in the presence of a regional government holding company Glaswerk GmbH, which suggested a counter proposal to Silica of taking over two companies at the cost of one. Therefore, acquisition seemed to be even more challenging for its uncertainty about increased operational cost and government conditions. Besides, it jeopardizes the split of two production unit with the government restriction of limited worker dislocation to prevent unemployment issues emerging in East Germany.

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Main Issue
What will be the negotiation point of Silica Glass Inc. convincing the holding privatization company for acquisition of both Sonnenberg and Suhl Glaswerke GmbH with increased operational cost to secure the purpose of sales expansion in the European market without any worker dislocation?

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SWOT Analysis
SWOT analysis plays a significant part in any company. Any company has some internal strengths and weaknesses, with some external opportunities and threats. Internal factors can be better controlled than external factor as companies do not have any control over it. To survive in the changing environment any company needs to know or be aware of what are its strengths, weaknesses, opportunities and threats so that it take advantages of its strengths and opportunities to eliminate or decrease its weaknesses and threats. In short, SWOT analysis helps to identify what are the capabilities and capacities of a company.

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Strengths

Strength1: Silica glass a leading manufacturer of glass fibre in the whole

Silica Glass Incorporation is the worldwide leader in the production of glass fibre. Its products are world famous. By producing superior quality glass products it has earned good reputation in different parts of the world. Since, it owns a large chunk of share of the international glass market; it has managed to gain an edge over its competitors. Compared to its competitors it is one of the largest manufacturers of glass. To maintain a stable sales growth in these markets, Silica has to produce in huge quantity. Thats why its the market leader in its industry. This has led to the company getting a new image and reputation in the industry as the world leader.

Strength 2: Growth potential in the long term for its range of products Silicas main strength is the long-term growth potential of the range of products. This long-term growth potential means that some of the products will never become obsolete; it will be demanded in the market for quite a long time. These products, which are currently showing a steady growth, will definitely have a control over the international market for a long time compared to other products. This long-term profitability has given Silica a very important advantage. It has given the company the upper hand over its competitors. Without the long-term growth potential the products will lose its demand within a very short period of time. Its very difficult for any company to control the market with the products which do not have enough demand. The main reason behind the success of Silica Glass Inc. is the long-term growth potential of series of products.

Strength 3: Stable increasing external sales growth One of the main strength of Silica Inc. is their healthy and stable growth in external sales. Though the company is mainly U.S. based its expanding internationally. The total sale of Silica is mainly divided into two categories one is intra-firms sales and other is external sales. The

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external sale is the strength of Silica. The company heavily relies on internal sales. Almost 75% of the companys sales are based within the country. In the European market, the sales figure is little bit low compared to the domestic one due to the low control over the market there. The sale in Europe is around 20% of the total sales. In the Pacific Rim area the sales is very low around 5%. The sales lead to revenue and the revenue leads to profit, which is the ultimate goal of any company. Silica had grossed nearly $25 million in sales in 1989; its targeting to increase the sales in the upcoming years. The external market is expected to grow by 10-15% annually. With this heavy growth rate of the market, it is hard for any company to remain in the leading position. Due to heavy
growth in external sales Silica is still the market leader and expecting to be at that position in upcoming years.

Strength 4: Only Silica has the technology to produce complex fibres The glass fibre manufacturing market around the world is becoming more and more saturated. Thats why to survive and to retain control of the current market it is imperative to have an extra advantage over the competitors. Silica Glass Inc. has the competitive advantage over its major competitors in producing technologically complex fibre. This kind of fibre is very sophisticated and has a very high demand around the world. There is no other company that can produce this type of complex glass fibre. Due to this competitive advantage the company is having very high sales in the domestic market. They are attracting more and more customers and so the main business is expanding globally. With this technologically complex fibre they are moving to the European market.

Strength 5: Sonnenberg has some of the most advanced technology. As an opportunity to expand the market in the European region Silica is trying for the acquisition of Sonnenberg. There exists a mixed technology. Because of this mix, Silica will be able to cut the production cost and will be able to produce efficiently. Sonnenberg has some very advanced technology for producing glass fibre. This is strength because it will give Silica more flexibility of producing superior quality glass products. It will definitely give a cost benefit in the production process. With this technological advantage Silica will be able to gain control over the European market.

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Strength 6: Cheaper production start-up Silica is expanding its business in the European industry of glass fibre with an extraordinary strength i.e. cheaper production cost. European market is a huge market. A low production cost is really beneficial. Mike Harrelson of Silica Glass inc. explored different regions of the Europe to find the best expansion option for the company. After thorough analysis, he found the Sonnenberg Glaswerks GmbH as the appropriate option for acquisition because it will give the company more flexibility in the production area. Sonnenberg is mainly a German company which has been producing glass fiber for the German market. It has two furnaces which has given Silica an opportunity of cheaper production start-up. This is can be considered as a strength of Silica because due to this cheaper production start-up the company will be able to earn more profit and will be able to focus on other part of the production process.

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Weaknesses
Weakness 1: The adverse effect of changing ownership and strategy Silica Glass Inc. a U.S. based renowned glass manufacturing company has come to the present situation after long period of time by changing its ownership and strategies from time to time. The main product line of Silica had been developed under Silica Products in the early 1980s. Afterwards the firm was taken over in 1984 by a company specialized in takeovers who used it as a cash cow, that meant that the main motive was to generate profit but there was no reinvestment done for the growth of the company. Two years later, Silicas facilities were sold to Primavera, a south-western company who used Silica in a different way. So, whenever a new owner was acquired, it changed the total strategy of the company and used Silica for a different organizational purpose. These changes have had an adverse effect or in other words have affected the companys growth because the resources were not efficiently used.

Weakness 2: Problem in intra-firm sale Silica Glass Inc. has some serious problem in their intra-firm sales category. It has excellent growth in their external sales and product quality and the growth rate of the whole company is also convincing. But the problem is that their intra-firm sale is decreasing continuously. While external sales are increasing at an annual rate about 30% per year and are expected to grow at this rate for the next five years, the internal sales in most of the corporate divisions are expected to decrease at an annual rate of nearly 25% over the same period of time. It means Silica is continuously losing its money in intra-firm sales. This loss is affecting the profitability of the company severely. Most of the operating divisions are being squeezed. Silica is losing the control over the domestic market and corporate sale is decreasing at an alarming rate.

Weakness 3: Obsolete product lines of Silica Silica does not have an opportunity of providing unique products. Most of their products are old and are similar to its competitors. The U.S. market is already saturated by too many companies competing among themselves. Those companies are introducing more new products in the market. So, with the entrance of new products the existing products produced by Silica become obsolete. It loses the ability

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to attract customers because everyone wants to buy the new product. Hence customers are moving away from Silica. The outdated products of Silica are affecting the company in several ways first of all, the customers are moving away, secondly, substantial decrease in profitability, thirdly, reputation of Silica is being hampered, and finally losing control over the market. Thats why; obsolete product lines are one of the weaknesses of Silica Glass Inc. Weakness 4: Lack of innovation and technological implementation Another major weakness of Silica Glass Inc. is lack innovation and technological implementation. Lack of innovation means there is no effort doing things in a new way. Technological implementation means no use of advance technology in the production process. Silica is one of the leading glass manufacturing companies of the world. But they do not use new technology to improve their production efficiency and profitability. They are simply following their usual age old production method for a long time making no change in technology. As a result they are finding it difficult to cope with the new products and technology used by domestic competitors. This view of the company is affecting it in a concealed way. They are losing their long-term potentiality of the company and also losing the capability of adapting to the new technological era of production.

Weakness 5: Maintenance of employment in the European region Silica was looking forward to the acquisition of Sonnenberg Glaswerks facility in the Eastern Europe. For being a foreign company, Silica has to follow the rules and regulation of the German government. The German government is mainly concerned about the unemployment level hence; there is law which prohibits the company from lying off their current employees. This is a weakness of Silica because they do not have the option of lying off their inefficient employees. They have to keep them to maintain the required employment level. Moreover, there is no option of relocating the employees either. An employee cannot be relocated to another operating facility. This is a weakness of Silica because whatever happens they can not make change in their employment status and as a result, the efficiency level of the company is being hampered severely.

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Weakness 6: Lack of Research & Development Center in Europe

One of the most vital weaknesses of Silica is that they do not have any Research and Development center in Europe. There is no doubt that R&D is very important for any kind of business. Because it provides a company with new and innovative ideas and products. It also provides ground breaking information regarding the business. Before the acquisition proposal given to the Sonnenberg Glaswerks GmbH, lots of exploration and analysis was made. But without a proper R&D center it would not be beneficial for Silica. As they do not have the R&D facility, they were not able to make the proper assessment of the economic conditions. They could not get any idea about the business environment, legal requirements of government and the most important of all they could not analyze whether this acquisition will be beneficial for Silica in the future or a liability for Silica. Without the R&D center they are not getting the proper view of the German market. They can not analyze which part of Europe has the highest chance of profitability. They could not decide on whether to establish a new facility or just make an acquisition of an existing one. So, from the above discussion its clear that lack of R&D Center is major weakness of Silica.

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Opportunity
Opportunity 1: Rapid Growth through merger and Acquisition The European market is like an untapped world of opportunity for Silica, because only 25% of its total sales come from Europe. By merging with European companies and by acquisition of operating companies Silica will be able to gain an increased growth rate in the European market. Therefore, if Silica can make prudent acquisition and can merge with some of the strong companies of Europe, in the near future it will become the biggest glass-fiber manufacturing company of the world.

Opportunity2: Opportunity to gain a larger market share by external sales Silica is currently experiencing a heavy growth rate in their external sales. There intra-firm or corporate sales may be decreasing but the growth of the external sale is off setting the resultant effect. Silicas annual intra-firm sales are declining by 25% where the growth rate of annual external sale is increasing by 30%. Thats why they are concentrating more on acquisition and expanding the business in the European region. The profitability of the company will reach the peak and also the company will have the ability of controlling the competitors as well. So, there is no doubt that there is a huge opportunity waiting for silica just beyond the horizon, if they can increase their external sales. Opportunity 3: New opportunities in the European market

European market is big a huge market with a lot of opportunities. Europe consists of many countries. Each of these countries has their own glass-fiber market. So, if Silica somehow manages to enter the German market, it will automatically have the opportunity to set its foot in other parts of Europe as well. By developing a regional headquarter and by investing more in R&D they will be able to discover new opportunities that exist in the European market.

With the technology and knowledge of west, Silica will be able to set an example in the Europe regarding cheaper production start-up. The profitability will move to the highest level as the production cost will be lowered and the sales will be increased by a substantial amount. With the help Silica Glass Inc the European market will start a new era in the glass-fiber manufacturing industry.

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Opportunity 4: Single-Europe due to superior quality of glass fiber Superior quality is the first condition to explore the opportunity. Silica is one of the leading glass-fibre manufacturing companies in the world. It has come to the present situation by the maintaining a high commitment towards providing superior quality. The company will be able to do business in all parts of the Europe by entering a single market as there is no trade barrier between the European markets. This means, if Silica can produce superior quality products in Europe, a Single-Europe is waiting for Silica with lots of opportunities. Opportunity 5: Expansion of Sonnenberg

Silica Glass is expanding its business in Europe to capture the potentially huge market. It has explored the opportunities of establishing a new facility in Europe, but that will be costly. So they have decided on acquisition of an existing manufacturing facility called Sonnenberg Glasswerks GmbH. With Sonnenberg, they will get another facility called Shl. Acquisition of Sonnenberg can be beneficial for Silica as it already has the furnace for production. So, in the near future its possible for expansion of Sonnenberg in other parts of Germany which will give Silica some opportunity of gaining control over the European market.

Opportunity 6: Market of Western Europe and Pacific Rim:

The market of Western Europe is almost new to Silica Glass Inc. Currently they are operation in some major parts of Europe but not in the western part. The company is having an annual sale of about 25% in the European market which is relatively lower compared to the domestic market of Silica. So, there is lot more to earn from the Western Europe. If Silica manages to establish one of production facility in the Western Europe it will bring a new horizon of opportunity for Silica. Because than Silica will gain more control over the European market gradually and their sales will increase respectively, so will the profit. Now, from the Pacific Rim area the earning of Silica is very low. There the annual sale is about 5% of the total sales. Its obvious that Silica has not still ventured at the market of Pacific Rim area. So, if the company expands its business in that region, in the near Silica will have nothing to regret about, they will be the opportunity hunter and leading glass-fiber manufacturer of the world. The markets of Western Europe and Pacific Rim area can be great place of opportunity for Silica.

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Threat
Threat 1: Silica is being squeezed by new competitive products It is mainly a U.S. based company with a high growth rate in sales and quality. Silica is losing some of the market because competitors are producing some new products which have given them the competitive advantage. With these new competitive products the competitors are attracting more and more customers. As a result, the profitability and market share of Silica is surely being affected as well as the intra-firm and external sales are decreasing. So, new competitive products of other companies are posing a great threat to Silica Glass Inc. In the near future if Silica fails to compete with these competitors, it will be losing their business in the local market and as well as in the international market. Threat 2: Glass Pro. a major U.S. Corporation may be dominating the market Silica Glass Inc. is mainly a US based company which is looking to expand its business in European market. But in the U.S. market it has a strong control which is now under threat due to the presence of other big competitors like GlassPro. GlassPro is a major Midwestern U.S. Corporation with a larger size and wider product scope. But in the near future if GlassPro expands its facility and starts to produce different glass products than Silica will be in great trouble as it might lose control of the domestic market as Silica does not have the flexibility of larger product lines. So, in the near future the GlassPro can pose a great threat to Silica Glass Inc. by expanding its product facility and gaining control over the domestic market. Threat 3: New legislation against foreign firm in Europe:

Silica has a sale of about 25% of its total sale from the European market. It has not expanded its business in all European regions. So, there awaits a lots of opportunity for Silica. But the protectionist point of view European government can be an obstacle for Silica in entering the European market. But one advantage of Silica is that the existing domestic markets are not as experienced as Silica. They are striving to control the major portion of the European market, while foreign companies are dominating in the domestic market. Thats why the European governments are more concerned about protecting local glass manufacturing company.

They are trying to save the domestic market from foreign raiders. So, they are coming up with many rules and regulation to protect the local companies. As a result, its getting harder for Silica to enter the European market.

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Threat 4: Acquisition of both Sonnenberg and Shl can be a problem

They have been exploring for the best option of acquisition in Eastern Germany. Eventually, they made a proposal to an East German company called Sonnenberg Glaswerks GmbH for acquisition with 75% of ownership by Silica and the remaining 25% remaining with Sonnenberg. But due to the legal requirement of German government Sonnenberg made a counter proposal in which they agreed with the previous terms but in addition they are offering another facility producing glass-fiber named Shl Glaswerke GmbH. These two facilities have to be sold together not individually. This second facility will not be beneficial for Silica because it will add more to the direct and indirect cost of production and as well as to the overhead expense. It is mainly cutting the cheaper production start-up opportunity of Silica Glass Inc. So, the acquisition of Sonnenberg and Shl together can be a great issue of discomfort for Silica in the near future. Threat 5: Communication gap between U.S. and Germany:

The communication gap between the U.S. and Germany can prove to be costly in the future. Because due to the communication gap there will be no effective collaboration. It would be difficult to match the Americans and the Germans because the cultural and language barrier as well as the difference in perception. So, it will be very hard for the U.S. based Silica to cope with the production facilities situated in Germany. Thats why, the communication gap between U.S. and Germany may be a potential threat for Silica Glass Inc. Threat 6: Economical fluctuation in the European region: Silica Glass Inc. is mainly a U.S. based company. Compared to other countries U.S has an economy which is very strong and is stable. The whole design of operation of Silica is highly suitable for a stable economy. But in Europe, the economy is not stable and there are frequent fluctuations in the economy.

So, the economical fluctuation or the current depressed economy may be a great threat to Silica because it will be difficult to cope with a different economy in such a short period of time. Silica has to change its total organizational strategy in case of Europe, which may create an unstable situation inside the company. Besides, there will be problem in coordinating the facilities situated in different economy. Thats why the unstable economical condition of Europe may pose a great threat to Silica Glass Inc.

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HR Issues
Searching for ways to increase competitiveness is a dominant theme in the modern business world. With the knowledge that human resource can be one of the key contributors in this quest, the field of human resource management has gained legitimacy and attention. Moreover, in the process of value creation human resource comes first, which maintains a good image and prestige for an organization. However, human resource issues can be external or external. Some of the issues affect the human resource of the company directly other effect the company indirectly. As we have gone through the case, we have identified some human resource issues, which should be taken under review.

Weakness in building own HR department and corporate culture due to number of take over and policy changes of the company Silica Glass Inc.

Corporate culture provides an organization the standard norms and etiquettes which endorses the law and makes the employee comfortable to depend on. It gives the employees a clear view of choosing the best corridor leading towards the success and provides the right solution in the right time. It also helps to create a strong management team by following a shared view and doing business according to it. As Silica Glass Inc. gone through a numerous ownership and strategic it lacks a steady corporate culture and definite mechanism for business process. Under different ownership, at different times they dealt with different corporate culture and different workforce process. Changing of strategy has been a trend of the company over the years, which caused lots of confusion among employees. It has no steady identity of its own in the department of corporate culture. This might be one reason that there is a lack in involvement and attention of the HR department.

Rising unemployment as a result of rapid depression

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After the unification took place in 1990, integration into the Western economy system led to a far more dramatic collapse of the East German economy. In the first year of unification, industrial production fell by a half and GDP fell by a third. Unemployment jumped up as a result to almost a third of the entire labor force in that area. To ensure employment to those unemployed people government started privatization more then 8000 firms.

This privatization period brought Silica Glass both an opportunity and a threat. Since, they wanted to acquire an East Germany company named Sonnenberg Glaswerks and expand its operation; it would be cost effective for Silica to hire new employees easily without increasing the compensation level and also retain the present employees. On the other hand to mitigate the effect of decrease in manufacturing employment, the Germany government took several measures. One of them is massive income transfer to East Germany, leading to an increase in the reservation wage of East Germany workers. For this a negative effect was that low-wage jobs become unattractive. So Silica would face difficulties to select the skilled workers and motivate them to work.

Government decision regarding Privatization of firms

When Eastern Germany was falling into depression, federal government came up with a privatization plan to survive the manufacturing industry providing advanced technology, capital and expertise. Treuhandanstalt, was a government holding agency was responsible for liquidating or selling off 8000 firms, in which Sonnenberg Glaswerks GmbH was one.Sonnenberg was under a regional privatization holding company named Glasring Thuringen AG. Meanwhile, Silica Glass Inc. was searching for a perfect market entry strategy for their manufacturing expansion. Finally they choose acquisition of Sonnenberg Glaswerks GmbH to reduce uncertainty and lower capital involvement. Now to make the acquisition successful with Sonnenberg, Silica needed to build up a good communication with Glasring Thuringen AG. However, German companies barely share their information with foreign companies until proper protection is ensured. So Silica did not seem to get any response to queries for additional information. But Silica needed the internal information of Sonnenberg and some management changes to create the environment to transformed Sonnenberg to a private firm with the help and support of present employees.

Government will hamper HR action

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After taking over Sonnenberg, Silica would have to take difficult HR actions. They planned to introduce new advanced technology and provide all marketing and sales expertise. In this circumstance, a lot of hiring and firing needed to be done. Silica needed to train the labors or hire new skilled labor to make them accustomed with the new technology and new workforce process. Besides, top management replacement was mandatory to gain control over the strategy and the margin. But, Glasring Thuringen AG interests were in favor of government issues. Since they were responsible in the maintenance of regional employment, they gave a condition of not laying off the workers.

Management & cultural clash

Human resource management is deeply rooted in its institutional environment. Thus US style HRM cannot be transferred to the German context. Moreover, from a European viewpoint the US form of HRM is perceived as unitarist and individualistic. While in the US HRM ideas could be spread in a relatively unrestricted manner, this was much less a case in Europe. Especially in Germany managerial decision are much more strongly framed by the institutional environment then in other countries. So, it would be a challenge for Silica management to integrate with a German management. Moreover, Sonnenberg was never owned by anyone in recent past years according to a communist system, so Sonnenberg management still saw itself as owners although they had not equity investment or legal standing. So, if a company like Silica from a capitalist background took over Sonnenberg management, employees could get a cultural shock and got all confused with the new western values.

Silica Glass Inc. & its acquisition proposal

Sonnenberg current management considered themselves as the owner of the company without any equity involvement and legal standpoint. In fact, in the preliminary discussion, they offered a joint venture with Silica. However, chances were not given to the present management of Sonnenberg.

For new capital, technology and marketing and sales expertise Silica planned to spend around DM 1,500,000. One fourth of the capital was needed for new plant and equipment along with additional 30% subsidy package provided by the German government for ensuring specific health, safety, environmental and machinery operations. But Silica is not allocating any fund for

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training programs or workshops for employees, which is crucial. Workers need to be accustomed with new equipment and technology and know exactly how to handle them properly. Workforce diversification will be a challenge

As Silica was planning to locate its new manufacturing plant in Europe, the workforce diversification will be challenge. Since, Silica planned to go for acquisition with Sonnenberg, which has little advancement in technology after the inception of Communist Government in East Germany in 1945; more advanced skilled labors are needed to do the job in the right way and more efficiently. For this selection of the right people for right position in the right time will be a challenge. Moreover, facilities in the Sonnenberg were the mixture of the machineries of different eras, so experienced workers should not be laid back. Therefore, diversified employees to deal with these technologies will be needed. Even though there is an unemployment problem going through, it is not certain that all the unemployed people have the knowledge of new technology and qualified enough to operate the new production facility of Silica. Silica needed a good observation and a practical process while hiring new employees as the progress of any company largely depends on its employees.

Convincing potential employees to provide job security

Since Silica is going for acquisition with Sonnenberg, there is a possibility of number of lay offs or forced retirement to cut the labor cost and reorganize the workforce. In this circumstance Silica can form a negative image among potential new employees. They can be insecure and demotivated. Besides, Sonnenberg is being privatized or owned by any entity for the first time, so it will take time for the employees to get used to working under new management. Motivate the employees will be hard enough as workers may suffer from the fear of lay off. But, it is going to be difficult to transform their views as a result of language barriers, cultural barriers and so on. With proper incentive package employees can earn their job satisfaction and adopt with the international environment. Failure to accomplish this task satisfactorily however, inevitably results in mutual distrust, disillusionment.

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Recommendation
Problem 1: The product lines were very narrow and market expansion was very limited for Silica Glass, Inc. Besides, the internal sales to other corporate divisions were expected to decline nearly 25% annually over the next five years.

Solution:
Silica Inc should consider and put all its efforts for expansion through mergers and acquisition.

Right because:
Mergers or acquisitions act as synergy for any company if the transition is well managed. After acquisition or merger Silica has to worry little about training the employees because the existing employees of the acquired company will be already trained. Hiring new employees may not be needed that time. This flexibility will give Silica the opportunity to expand and increase its sales in no time. But they must be careful about the fact that the existing employees of the acquired company might not like the acquisition so it might demoralize them. Also, employees of the host company might feel insecure as downsizing is a common outcome of mergers and acquisitions. So before taking such grave strategic decision Silica must plan and document everything in details and prepare such compensation packages for both the host and the acquired companys employees such that it maintains equity and is meaningful and motivating.

Problem 2: For facing competition and dealing with declined sales and new management policies, Silica needs some efficient and productive employees who would help run the organization smoothly.

Solution:
Recruit qualified, efficient and effective workforce which is needed to deal with the competition and to thrive.

Right because:
The company can only deal with this crisis situation if only they have efficient, productive and enthusiastic employees. With effective and efficient workforce Silica Glass, Inc. can lower the production cost. This will increase the profitability of the company and help it survive in the long run; also, will make it capable to deal with the pressure of completion and stand out as one of the

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top companies. Silicas recruitment process has to be highly efficient and bias free so that it can recruit the best employees from the labor force available. To make the current work force most efficient and effective Silica must provide proper training to employees and workers. To retain Employees it has to prepare such a compensation package so that every employee can be motivated and their superior performance can be sustained.

Problem 3: The current market operation of Silica Glass Inc is in the United States and the expansion plan is in East Germany. These two countries vary in economic conditions and living expenses.

Solution:
Silica must set compensation package of both the United States and East Germany based on the basis of cost of living adjustment (COLA)

Right because:
In USA the competition was very high, the economic condition was stable and the cost of living was very high. It was very tough to hire new qualified employees in USA because of such competition. So in order to attract employees and retain them Silica had to maintain the current market compensation practice and give higher compensation to the employees. But in East Germany the economy was at a depression and unemployment rate was very high. The availability of such labor force made it easier for Silica to recruit and retain employees. The employees demand for salary was low so the company need not pay them equivalent to the US employees. However, the employees of East Germany on getting to know about the higher salaries of the US employees might revolt or demand for more. So the best way to keep all the employees happy was to start a compensation package based on Cost of Living Adjustments (COLA) which will justify the difference in pay and make the workers feel that equity is being served, so the employees will not question the intentions of the company and will not feel demoralized or de-motivated.

Problem 4: East Germany is stepping towards privatization and has made different new legislations regarding companies in operation. If Silica doesnt follow the government legislations then East Germany might not let them operate there.

Solution:
Silica must set up company policies taking into account the Government Legislation.

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Right because:
For the safety and health requirement of the German government Silica has to spend additional 30% of their capital investment in equipment and plant to ensure specific health, safety , environment and machinery needs. So while they will be planning the policies of the two newly acquired companies they must focus on the government legislations and acts and must take the conditions seriously and incorporate them in both the East German and US facilities. In this way, Silica would be able to maintain both the government legislations and corporate social responsibility.

Problem 5: Silicas operation in Europe would become extremely difficult to monitor because the lack of a regional headquarter in Europe.

Solution:
Silica should establish a regional Headquarter in Europe for better monitoring and controlling.

Right Because:
Without a regional headquarter it is very difficult to analyze the market and also very difficult to supervise the overall production process. Due to this lacking they have not made significant level of sales in the European region. Besides, without the regional headquarter they are giving rise to inefficiency in business because for selling products they have to bring the products directly from the U.S. which is time consuming and adding more to the cost of production. So, without a regional headquarter Silica is losing the opportunity of making high sales and profit. Thats why a regional Headquarter is extremely important for Silica.

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Implementation
The Problem: 1 The product lines were very narrow and market expansion was very limited for Silica Glass, Inc. Besides, the internal sales to other corporate divisions were expected to decline nearly 25% annually over the next five years.

Recommendation:

Silica Inc should consider and put all its efforts for expansion through mergers and acquisition. Silicas product lines were very narrow and market expansion was very limited for Silica Glass, Inc. Rapid growth of the whole organization was needed especially because direct intra-firm sales were expected to decline by 25% for the next five years. Rapid growth was only possible by establishing new facility or through acquisition and merger. So Silica decided to acquire new company which produces glass-fibre.

The Implementation Process:

How and where to implement? Silica is experiencing and potential increase in sales in both U.S and Europe. However, it is currently facing problems of decreasing intra firm sales with the possibility of a rise in the future. Furthermore, trade protectionism would likely create a barrier for the company in terms of expansion. Silica should always strive for the growth of its operation and to reach a high position in the economies of scale, the company needs to comprehensively do research on the various possibilities.Furthermore, adverse situations and available resources have to be considered before acquisition. The company has the option of expanding operations to the UK, France and Luxembourg but the initiation cost for these places were high. However, Silica has another option in Sonnenberg Glaswerks of Thuringen region of East Germany to consider. As the particular company produced mediocre glass fiber and was known to have attained some of the most advanced technology in the world in glass manufacturing, potential seems extremely positive. Even though growth prospects have stopped for this company after the inception of the communist government, this is still a fair option that can be worthwhile. Silica can take advantage in this region as companies were being privatized or liquidated.

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When to implement? High possibilities for sales growth in European markets give assurance for immediate expansion for Silica. The German government has decided to privatize the corporations so that more money is invested in those companies for improving conditions and Silica should take full advantage by gaining a high market share in the region. Further delays will only create hassles and invite other European as well as international companies to takeover the market. Silica should make liaisons with the European Commission, and influence restrictions on other foreign companies from operating in the region.

Who will implement? It is the job of the owner, Mike to analyze and finalize the decision making. He needs to understand the pros and cons attached to the acquisition and take appropriate decisions. He can also appoint specialist like lawyers, consultants who will collectively aid Mike to take the correct and final decision.

The Problem: 2

For facing competition and dealing with declined sales and new management policies, Silica needs some efficient and productive employees who would help run the organization smoothly.

The Recommendation:

Recruitment and retention of qualified, efficient and effective workforce is needed to deal with the competition and to thrive. Silica faced major competition from GlassPro both in the United States and worldwide. Also in Europe a relatively minor competitor was Sonnenberg Glaswerks. As such, Competition was very high in local and foreign market. More over there was the problem of intra firm sales decline and changing management policies. In such a scenario, the best weapon would be to have the most efficient and effective workforce.

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The Implementation Process:

How and where to implement? Silica needs to innovate themselves.The previous policies have become redundant and the management needs to analyze the current demand and trend. So Silica should implement the new theories of management being developed to extremely effective proportions. Silica needs to introduce more innovative managers who will bring some positive policies. Management needs to be more flexible. With the arrival of different situation management should be ready to answer all the possibilities. Furthermore, they should have an effective performance appraisal procedure along with an effective grievance policy for both existing and newly hired workforce. As the case mentions, Silica did not provide their employees with facilities such as executive dining rooms and restrooms and fishing lodges, so the company should provide facilities for the employees and the executives. Furthermore, the company needs to specify the type of workforce required. If experience is needed they should hire accordingly. Silica should be hiring innovative and effective employees to reduce errors. The ability, qualification and experience of the hired person should complement with the current need of Silica. It would be necessary for the company to provide job descriptions when recruiting processes are initiated.

When to implement?

The opportunity for Silica to acquire the best workforce is right now. As there are a huge number of unemployed individuals, there is enough to hire from. However, there may not be enough Innovative and outstanding personnel available in the job market. As Competition is low for Silica in this part of Europe and there are not enough jobs available, Silica must attain the best employees before competition sneaks in and steal these brilliant individuals from the companys grasp.

Who will implement? An effective HR department will bring out the best from the employees of the companies and motivate them to do good for the company. So the HR manager must have the ability to do al these important jobs. So the company has to hire the right people for the right job especially in the HR department.HR department of Silica can develop an effective compensation and executive development committee. A recruiting and training policy, and other ways to acuire and motivate employees to being more efficient in the workplace.

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The Problem: 3 The current market operation of Silica Glass Inc is in the United States and the expansion plan is in East Germany. These two countries vary in economic conditions and living expenses.

The Recommendation:

Silica must set the compensation package of both the United States and East Germany based facilities on the basis of cost of living adjustment (COLA) Silica Glass, Inc. is located in USA where the existing employees and workers get higher compensation packages because of the competition. But in East Germany there are economic depression and high unemployment rate so the compensation package must vary according to the economic and market conditions. Trying to maintain internal equity would be difficult for Silica given the current scenario. So what is most important in such a situation is to maintain external equity that is, set the compensation package of the employees based on what other companies in the similar industry are paying.

The Implementation Process:

How and where to implement? Silica can use compensation package on the basis of the Cost of Living Adjustments (COLA).The pay and compensation should follow all the rules prevailing in the region and country and be sufficient for the employees to make a standard living. The government is also providing 30% subsidy package to help out as health, safety environmental and machine need. Compensation packages may include Scanlon Plans, gain sharing opportunities, training sessions, merit pay and other forms of incentives to make the employees feel secured at work. The compensation must be related to the performance of their job in this case which the quality of the glass. When to implement? The whole compensation package should be implemented at the initial stages; The Company should already start implementing compensation to the existing and threatened employees in fear of becoming redundant. Silica has no sufficient plan for their employees who are work in the lower level and directly related with production. As these employees are de motivated on the prospect of losing their job, they should be reassured about their jobs and provide employee security.

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Who will implement? Implementation of the compensation package is the role of the HR Department. It must provide job security to the employees working in fear of losing their job during such massive economic depression in the region. However, HR department will need the backing of the decision-making authorities, the owners and other departmental managers to implement the new packages and incur costs related to it. Workers support is also an important issue and they should support the methods used by Silica.

The Problem: 4

East Germany is stepping towards privatization and has made different new legislations regarding companies in operation. If Silica doesnt follow the government legislations then East Germany might not let them operate there. The Recommendation:

Silica must set up company policies taking into account the Government Legislations. German government has specific safety and health requirements for the workers in a factory. Every company operating there has to follow those in return of the permission of operation.

In every country government have some acts or legislations to protect the right of the worker and employees. If any company do not follow or consider those acts and legislation the employees or the government might sue the company. So Silica must be aware of the fact that German government has similar kinds of laws.

The Implementation Process:

How and Where to implement? Silica is planning on expanding its operations to the European region and as Germany is the most feasible place it was chosen to establish their European facilities. As the company will enter the German economy, there are certain things they need to implement into their business plan particularly for its operations in that country. The German Government has its own laws and policies that must be considered before participating in their economy as well as monitoring the

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effectiveness of the implementation of those policies. Silica must include the laws and regulations of running any type of business in Germany especially for foreign investors. The company must first learn and then apply all the legitimate rules regarding the commencement of foreign businesses and abide by the minimum and maximum levels to which they can stretch these rules. The company must learn and implement these laws strictly and make sure that these rules are maintained for the betterment of the entire firm. The labor rates, employees negotiations methods, production methods and more importantly environmental issues should be carefully and strictly maintained in their planning.

When to implement? Silica needs to plan all business policies beginning with the organizational structure, the production procedures, The employee-employer relationships, the training and development techniques, The various pay grades and other organizational requirements long before the operation on the facilities begin. Before making these policies, the company needs to be sure about all laws and regulations they need to follow and for that purpose must meet with government officials beforehand and eventually implement all these methods to company operations.

Who will implement? It is the responsibility of the company officials and board members to finalize the organization procedure planning; they are in charge of determining how the organization will operate when the time arrives. These officials need to analyze and meet with the government officials in Germany to discuss and learn about all laws and regulations to be followed. It is the job of these officials to make various adjustments if needed and then pass these procedures to the department managers at the facilities to obtain full implementation of these methods.

The Problem: 5

Silicas operation in Europe would become extremely difficult to monitor and standards may not be maintained because of difficulty in supervision; all these are for the lack of a regional headquarter in Europe.

The Recommendation: Silica should establish a regional Headquarter in Europe for better monitoring and controlling.

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Silica has been exploring different areas of Europe to select the best option of expansion. But they found it difficult to explore and select because there are too many countries with new business environment and new opportunities which are unique from each other. They mainly faced this problem because they do not have any regional headquarter of the parent company operating in the European region.

The Implementation Process:

How and where to implement? Silica may look for a free land and purchase it in order to establish this headquarter for regional operations. However, it will be even more beneficial and less costly for the company if they set up this controlling board at either of the two facilities available to them. The regional headquarter will mainly function as the monitoring unit of the daily operations like production procedures, employee performance, workforce conflicts; it may also be used to have control of the individual HR departments of the two facilities and control the overall operations of Silica Glass. As the company is based in USA, this regional headquarter will help the owner, Mike to keep a close eye on the companys performance in Germany and other part of Europe.

When to implement? The timing for the implementations of this regional headquarter would coincide with the initiation in operations with the two facilities. As soon as they begin operations, the head quarter will begin monitoring all aspects of the facilities starting from sales revenue, production cost, employee benefit effectiveness and also adverse conditions such as workforce conflicts and physical damage to the facility due to both natural and human disasters. The European regional headquarter will be evaluating the operations in the European region and sending feedback to the parent country.

Who will implement? It is the job of the owner, Mike to analyze and finalize the decision making. He needs to understand the pros and cons attached to the acquisition and take appropriate decisions. He needs to evaluate the actual effectiveness of this regional headquarter and its feasibility for the company. Mike can use methods such as feasibility studies and most importantly take the help of the individual HR departments who would also perform an evaluation on the headquarters feasibility. He can also appoint specialist and other consultants who will collectively aid him take the correct and final decision.

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