2006 Volume 52 Issue 1 Pages 19-35
This paper examines the merger of two Chinese state-owned iron manufacturing corporations located in Dalian and Fushun, Liaoning Province. The two companies, Fushun special Steel Co. Inc. and Dalian Jinniu Co. Ltd., merged to form the Liaoning Special Steel Corporation in 2003. This paper analyzes the change in the operational strategy of the new company and the regional differentiation in the operational conditions of the two companies. The merger could be viewed as a case in which Dalian Jinniu swallowed up Fushun Special Steel. In this respect it is no surprise to discover that the new company's operations are largely guided by the executives of Dalian Jinniu. Examples of this are 1) a majority of executives was selected from Dalian Jinniu and 2) the sales department of Fushun Special Steel is going to be merged into Dalian Jinniu's sales department. Looking at the merger in terms of location and power relations Dalian Jinniu, located in the economically prosperous Dalian, took advantage of relatively beneficial employment conditions. Dalian Jinniu was aggressive in its approach to operational reform, trimming the workforce and spinning off subsiduary corporations and plants in the latter half of the 1990's. At the time of the merger, Dalian Jinniu had secured the financial support of the Dalian Municipal Government. Conversely, Fushun Special Steel was relocated in Fushun, where the employment base relied on state-owned industries. This factor made it difficult for management to make progress in operational reforms. So in the years from 2000 to 2002, it is remarkable that Fushun Special Steel was able to reduce its workforce and spin off its welfare facilities and subsiduaries. Since the merger, production line efficiency has been intensified. The production of crude steel, with its large impact on the natural environment, now takes place at the plants located at Fushun. Steel processing, with its high margins and low environmental impact, remains at the Dalian plant. A merger of this kind between two large state-owned corporations has repercussions on the local economies and the employment conditions. For a region such as Fushun, where the local employment base relies on state-owned industries, there is a strong feeling of disquiet regarding the merger. Also, we look at other state-owned corporations located in Fushtin. In recent years they have had few advantages from leaving the head office and the product and sales departments intact in Fushun. There is a concern that these and other industries will leave for other areas. There are executives in other industries currently considering whether to relocate their head offices to a larger metropolis. If faced with this situation, the Fushun municipal government wouldn't have sufficient influence to prevent these companies from leaving the city. If the municipal government remains essentially powerless in the future, then there will be a significantly detrimental impact on the employment rates in this city.
