Wyoff and China-Luquan: Negotiating a Joint Venture(a)
WYOFF AND CHINA-LUQUAN: NEGOTIATING A JOINT VENTURE(A)
Introduction & Situation Analysis
Joint ventures (JV) are a popular method of foreign market entry because they theoretically provide a way to join complementary skills and know-how, as well as a way for the foreign firm to gain an insider’s perspective on the foreign market. Since China began its market opening in 1978, joint ventures have been the most commonly used form of foreign direct investment (FDI), with about 70% of FDI in China in the 1980s and 1990s taking the form of joint ventures (Qui, 2005, p. 47). The Chinese company, as well as the foreign investor, has since 1978 been drawn to the joint venture form. Walsh, Wang & Xin (1999) note that from the Chinese perspective, “the joint venture form of governance was seen as a particularly attractive way of absorbing foreign capital, advanced technology, management skills and access to export markets, while at the same time, enabling some state control over the attendant negative influences that could accompany such outside influence” (pp. 69-70). Notwithstanding the theoretical advantages of the JV form for both Chinese and foreign investors, and despite the attractiveness of the huge China market to Western investors, cultural and business differences between the JV partners have led to problems and failure in such ventures (Borgonjon & Hofmann, 2008, Qui, 2009). Indeed, in many cases, the potential Sino-Western JVs fail before they begin as a result of a breakdown during the negotiating process (Zhao, 2000; Sheer & Chen, 2002). This paper provides a case analysis and case solution to a Harvard Business School case study on efforts to negotiate a joint venture (JV) between Pennsylvania-based Wyoff Corp. and Jinan, China-based China-LuQuan Chemical Ltd. (“CLQ”) (Sebenius & Qian, 2009). The proposed JV will be based in Shandong Province and produce and market specialty chemical additives from the AD and CE families of chemicals. The major
Introduction & Situation Analysis
Joint ventures (JV) are a popular method of foreign market entry because they theoretically provide a way to join complementary skills and know-how, as well as a way for the foreign firm to gain an insider’s perspective on the foreign market. Since China began its market opening in 1978, joint ventures have been the most commonly used form of foreign direct investment (FDI), with about 70% of FDI in China in the 1980s and 1990s taking the form of joint ventures (Qui, 2005, p. 47). The Chinese company, as well as the foreign investor, has since 1978 been drawn to the joint venture form. Walsh, Wang & Xin (1999) note that from the Chinese perspective, “the joint venture form of governance was seen as a particularly attractive way of absorbing foreign capital, advanced technology, management skills and access to export markets, while at the same time, enabling some state control over the attendant negative influences that could accompany such outside influence” (pp. 69-70). Notwithstanding the theoretical advantages of the JV form for both Chinese and foreign investors, and despite the attractiveness of the huge China market to Western investors, cultural and business differences between the JV partners have led to problems and failure in such ventures (Borgonjon & Hofmann, 2008, Qui, 2009). Indeed, in many cases, the potential Sino-Western JVs fail before they begin as a result of a breakdown during the negotiating process (Zhao, 2000; Sheer & Chen, 2002). This paper provides a case analysis and case solution to a Harvard Business School case study on efforts to negotiate a joint venture (JV) between Pennsylvania-based Wyoff Corp. and Jinan, China-based China-LuQuan Chemical Ltd. (“CLQ”) (Sebenius & Qian, 2009). The proposed JV will be based in Shandong Province and produce and market specialty chemical additives from the AD and CE families of chemicals. The major
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