Summary
This case study presents about a chemical manufacturing joint venture in China that involves a German parent firm and its Chinese partner. The German firm has conflicts on different aspects with China in terms of industrial safety, business ethics, and the environment. The Chinese however was upset that they cannot use gift, commissions, and other bribes to favorite their customers to gain more potential customers from China. Disagreement has arisen over whether the joint venture should pay a commission to a potential customers purchasing agent in order to gain a larger piece of the market value in China.
Liu’s role is not that of sales manager or HR administrator. His job is to be translator between the two firms, to explain the perspective and reasoning of the Germans in terms that his Chinese colleagues can understand, and conversely, explain the minutae of Chinese business in way that resonates with the German head office.
Liu must be able to sell the decisions and policies of the German parent company back to the employee in China. Simply saying to employees that they are a part of global company is meaningless when many of them lack of overseas experience to give context to this statement. Liu must frame the company policies in terms that have meaning to the local Chinese employees.
Almond should focus on gaining target customers such as large international firm that do not go after companies that insist on bribes and commissions.
Liu plays a major role of standardized processes in getting the company succeed. The company has been succeeding huge parts in both Europe and the United States using their implemented process. Those processes however are still unfamiliar to the Chinese.
Almond needs to be firm in the way by setting their standards for safety and ethics. The result may not achieve or defined in a short term period but it will eventually in the long term run. In fact, China’s business environment was way different compare to what it was in 10 years ago and it is continuing to evolve rapidly everyday. As all we know, China has been fighting hard on their bribery business ethic culture; lots of business men get punish hard by the government because of their wrong business ethic practices. In the next 10 years, we can expect to see more regulation and development of new criteria of doing business in China. So it will definitely pay off at the end by setting up standards for safety and ethics.
In the conflict of cost of benefit, Liu needs to identify other area of compromise. In this case, the joint venture can implement cost effective software as long as it is compatible with the global Almond system.
The Chinese should not be faulted for their pursuit of profits, and the Germans should not be faulted for standing up for their values. Both profits and values are matter. The key is to find a solution that compromises neither.
It is never easy to become a joint ventures and everything need to be set up properly from the beginning to avoid any conflict. The misunderstanding and conflicts in the Chongqing venture can be avoid by making reasonable expectations of future investment and return early on.
Liu also plays very important roles for Almond China. His position requires him to serve as a connector and interpreter for the both sides. He can help both parties to better understand their differences of opinion. He should clearly explain to Schulman what the Chinese sides’ thoughts, while explaining to the Chinese side what business practices German consist.
Both side need to be more open minded about the other side’s perspective. Both sides should think together what is the best for the ventures as a whole and over the long term instead of focuses on their own sides.
Although, the business environment in China is changing rapidly, many Chinese manufacturing companies still think standardization is unnecessary when it comes to safety. In fact, only one mistake can undo the whole company. Therefore Almond are right to adopt higher standards than what the Chinese law requires, because in the long run it will be shown if any accidents happen. China cannot be success without adherence to safety protocols in a long term.
In China, there are no explicit laws regarding bribery, foreign companies typically can offer a variation of the typical kickback. Since the 2008 financial crisis, surveillance over foreign-listed companies has become stricter, and China, like most other countries, has paid greater attention to business ethics. Liu must be sure that the Chongqing venture does not gain short term benefits at the expense of its long term reputation.
To make things move forward, Liu needs to help both sides communicate better with each other. Because they come from two different cultures, they have their own way to approach their work and cooperation. In belief, emotion and reason play a larger role than law in China, whereas the Europeans tend toward law and reason before emotion. The Chinese culture are by getting to know each other families, whereas the Europeans may not do the same. Neither side knows how to relate effectively with the other. Liu can advise the German to build up personal trust with the Chinese before going deep into their strictly standards. In order to build a comfort relationship in a joint ventures, each party needs to communicate in a way that make the other feel respected and comfortable. The prime example of keeping its company business ethis will be Google and China situation. China wanted to censor the Google and control what its people could search on the web. This went against the cultural of Google whereas it can search anything on the web. As a result, there is no Google in China.
Using Poster’ 5 forces
Threats of new Entry are low because of several factors. They are government regulations and patents, significant capital requirements, incumbents have superior efficiency and quality in production that may be difficult to imitate, human capital requirements.
Bargaining power of suppliers will be moderate. Chemical industry relies on supplies from a few large corporations. Chemical producers have limited substitutes for inputs.
Bargaining power of buyers will be moderate. Chemicals are important inputs to many industries. Those in chemical industry have many end customers, and do not reply on one customer only. The chemicals are not greatly differentiated anywhere. They usually purchased through long term contracts, so switching costs are high. The Threat of substitutes is weak. Buyers tend to need specific chemical as inputs for the company. There really are no similar substitutes for chemicals. Therefore, the industry rivalry is high and increasing. There are large number of competitors all competing for market share especially in China whereas everyone want to get this big chunk of fat. There are way too many global competitors and little room for expansion. All benefiting from economies of scale so competing on price. There are also too little differentiation among all players.