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Managing Across Borders - MGT3203 Individual Coursework

Guanxi in Jeopardy
JOINT VENTURE NEGOCIATIONS IN CHINA

Relationships between China and the rest of the world have known an incredible
progression since the Four Modenizations policy. The rate of Chinese economic growth improved and sustained at around 10% those last years, and the West is investing in this country more than ever, attracted by its 1,34 billion potential customers. But it is also because China is the ideal Asian gateway for Western firms. At the same time, China is one of the worlds oldest civilizations, and traditions are still very important in this country. Thus, more than anywhere else, the influence of culture should be taken into account and be the core of strategic choices. But first and foremost, it is worth recalling and reminding the deep signification of the word negotiation. According to the Business Dictionary, it is a process between two ore more parties (each with own aims, needs and viewpoints), seeking to discover a common ground and reach an agreement to settle a matter of mutual concern or resolve a conflict. It is particularly important to highlight the notion of agreement and mutual concern in the case of Joint Venture, which itself is a partnership and a temporary arrangement. It is clearly suggested that there is a need to acquire a profound knowledge of the other in the case of a negotiation, and particularly to negotiate a Joint Venture. It is therefore true that negotiation activity has skyrocketed in China, but nevertheless these negotiations are frequently unsatisfactory, because they still do not incorporate the knowledge of the Other and his various cultural profiles and values. This case Guanxi in Jeopardy is an interesting example of cross-cultural negotiation, and we could wonder how Electrowide overcome those difficulties, and which strategy should be the best one. First of all, to answer this question, it is important to define the gap between Western and Chinese culture, and then secondly consider how the negotiation have been carried out against this background. Then, with those enlightenments in hand, we could evaluate the choices made by Electrowides team, and finally suggest a strategic alternative to Tom Sherman.

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The gap between Western and Chinese culture (Question 1)

Although Chinas imperial institutions end one century ago, History is still the cement of current China. Yet, XXI Century has witnessed Chinas deep transformation, and the elevation at the top table of world powers, offering another new face to the world, anchored in tradition but opened to the modernity. This paradox is omnipresent including in the business arena, and more specifically in negotiation.
First, traditional Chinese philosophies, as Confucianism and Taoism, remain the core value system in Chinese business behaviour today. Confucianism is a form of moral ethics and a doctrine of relationships involving six core values: moral cultivation, the importance of interpersonal relationships, pursuit of harmony, respect for hierarchy and seniority, family orientation and the concept of face1. On the other hand, Taoism emphasizes harmony with Nature2, which means finding the Tao (the Way) by a perfect balance between the Yin and the Yang, thus finding a middle ground or a compromise3. It is consequently manifested with patience, but also in their Win-Win conception of negotiation and their pursuit of harmonious relationships even in business. In our case, this is illustrated by the interest of Toms counterparts for the visitors personal lives, dinners, present Failure to follow Confucius moral code in business could lead to public disapproval and destroy the reputation, jeopardizing respectability. Therefore it is difficult for a Chinese to accept constructive criticism approach frequently adopted by westerners during public presentations, and we can understand that the Ai Hwas reaction at the end of our case, is linked to this concept of face, and probably felt humiliated. Without the correct understanding of the Other, Chinese and Western negotiators often harbour mutually unfavourable perceptions. Indeed, many westerners find Chinese negotiators to be inefficient, indirect, and dishonest; a contrario, Chinese negotiators consider that their western counterparts are aggressive, impersonal, and insincere. Undeniably, the predominant characteristics of U.S culture are capitalism and efficiencyoriented control. The Westerners put the individual after the company, and all moves are taken in the aims of succeed in their mission. They cannot imagine the possibility to create a relationship between individuals in the context of a Joint Venture negotiation, and even worse, accept a personal gift. The Chinese use the term Guanxi to indicate a trust-based, reciprocal relationship, and business can only be settled if the trust is allowed, while Americans doesnt want, at first glance, to build personal relationships. It is an important illustration of the gap between both culture. For the Chinese, Americans are often struck by the spread of a grasping, money-seeking mentality4, which is a result of their competitive business ethics. This is reflected in the more pragmatic and results driven approach to business negotiations.

Negotiations between Electrowide and Motosuzhou (Question 2)

With the background of cross-cultural business, criteria for the JV have to be met.
Our case involves a multi-billion dollar American manufacturer of automotive electronics products, and an enterprise of the Beijing municipal government. The interest of Electrowide was the geographical position of en Asian partner, in order to

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take the opportunity of an important potential market in China, and a development in the region. As for Motosuzhou, its interest was the opportunity to acquire technologies and valuable business know-how. Furthermore, both of them would like to take advantage of a relationship with local government policies. So, strategic interests and operating policies are complementary, and at this level there is a win-win situation. Nevertheless, the Chinese business organization does not completely match with the American point of view, especially the accounting system, but also with the productivity policy. Indeed, Electrowide would like to expand their market and increase the efficiency, while Motosuzhou would like to keep entire control in its local market, and in its accounting practices. At this point of negotiation, it is worrying to notice both parties standing their positions when the definition of the term negotiation, as I previously highlighted, is looking for a common ground, eventually with concessions. These remarks bring us to an other key criteria for a JV partner, which is communication and trust. It is important in the context of negotiations, but even more for Chinese. Indeed in China it is the right "Guanxi" that makes all the difference in ensuring that business will be successful. By getting the right "Guanxi", the organization minimizes the risks, frustrations, and disappointments when doing business in China. Yet, this special relationship is built on trust and communication, and without these important criteria, the JV can be in jeopardize. Tom Shermans team does not understand its counterparts and cant sit around a table to discuss issues. For these reasons they feel lost in the negotiation, and the idea to make a contract without Motosuzhou opinion was the illustration of the end of a possible communication (which is already complicated by the language barriers).

Electrowides team and decisions (Question 3-4) Electrowide team certainly has had a role to play in the jeopardizing of negotiations. Positive points are Barb who can speak conversational Chinese, the two team members international experience, and Toms long career path within Electrowide. But we could also emphasize the negative points of the team to explain the failure of the JV. Indeed, none of them have degrees that would benefit in international business management, including the leader, Tom Sherman, who has never been in such a situation. Moreover, if they had made inquiries, they would know that a woman (especially the only one who speak Chinese) would not be a better choice. It is all the more regrettable that the head office did not help, giving in addition another mission to her. Finally, Marc Porter does not have the qualities to ease Chinese relationships. He is individualistic and self-propelling, which is in opposite of Chinese culture ways. Negotiators had not the appropriate knowledge of the country and its culture. As far as I am concerned, the company did not make the appropriate choices for this negotiation. Electrowide had two possible choices: either it should have had chosen a team with some Chinese negotiations experience, or it should have had trained this team on the Chinese culture and business relation. With an educated group some mistakes could have been avoided, like refuse some present, do not accept the rule of Guanxi (means dinners, nights out), and do not present a written contract in English to Ai Hwa Chew. These mistakes greatly offended Motosuzhou and put in jeopardize the JV.

The

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According to Helen Deresky5, 60% of IJVs fail, usually because of ineffective managerial decisions including careless partner selection. The third alternative strategy could be the adoption of a Problem-Solving Negotiation and seek mutually satisfactory ground, which is beneficial for both companies (rather than competitive negotiation). It is totally in accordance with the Chinese culture. It was pointed out in a survey, that China is the second country to prefer Problem-Solving Negotiation Strategy6.

Conclusion

The most important single factor determining IJV success or failure is the choice of a partner7. Many firms rush the process of partner selection and all that comes with it, that it to say the human question, differences of culture and language, a different way of life Particularly, western businesses negotiating with Chinese firms face many challenges, to establish long-tasting relationships and mutual trust. Not to be aware of this different culture can obscure decision-making processes. A substantial body of research already exist on the topic of negotiating with the Chinese (numerous books and websites), a preparation for this mission, some curiosity, empathy, or flexibility would have made this a successful Joint Venture. As the worlds market becomes increasingly global, companies will need to become adept at conducing international negotiation with difference business culture, especially in the emerging market like China, which could become a new centre of gravity.

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Sources:
1 et 3 2

Tony Fang, Chinese Business Negotiation Style p.109 p.29

Tony Fang, Culture as a Driving Force for Interfirm Adaptation: A Chinese Case, Issue 30, 2001
4

J. Frankenstein, Some Strategic Speculations about International business in China

5 et 7 Helen

Deresky, International Management Managing Across Borders and Cultures, 7th ed p.233 Salacuse, Jeswald W. Ten ways that culture affects negotiating style: Some survey results, Negotiation Journal, July 1998, pp. 221-240
6

Guy Olivier Faure, Negotiation: the Chinese Concept, Negotiation Journal, April 1998, pp.137-148 Cultural Notes on Chinese Negotiating Behaviour: http://www.hbs.edu/research/pdf/09-076.pdf International Joint Ventures: A Welfare Analysis: http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN014336.pdf Chinese Business Culture, Guanxi, An Important Chinese Business Element http://chinese-school.netfirms.com/guanxi.html