Guanxi In Jeopary

I. Brief Summary of Overview of the Case: Guanxy in Jeopardy

Electrowide is a United States based company which is trying to increase its competitive position, and one of its actions for achieving that is to enhance its strategic situation in Asia.
The company seeks to find a local partner to help manufacture and sell their electronic equipment that is put in cars in order to promote its business growth by expanding globally. They made the decision of doing a Joint Venture with a Chinese company, as they have realized China is gaining international presence and is forecasted to become the largest economy in the world in 2025. The company has chosen Motosuzhou, a large Chinese enterprise of the Beijing municipal government. The Chinese company would be also benefit from their joint venture as they could gradually acquire technology through transfer by importing equipment and design and adapt them to the automotive industry in China.
The American company formed a team composed of three members who went to the local establishments of the company in order to meet the Chinese managers with the purpose of reaching an agreement for their association. The differences in doing business between both companies were quickly evident. For instance, Electrowide’s members were impressed by the fact that the Chinese team was more interested in their personal lives and families than in discussing the proposed JV. For the first time after five weeks, its members reached some conclusions of the specific roles and responsibilities that each party would assume under the JV.
Unluckily, due to the differences in the way of doing business between the Chinese Corporation and the American company, the joint venture failed. Electrowide’s members commit a mistake when presenting the Chinese company a written arrangement as the Chinese managers took that act as an offense that would destroy their future business relationship. The main problem was that Electrowide’s team failed to take into account many cultural variables that are associated when doing business in China: they did not develop Guanxi appropriately, which is an essential aspect of interrelationships in the Chinese culture that implicitly establishes trust, mutual obligations and intimacy. As Guanxi alone establishes all that features, no written agreements are needed and they are considered an insult.

II. Case Questions

1. What are the main characteristics of the Chinese culture? How do they differ from the predominant characteristics of the U.S culture? How do these differences relate to the negotiation process?

Main characteristics of the Chinese culture:
In order to find out how the American culture of Electrowide and the Chinese culture of Motosuzhou will influence negotiations, I will develop different aspects of the Chinese culture separately while comparing them with the US.
In regard of education, China is a state-run system of public education. In its culture, education is valued highly and considered very important for success. Although in mainland China 90% of the population is literate, the acquisition of literacy is still a problem particularly among the rural population. The assistant director-general for the education of the UNESCO told that “although China has maintained strong progress toward universal adult literacy, its illiterate population is still one of the biggest of the world”. Education is compulsory in the US over an age range between 5 and 16 years.

When considering the genders’ positions in China, males account for more than half of the workforce and occupy the great majority of leadership position, so that we can state that discrimination still exists. In the US, discrimination against women has changed in the nearly four decades since the enactment of the Civil Rights Act of 1964, the Equal Pay Act and other prohibitions against employment discrimination based on sex, although women continue to be paid less than men for equal work and to be disadvantaged in some ways based not on their abilities or qualifications.

With regard to values, most social values in China are derived from Confucianism and Taoism. The teaching of Confucius stress obedience, deference to elders and responsibility to community. Some other important values include harmony in interpersonal relationships and the emphasis of the family over the individual.

The Chinese culture is distinctive from the Western culture in many ways, including how business is conducted. An important aspect of the Chinese culture is the term Guanxi, which stands for any type of “intricate, pervasive network of personal relations that every Chinese cultivates with energy and imagination”. Guanxi has to govern the attitudes toward long-term business, but because of cultural differences it is very difficult for foreigners to cultivate it. However, it is a very relevant aspect to consider if a foreigner wants to ensure a good business relationship. Developing Guanxi may take time and resources; however, the time and money necessary to establish a strong network is worth the investment. The Chinese prefer to deal with people they know and trust; and that reliance on relationships means that Western companies have to make themselves known to the Chinese before any business can take place. The relationship has not only to take place between the companies, but between the individuals at a personal level. In the US, when conducting business negotiations, people usually stay on the basis of their business relationship and don’t let their personalities interfere with the conferences.

The main problem in the negotiation process came because of different cultural backgrounds: the Western society needs written contracts in order to protect an association, to establish what every party will perform and to assure that their obligations are met, and if not to have a legal document that allows them to ask for compensation of damages in case the duties are not executed. However, trust is a basic element in the Chinese culture: people spend long time and effort in building relationships and making them so worthwhile that contracts are not needed.
Because of those many differences in cultures, Americans agree that China has never been an easy place to conduct business.

2. What are the criteria that should be used in selecting a joint venture partner? Have those criteria been met in this situation? Why, or why not?

Electrowide did a structural redesign, by which various councils would assume the majority of decisions made within the corporation. The company had plans to empower the Strategy Management Council with the responsibility of establishing processes and guidelines for exploring and establishing acquisitions and joint ventures particularly focusing on overseas opportunities.

Electrowide did a study in which Motosuzhou was investigated along with several other possible Eastern Asian partners. The criteria that were evaluated were: the partner’s physical location in the country, the size of its labor force and the strength of the resources that could enhance as well as reduce operational costs. The company was also trying to find a local manufacturing company with strong network that could readily market products produced under the JV without additional expense in the effort. Another aspect that was considered is that the local company had ties to the government officials. After analyzing all these conditions, Electrowide arrived to the conclusion that Motosuzhou was the company that best fitted their criteria. Motosuzhou appeared to be a perfect company for Electrowide to do business with; however, their relationship could not positively come to an end. It coul

3. Evaluate the composition of Electrowide’s team and of Motosuzhou’s team. Did each of the companies make appropriate choices for this negotiation? Give reasons for your answer.
First of all, I am going to present the composition of both teams and the most important aspects about their members.
Electrowide’s team

Tom: 55 years old, with a B.S in Mechanical Engineering. He is considered highly technical and knowledgeable about industrial operation and manufacturing techniques. He has worked 32 years for Electrowide and for distinctive positions and currently he is the manager of Material Resource Management. He has no international experience more than participating in technology transfer in Canada and his plans are to retire soon.

Barb Morgan: 42 years old with a B.S in Psychology and Computer Science. Her most recent assignment in the company was project manager for an acquisition venture in Sweden. She speaks conversational Chinese as well as fluent French. She wants to continue seeking overseas assignments.

Mark Porter: 31 years old, he has a B.S in Finance and a MBA. His most recent position was business analyst. He is a type-A personality and a self-starter, focusing on excelling no matter what the cost or sacrifice. He was eager to do some international work.

Motosuzhou Team

Deng Zang: is 62 years old with a B.S in Business Administration. He is the factory director and speaks English poorly.

Ai Hwa Chew: 55 years old. He is a very serious, diligent and competent deputy director of Supply and Distribution.

Wang Yoo: 65 years with a B.S in Accounting and fluent English.
It is hard to point out who is responsible for the lack of training and preparation of the American team, but it can be clear that the right members were not chosen.
When comparing the two negotiating teams for each company, we could state that Motosuzhou was represented by three of the most senior executives, which are aged and have probably more experience in business than that of the American company. The age could also be a fact of them being more traditional and attach to strong cultural Chinese values.
Electrowide’s three-person team has also a shortage in the sense that none of them has international business skills, as there is no single person having a degree in “International Business” or something related. They are experts in other areas, but in my opinion, the company should have sent a representative that had international skills, and had learned the differences of management and cultures around the world.
Individually, sending a woman to the negotiations was also a risky movement of the American company, as I will develop in the next question. Mark could also have been risky for the venture because of his inexperience and maybe a too strong personality that would not allow the Chinese members to be on “the driver’s seat”, as they are used to.
But the most important aspect that, in my opinion, was not considered when establishing the team was that none of them had intercultural competences about the Chinese “way of doing businesses”. The fact was clear in some points; for instance, Electrowide always selected specific time schedules for business negotiations, while the Chinese company didn’t follow that policy. Those planned meeting do not allowed Guanxi to flow freely, therefore the company cancelled them.

4. Should Barb Morgan have been on the negotiating team? Evaluate and give your reasons. The fact of having a woman on the American team can be considered as a disadvantage for the company, in the sense that the Chinese economy is still discriminatory and male-centered. Barb was not taken into account; she was even ignored in the negotiations and instructed not to vocally participate. Probably, the company should have done a better research about the gender position in business in the Chinese culture and not send Barb to negotiations, as women are not seen as full equals to men in this culture. Because of their cultural background, Barb’s contributions were unobserved by the Chinese company, so all the efforts she was making were in some sense worthless.
However, I must state that Barb was almost certainly one of the most prepared as she had international experience and was the only one speaking conversational Chinese.

5. What should Tom Sherman do?
When Tom presented Ai Hwa the written and formal contract that a lawyer in Beijing had develop in order to address every conceivable contingency his “eyes grew dim and his face flushed”. All the future meetings were cancelled and the Chinese manager called urgently the Minister of Finance. The next morning, all the facts were already in the local newspaper under the title “Motosuzhou/Electrowide, Inc: Guanxy in Jeopardy”. Tom is obviously disappointed by the fact that the Joint Venture could not succeed as this would have contributed very positively to their expansion in Asia. In my opinion, he has to make some reparations in order to apologize for the offense the company committed. Since China is the host country, Tom should express his regret because of not having respected the rules that applied.
III. Bibliography
Chapter 2 Guidestoolkits: Cultural Sensitivity: Chinese Guide,
Chelsea Kling, Patrick Hibben, Eric Ansari, Sean Hawbreaker; Guanxi in Jeopardy
Vicent Lo, the King of Guanxi: How an outsider succeeded in China
Sex Discrimination in the American Workplace: Still a Fact of Life

Bibliography: Chapter 2 Guidestoolkits: Cultural Sensitivity: Chinese Guide, Chelsea Kling, Patrick Hibben, Eric Ansari, Sean Hawbreaker; Guanxi in Jeopardy Vicent Lo, the King of Guanxi: How an outsider succeeded in China Sex Discrimination in the American Workplace: Still a Fact of Life