CASE 31 A FIRST-TIME EXPATRIATE'S EXPERIENCE IN A JOINT VENTURE IN CHINA

I. CASE ABSTRACT This case focuses on the experiences of James Randolf, a first-time expatriate from Controls, Inc., working to establish a joint venture (JV) in the Peoples Republic of China. He encounters poor human resource management (HRM) practices and apparent changes in his company's internationalization policies. Complicating the issues are (a) problems dealing with Controls, Inc.'s Asia-Pacific subsidiary, which is responsible for the operation of the Chinese JV, (b) Chinese cultural values and norms and their effect on the management and operations of a firm in China, (c) an apparent failure on the part of Controls Inc. to understand the negotiation process for JV contracts in China, and (d) interactions with governmental agencies. Controls, Inc. is a subsidiary of Filtration, Inc, a huge Chicagobased international manufacturing conglomerate specializing in the design and production of temperature control and filtration systems. Controls, also based in Chicago, must compete for business against global competitors. To keep its prices and services competitive, Controls needs to use cheaper labor and be located closer to key prospective customers. Within the past three years, Controls has been establishing operations in Europe, Asia, and South America. A joint venture in China would provide Controls with an opportunity to gain a foothold in this untapped market for temperature control systems. This could not only allow a greater thrust into the expanding Chinese economy but also lead to the establishment of plants to manufacture various products for the entire Asia/Pacific market. Controls' relatively new experience in international business did not prepare it for establishing a joint venture in China. Management made a number of mistakes, but it seemed unaware that it was making them. It had negotiated an agreement with Chongming Electro-Assembly Company, a state-owned electronic device assembly company, to jointly run a manufacturing plant on Chongming Dao Island, 25 miles north of Shanghai. Controls selected James Randolf to co-manage the facility. Randolf was 51 years old and had worked in managerial positions in Engineering, Quality, Customer Support, and Program Management for the last 15 of his 23 years with the company. Having a wife who had been born in Shanghai seemed to make Randolf an ideal candidate for the job.

_________________________

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China Copyright 1999 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the 7th Editions of (1) Strategic Management and Business Policy and (2) Cases in Strategic Management.

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China The case describes how Randolf tried to make the joint venture work, even in the absence of useful support from Controls. In China, for example, a JV contract was considered only a framework from which to begin the real negotiation process. The Controls negotiating team had, however, viewed the contract as concluded. Randolf was therefore put into the position of having to adjust the contract on an almost daily basis. The case provides information regarding key characteristics of the Chinese culture and Chinese management. After working 13 months to make the plant reasonably productive, Randolf was informed by phone that he had been recalled to the home office. He was given a month to train his replacement. The case ends with Randolf thinking about his experience and wondering about what he should include in his written report to headquarters. He was concerned that Controls was making a big mistake by replacing him so soon, but he was also concerned that he might not have a job waiting for him when he returned home. How frank should he be about the mistakes that had been made? To whom should he send copies? Given that he felt that the joint venture could soon be in real trouble, was it his responsibility to help the company correct its mistakes? Decision Date: March, 1994 1994 JV Sales: 1994 JV Profits: Unknown Unknown

II. CASE ISSUES AND SUBJECTS Controls Industry Manufacturing Governance of Subsidiaries and JVs Environmental Scanning Societal Environment Sociocultural Forces Cultural Norms and Values Political-legal Forces Economic Forces Technological Forces

International Entry Strategies Strategic Alliances Joint Ventures Strategy Implementation Human Resource Strategy Managing Expatriates Multinational Corporation Organizational Structure Evaluation and Control

I. III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS (See Figure 1.5 on pages 20 and 21) Strategy Formulation Pe rfo rm an ce Str at egi c Po stu re Co rp or at e Go ve rn an ce Ex ter nal Fa cto rs Int er nal Fa cto rs Str at egi c Fa cto rs Rev iew Mis sion & Obj ecti ves S tr at e gi c A lt e r n at iv Strategy Implementation Evaluation & Control

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China e s

1A X

1B X

2 O

3 O

4 O

5A X

5B O

6 X

7 O

8 O

O = Emphasized in Case IV. CASE OBJECTIVES

X = Covered in Case

1. To provide a vehicle for learning about culture and management practices in a foreign country. 2. To discuss corporate governance in terms of governing/managing a joint venture in a foreign environment as well as a corporation's governance of its subsidiaries. 3. To demonstrate the effect on the internationalization process of a company, of corporate HRM practices such as selection processes, orientation, configuring compensation and benefits, and re-entry and succession planning. 4. To illustrate the importance of HQ support for expatriate employees. 5. To demonstrate the effects of drastic changes in a corporation's internationalization strategy on expatriates. 6. To show the importance of coordinating the policies, strategies, and operational activities of the parent with that of its subsidiaries. 7. To illustrate how the Chinese national business environment (including culture) affects the management and operation of a U.S. joint venture in China. V. SUGGESTED CLASSROOM APPROACHES TO THE CASE 1. Caution! This is NOT a good case to use for the usual oral presentation or for a strategic audit. Because the unit of analysis is a joint venture of a subsidiary of a larger corporation, the case only provides partial information about each of the players involved. 2. This case is a good one to use for open class discussion of particular topics, such as corporate governance, strategy implementation, and international entry strategies. It is also excellent for a written paper or an exam. 3. This is a good case to use when discussing environmental scanning, especially international societal environments. Use

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China after a thorough discussion of societal environmental scanning. Each country or area of the world can be considered to form a societal environment. This case teaches students, especially undergraduates, that many of their assumptions are rooted in their own societal environment and are often not applicable in another country's societal environment. These differences will then be reflected in interesting dynamics in the task environment. 4. This is also a good case to use when investigating strategy implementation. Controls, Inc. chose the international entry strategy of the joint venture but had no idea what would be needed to correctly implement that strategy. Consequently, people at the plant level were forced to make decisions that would normally be decided in advance at corporate headquarters. 5. This case can also be very useful in terms of corporate governance. Consider how much independence a corporate headquarters should provide its subsidiaries. It appears that Filtration was not giving Controls much guidance in its international expansion strategy. This was compounded by the lack of governance mechanisms developed by Controls to oversee and support its Chinese joint venture. 6. According to the case author, this case focuses on many aspects of management in an international context. It can hence be used in a number of courses, including International Management and Comparative Management, International HRM and Global Strategy courses, in sections dealing with the implementation of the internationalization process. It may be used at any point in the course following, or in conjunction with, a discussion of how national and cultural perspectives affect the operation of an overseas business, particularly as it relates to strategic international human resources management. Some background on the formation and implementation of joint ventures would also prove helpful to understanding the case. VI. DISCUSSION QUESTIONS 1. The usual questions we like to ask in a typical comprehensive strategy case may not be appropriate to this case. Nevertheless, if one wishes to evaluate the success of Controls' joint venture in China, the following questions may be of value: a. What are the strengths and weaknesses of this joint venture? b. What are the opportunities and threats facing the joint venture? c. What are the strategic factors of the joint venture's situation? d. Does the joint venture have any core competencies? what are they? If 'yes,'

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China e. Does the joint venture have a distinctive competency? 'yes,' what is it? 2. What mistakes have been made in this case? By whom? If

3. What corporate governance issues are present in this case? Consider how a parent corporation governs its subsidiaries and how a corporation/division governs/manages its strategic alliances/joint ventures. 4. Why do you think Controls recalled James Randolf home? 5. Would you like to work for a company like Controls? not? Why or why

6. If you were James Randolf, what would you include in your report to Controls' headquarters? Would the content change if you knew that you were being recalled for a promotion to a more important position? 7. The case author includes nine additional questions for use in class discussion. See PART VII - CASE AUTHOR'S TEACHING NOTE. VII. CASE AUTHOR'S TEACHING NOTE *by John Stannbury A. DISCUSSION QUESTIONS 1. Critique the apparent expatriate selection process used by Controls Inc. Controls' selection process was haphazard to say the least. There appeared to be no formal process through which an employee could apply for an overseas assignment, nor internal announcement that such positions were vacant. There were no job descriptions provided, but this is often the case because people in the head office have only a very broad idea of what the job entails and assume that it will be identical to a similar position in the United States. No mention is made of the criteria used to ascertain who is the best candidate for the position. James apparently lost out to a much younger, less experienced, but politically connected man for the job in Japan. This is apparently quite common in this company. What are the implications of this information? It could mean that criteria mean very little and the relevance of education, qualifications, and experience mean even less. The process seems poorly planned, uncoordinated, and governed by organizational politics. Examples are (a) how long Randolf waited before being invited to Lakeland for an interview, (b) the one week the Director of the Freezer and Cooler business unit gave Randolf, and (c) how long he waited to hear that he got the job in China. 2. Evaluate the orientation programs that Randolf undertook.

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China The orientation process for an international assignment should begin with the selection process and end when the expatriate returns from overseas. Factors which contributed to an inadequate orientation process include the following: a. Little or no time was allowed for Randolf or the negotiation teams to receive adequate language training. In Randolf's case, his management should not only have been more sensitive to the need, but should also have insisted that he adhere more closely to scheduled language training opportunities. Westerners cannot be expected to learn a language as complex as Mandarin in such a short period of time. __________________________ *Reprinted by permission of the case author.

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China b. Not enough time was allowed for Randolf or the negotiation teams to acquire knowledge essential to effectively doing business in China, such as the key cultural characteristics of the country and their relationship to business e.g., time, space, communication practices, decision making, motivating employees, leadership styles, building relationships, and relevant historical, and governmental information (See Appendix II in body of the case). c. The negotiation teams were not given training in how to select a JV partner in China. They were also not given training in how to negotiate with the Chinese. d. Appropriate travel arrangements were not made during the "look-see" trip. e. James and Lily Randolf were not provided with a suitable tour guide during their "look-see" trip. f. Randolf was not kept up to date on events at Controls. The case implies that he was basically left alone to fend for himself. g. Much of what the parent company provided in the way of orientation in Chicago was good, but it needs to be augmented (See Teaching Note Exhibit 1). Chinese culture is viewed as being high context, and expatriates correspondingly need the immersion approach to orientation. Control's Asia-Pacific appeared to do a very poor job of supporting Randolf in this regard. h. Other subjects for expatriate orientation processes include assistance in locating living quarters both in China and when the employee and family return to the United States and advice on whether it is appropriate for him/her to sell their home. Children's education would also normally be discussed and additional costs born by the employer as necessary. This is not relevant for James and Lily Randolf, whose children are adults. It is customary to include the spouse and dependent children in the orientation process, and many companies also include them in some of the selection interviews. i. Another increasingly important element of orientation is special training for female expatriates, since they may be viewed differently in other countries and need to know how to modify their behavior accordingly. It is also very important that somebody at the home office understands the expatriate's needs. One way to deal with this is to bring the expatriate back to the home office frequently and pay attention to what he can teach them about the assignment. If the expatriate is to be effective, the home office must also support requests from the field, even though they may be expensive.

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China The amount and importance of the pre-assignment training is directly related to the nature of the assignment. An assignment to China is generally considered a "hardship post". For an expatriate it means leaving the place with which she/he is familiar and living in a country which is totally different and with which she/he is completely unfamiliar. In these situations, it is essential that the person selected for the assignment be mentally and physically prepared. 3. What other concerns do you have about Controls' HRM strategy? What changes would you recommend to Controls' management? Or to its parent, Filtration? Other HRM concerns include the incompatibility of the parent's Compensation and Benefits package and the subsidiary's equivalent. This was manifested in the disparities between the per diems and travel allowances available for children to visit their parents overseas. An additional, very significant element of Controls' HRM policy is revealed in the case. Poor post-assignment planning was demonstrated by the treatment of returning expatriates (i.e. sitting in a room in Personnel, waiting). Not only does this have a negative effect on the morale of these employees, but also they demonstrate a complete failure to understand their value to the organization. This is twofold. Firstly, expatriate positions provide much better management training than is possible at HQ because it forces managers to make decisions and assume responsibility without "consulting" others. As such, it should be treated as a management development program, rather than as a place to send 50+ year old supervisors to while away their final years. Secondly, expatriate work experience provides knowledge of "how things are done over there"; a far greater appreciation of international business activities and management than could ever be learned in head office. This, therefore, provides a training ground for top managers of the future, ALL of whom should have significant international management experience before taking on top management positions in an international company. An important concern facing the expatriate is the reentry problem. By the time the expatriate gets back from the overseas assignment he/she will have been out of corporate competition for a time. Politically, he/she will likely have fallen behind peer groups and may also have become professionally and technically out of date. It is important to work out reentry issues and earmark a position for the expatriate to return to, before the expatriate leaves for the new job. In fact, as alluded to above, it should be part of the management development process. When Randolf left for China, he was told that the duration of his assignment would be three years but no future position was identified or defined for the day he returned. There is a need to change Controls' Asia-Pacific compensation policies, which did not allow James to hire a qualified translator in a timely manner. 31-9

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China Implicit here is the question whether the International HRM Policy/Strategy should be formulated by Controls' parent, Filtration Inc., since its subsidiaries' experience was limited in this area. An alternative might be that the parent should formulate the International HRM corporate strategy with Controls' implementing it, with the guidance and direction of the parent. I think Controls needs this, since it appears not to have an International HRM strategy, nor know how to implement one, displaying only reactive rather than proactive behavior. 4. Was James Randolf a good choice for this position? your arguments. Justify

In general, Randolf was a very good choice for this position, but his selection seems more accidental than based on an understanding of what was required for the position by HQ. The fact that his wife was of Chinese heritage was not a coincidence. Living with someone of a different cultural background, especially for more than 20 years, sensitizes a person to cultural differences and makes one culturally empathetic. No mention of his technical capabilities was made except to describe him as being an experienced manager. Under normal circumstances, however, conventional wisdom suggests that one should not generally send a 50-year-old employee on a first-time expatriate assignment as a senior manager. This is because the older one gets the more likely it is that a person would be unable to change his/her managerial behavior or make lifestyle adjustments easily. Randolf was able to do this mainly because he had learned much of what he needed through being married to a Chinese woman. What are the key criteria that firms should look for in a suitable candidate for a position as a manager overseas? The author wrote a Masters thesis (unpublished) on this subject, working mostly in an office overlooking the harbor in Benghazi, Libya. The thesis identified four sets of criteria that should be used in such a process. Briefly, these are: Technical Criteria, usually available but generally overemphasized; Management Skills, especially those that relate to dealing with unstructured situations; Personal Attributes, i.e. family situation etc.; and Cultural Skills, usually ignored. There are very many sources available to read in the public domain. One that the reader might profitably consult is Global Assignments by Stewart Black, Hal Gregerson, and Mark Mendenhall, published by Jossey Bass in 1992.

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China 5. Which of the following is the most appropriate course of action for Controls, Inc.? a. To continue with its present haphazard, unplanned approach and learn through experience and inevitable mistakes. b. To hire, at considerable expense, a seasoned international HRM specialist, such as a VP from another firm in the auto industry. c. To move more slowly and ensure that all involved in the formulation and implementation of International Human Resources Strategy are well trained in the field before undertaking these responsibilities. Alternative A, as it stands, is inadequate. It is true that Controls needs to act quickly, but to continue to do so in the manner indicated in the case is courting disaster. Controls managers are making poor selection decisions and not using the experience gained by their expatriates to assist them in improving their decision making. In addition, its subsidiary, Controls Asia-Pacific, appears to have a mind of its own and is operating ineffectively. Its performance will continue to suffer without some form of guidance, since it appears that management is doing a very poor job of internationalizing its operations - if this case is anything to go by. There are two major problems with Alternative B. First, it would be very difficult to identify an exceptional candidate for this position who is familiar with the industry, though an argument can be made that familiarity with the auto industry is an advantage but is not critical. This option may also be expensive. More importantly, this company has what I call a typical organizational and political culture of technocrats. It is a company in which anyone other than engineer has an uphill battle when it comes to being accepted and therefore receiving promotion opportunities at the highest level. Technocratic companies also have the reputation of tending not to welcome outsiders or change. Its decision to internationalize came not long before the events depicted in the case, and it came as a result of its parent advising it that all work would be subsequently open to a competitive bidding process. So not only did the firm have to learn how to compete, it had to do it in a global rather than a national context. Alternative C can be discounted because of time constraints. If Controls had planned the internationalization process properly, it would have been the preferred choice. The instructor's choice in the short term would be a modification of Alternative A, with guidance/direction/ supervision from the parent, Filtration Inc. There must be direction not only to sufficiently minimize risk but also to ensure that the subsidiary, Controls, as well as its subsidiary, Controls Asia-Pacific, follows corporate 31-11

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China policy/strategy in this regard. For the long term, a clearly articulated international HRM strategy must be developed. 6. What are the consequences of badly managed expatriate management programs (especially in large firms which are trying to significantly increase the percentage of total revenue earned from international and foreign activities and their international market share)? The key consequence is that, unless you include international management experience as an integral management development strategy, you are unlikely to develop managers who can function effectively as global leaders. Of course, one can hire outsiders who are equipped in this way, either though prior international experience or by being from other countries. Both these options are also fraught with problems, mostly because many U.S. companies and their employees do not often respond well to outsiders, especially foreigners. In any event, from one of these three HRM strategies must come "global" managers, a necessary prerequisite to meet the longrun goal of significantly increasing the percentage of international and foreign activities of total gross revenue and increasing global market share. Instructors may wish to introduce here Perlmutter's EPRG profile (Chakravarty and Perlmutter, 1985) and ask students to give their opinion as to how they would classify Controls Inc. using this typology. 7. What were some of the aspects of the Chinese business environment (including culture) that Randolf had to deal with? Comment on his effectiveness as a manager in a JV in China. Among the various features of the Chinese business environment that James Randolf (and other Controls, Inc. employees) encountered were the following: a. The Chinese typically negotiate in three distinct stages in establishing a contract: the relationship building phase, the talks leading to the signing of the contract, and then the real give and take of the working relationship, after the contract is signed. MacLeod (1988) and Hendrix (1986) report that the Chinese have a well-structured style of negotiation, which is quite different from Western practice. For example, the Chinese often make use of the "shame" technique to gain advantage. They will typically try to make the opposite side feel responsible for any errors that might occur. Knowing that Westerners tend to be very impatient, they will use "go slow" techniques to encourage the opposite side to give away more than planned. They also dislike head office executives attempting to use purely U.S.-style strategies in their approach to the Chinese market. Another mandatory technique is Keqi-hua or "polite talk," which can be very lengthy and apparently accomplishes nothing. This is both a get-acquainted process and a kind of test to which foreign visitors are subjected, to see how 31-12

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China they react. This was probably one of the reasons why the negotiation process with Chongming Electro-Assembly Company took so long. To the Chinese, the word "contract" means only a commercial agreement, not a legally binding document. Signing a contract is a formal confirmation that they intend to do business with you, not an indication of how they are planning to conduct business. It is well known that real negotiation in China begins only after the contract is signed. Any problems arising therefrom are due to the fact that the officials in the negotiation process have limited authority and also tend to interpret the provision of the contract from their own cultural, political and economic viewpoint. Also, the government frequently changes the laws; hence, parties to the contract try to keep the arrangements as open and flexible as possible. b. Foreign delegates should also keep in mind that the Chinese do not regard people as mature adults until they are at least forty years old. It is common practice to treat people in their thirties as kids, who need guidance from more experienced seniors. It is unwise, therefore, to send younger expatriates in any positions of authority, especially a position of Assistant GM or lead negotiator. This was one of the reasons Randolf was so successful and was accepted by the JV's senior Chinese managers and their employees. c. The Western world generally follows the utilitarianism approach to decision making, while the Chinese generally approach problems from the standpoint of moral idealism. The Chinese consider the problems, alternatives, and solutions from a long-term, societal perspective rather than an individual one. An important point to be aware of is that, since most Chinese companies are jointly owned by the government, much business decision-making is done or at least influenced by government bureaucracies. Another feature is the top-down decision making that Randolf observed, in which senior executives do not consult their subordinates or do so sparingly. Leaders are viewed by subordinates as "surrogate parents" due to both their likely age (not young) and their status. Hofstede would call this a high power-distance culture. In the case of this JV, Randolf's position is hierarchically below that of the Managing Director, who ultimately has the final say in day-to-day operations. Two important aspects, which should be considered before foreign companies enter into JV agreements in China, are the organizational structure and the decision-making processes. This case indicates that the Controls' negotiating team assumed that the Chairman of the Board (COB) position in China had the same functional and power authority as in the United States. This is not the case.

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China In China, it is the Managing Director who is ultimately responsible for the company. Also, it could be said that Chinese managers appear to Westerners to be paranoid when it comes to delegating authority. They insist on approving every single action or transaction no matter how trivial. This results in wasted time, inefficiency, and a slower business process. Because China is a collectivist society, employees expect autocratic leadership. Their value system presupposes the superior to be the most wise. d. Governmental processes in China are neither clearly defined nor formalized and therefore tend to be conducted on an adhoc basis. Culturally, the Chinese tend to be wary of outsiders. It becomes difficult to gather information and penetrate their networks, for their operations are highly secretive. Thus, to gain access to the government or to get things moving, it is essential that you have the right contacts. Some companies have personnel whose sole task it is to interact with Bureau personnel for the purpose of expediting paperwork and approvals. It is important to establish decision-making processes during negotiations for a JV. This is especially important from the perspective of establishing the decision-rights of the foreign partner. Foreign companies must assert their authority to make decisions. According to Steven Hendryx, "Only if joint venture management lobbies vigorously in the early stages of negotiation can it clarify where the bureaucracy's jurisdiction ends and that of the JV begins." e. Guianxi is a general term for social networking and is often translated as "relationship" or "connection". This concept governs the process during the bilateral flow of personal or social transactions. Failure to properly deal with this aspect of Chinese life can prevent or impede a JV's startup, as in this case. f. It is also of paramount importance that the foreign partner in a Chinese JV appoint, or at least control, the Personnel Manager for the operation. It is likely that the current Personnel Manager in the Chinese partner's company has established long-standing relationships, both with plant personnel and within the government bureaucracy. These relationships involve numerous obligations and preconceived approaches to HRM (i.e. those which were formerly bureaucratically mandated) that will encumber the JV and decrease its effectiveness. The concept of guaranteed job security (known as the "iron rice bowl"), while no longer a legal requirement, has strong remnants in many state-owned businesses. In reality the foreign partner will have a great deal of difficulty achieving this objective. James Randolf was successful because he seemed to understand many of these things and to utilize them, where appropriate. 31-14

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China He particularly understood the need for relationship building and never tried to impose his opinion or values on the Chinese. He treated them with respect but was also authoritarian when necessary, such as with the man who spoke loosely and negatively about China, and when it was necessary to fire employees who were clearly incompetent or had upset the harmony of the workplace. 8. What reasons can you give to legitimately explain Randolf's removal and replacement? How would you assess his replacement? Do you think that the replacement will be successful? Why or why not? On the surface there appears to be no apparent reason for his removal, but you might wish to consider the following: a. Controls, Inc may feel that expatriates from the United States are too costly, and expatriates from Singapore are cheaper. This may be part of an organization-wide costcutting strategy. In the case of Randolf, the company may wish to ask him to retire early. Also, there might have been an unannounced takeover by a company wishing to introduce a cost-minimizing strategy. b. Controls Asia-Pacific may have felt from the beginning that it should provide the person for this position and finally convinced Controls, Inc. that it should have the authority to do this. Remember, the subsidiary was located in Singapore, where more than 70 percent of the population was Chinese, and it might have felt that it would be more appropriate to send a Chinese employee that it could control. It should be recalled that Randolf perceived the service was poor. Perhaps it was designed deliberately to discourage him when he came out for his orientation trip. The replacement's best attribute is that he would be technically capable and probably speaks Mandarin, which is also the working Chinese language in Singapore. However, he is far too young and seems to have a very different personality and style from that which is required for success in china. Just because he is Chinese does not mean that he will be successful, since he has a host of key negatives which will prevent him from doing so. The Chinese partners were unhappy about Randolf's removal and were probably not consulted about his replacement. Not only are they unlikely to help him, especially because he is so young, but they will probably make it very difficult for him. 9. What should Randolf include in his report? How frank should he be? What should he include? What recommendations should he make? To whom should he send copies? The key to this question is whether Randolf should say what needs to be said. The answer really depends on whether Randolf wishes to remain productively employed by Controls, Inc. or whether this doesn't bother him and he would be happy 31-15

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China to take early retirement. One senses that the latter option is not unattractive to Randolf if it should evolve. This is really the worst-case scenario. The best-case scenario is that the parent Filtration Inc. would take heed of Randolf's concerns and use him as some form of "change agent", monitoring the activities of Controls, Inc. as it internationalizes its operations. The key concerns have been discussed in answers to previous questions and are summarized below. a. An ineffective and inappropriate process for selecting candidates for overseas assignments. b. An orientation process that appears to be effective when carried out by Filtration, Inc. but inept in various ways when carried out at other levels of the corporation. c. An apparently total lack of planning and strategy for International HRM. d. Anomalies between compensation and benefits packages of parent and subsidiaries. e. A completely unplanned process of selection, orientation, assignment management, and reorientation, showing complete lack of understanding not only that returning expatriates are valuable for advisory/informational services, but also that international experience should be part of the management development process. f. The feeling that Controls, Inc. does not appear to know how to implement an internationalization strategy (This would undoubtedly have to be expanded upon by Randolf). This would be the most polemical statement that he could make, and he may not want to put it in writing. g. Randolf also needs to say something about the confusing organizational relationship between Controls, Inc. and its (a) parent, (b) Asia-Pacific subsidiary, and (c) Shanghaibased joint venture. There appear to be no control mechanisms in place, and if the parent wishes to institute new policies and/or ensure that they are adhered to, it certainly needs to do this more effectively than it apparently does now. Another point to make is that Randolf did not have anyone to whom he was accountable, e.g. a department from which he was seconded. h. The ultimate concern is the feeling that Controls, Inc. management lacks the appropriate skills and experience to effectively internationalize its organization to enable it to compete globally. i. Concerns regarding Randolf's replacement. To conclude, it seems that Randolf does not have much to lose by producing such a report. He could, at this stage, address 31-16

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China it to a senior with copies to the subsidiary supervisor, it vice-president operations at Filtration, Inc. the corporate VP-HRM, and the equivalents at level. If he directs it to his immediate may get filed with the garbage.

B. REFERENCES FOR FURTHER READING Chakravarty, Balaji S. & Perlmutter, Howard, "Strategic Planning for a Global Business" Columbia Journal of World Business, Summer 1985, pp. 2-10. Deresky, Helen, Chapter 6, "Negotiating and Decision Making" in International Management: Managing Across Borders and Cultures, Addison Wesley, Reading Mass 1997. Frisbie, John & Breecher, Richard "FIE Labor Practices" The China Business Review, (Sept - Oct, 1992) pp. 25. Hendryx, Steven R., "The China Trade: Making the Deal Work" Harvard Business Review, (July-August, 1986) pp. 75-84. Hu, Wenzhong and Grove, Cornelius, Encountering the Chinese: A Guide for the Americans, Intercultural Press Inc. Yarmouth, MA 1993. Kumar, Saha Sudhir, "Managing Human Resources in China" Canadian Journal of Administrative Science, (Summer 1991), 10.2, pp. 167177. Macleod, Roderick, How to do Business with the Chinese, Bantam Books, New York 1988. Peterson, Richard B., ed. Managers and National Culture, A Global Perspective. Westport: Quorum Books, 1993. Wall Jr., James J., "Mangers in the People's Republic of China", Academy of Management Executives, u 4.2. (1990), pp. 19-32. Yeung, Irene Y.M. & Tung, Rosalie L., "Achieving Business Success in Confucian Societies: The Importance of Guanxi" Organizational Dynamics, Autumn 1996, pp. 54-65. TEACHING NOTE EXHIBIT 1 LENGTH OF TRAINING __ 1-2 months+ LEVEL OF RIGOR High

CROSS-CULTURAL TRAINING APPROACH Immersion Approach Assessment center Field experiences Simulations Sensitivity training Extensive language training Effective Approach

_1-4 Weeks

Medium

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Case 31 A First-Time Expatriate's Experience in a Joint Venture in China Culture assimilator training Language training Role-playing Critical Incidents Cases Stress reduction training Moderate language training _Less than a week Low Information-Giving Approach Area briefings Cultural briefings Films/books Use of Interpreters "Survival-Level" language training

DEGREE OF INTEGRATION LENGTH OF STAY

LOW 1 MONTH OR LESS

MODERATE 2-12 MONTHS

HIGH 1-3 YEARS

Relationship between Degree of Integration into the Host Culture and Rigor of Cross-cultural Training and between Length of Overseas Stay and Length of Training and Training Approach

Source: "Expatriate Selection, Training and Career Pathing: A Review and Critique", M.E. Mendenhall, E. Dunbar, and G.R. Oddou: Human Research Management, Vol 2, No. 3 (1987) p. 340, reprinted by permission of John Wiley and Son. VIII. STUDENT STRATEGIC AUDIT / STUDENT PAPER The strategic audit was inappropriate for this case. RECOMMENDED ARTICLE We recommend the following article for you and your students to read on joint ventures in China: "Are Joint Ventures Losing Their Appeal in China?" by Y. Y. Wong, T. E. Maher, R. A. Jenner, A. L. Appell, and L. G. Hebert in SAM Advanced Management Journal, Vol. 64, No. 1 (Winter 1999), pp. 412, 20. We summarize below some of the points they make in their excellent article. When Deng Xiao Ping declared his Open Door Policy in 1978, he began a gradual reversal of Mao Tse Tung's isolationist, anticapitalist, economic ideology of nearly three decades. Many Western firms were seriously interested in China as a potential market. With little knowledge of the cultural and political obstacles , foreign investors made major commitments, confidently 31-18

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China taking on the risk while believing that their past successes elsewhere would ensure early and impressive rewards in China. Unfamiliar with China's weak infrastructure, corrupt business practices, and unique form of networking, many sustained major losses. Others, who were disillusioned, withdrew. During the past 25 years, the joint venture, consisting of a foreign investor and a Chinese entity, comprised 80% of foreign direct investment in that country. The joint venture was seen as the only realistic way to generate Chinese interest and support, create a viable presence, smooth the way into a strange market, establish the complex network necessary for success, and provide a conduit to deal effectively with China's culture and business practices. It was preferred to the subsidiary, wholly owned by the foreign investor and doomed to failure because of its foreignness. Even less desirable was the use of a foreign branch office, because it would further minimize contact with China's market and its controlling power structure. Direct importing/exporting was the least desirable because it provided no effective opportunity to develop a presence in China. The companies that have experimented with joint ventures in China are either attempting to convert their joint ventures into wholly owned foreign subsidiaries or are seeking major revisions in the way their joint ventures are implemented.

TYPICAL PROBLEMS OF CHINESE JOINT VENTURES Interviews with six U.S.-Sino joint ventures revealed a series of problems that joint ventures face in China. Regional and local governments have their own objectives and frequently conflict with those of the central government. The limited influence of the central government is complicated by the Confucian/Communist-based administrative system that is known for its bureaucratic, rigid, hierarchical structure at all levels. Chinese partners still attempt to dominate the foreign partner, knowing that the foreigner is heavily dependent upon them. Chinese partners tend to have political agenda that affect their attitude toward the joint venture and reduce the level of reciprocity that one would normally expect. This may come from a Chinese belief that since they have not been dealt with fairly by foreigners over the years, this is the time to even the score. In most cases, the Chinese contribution to the joint venture dwindles after 3 -5 years and the foreign partner ends up with 90% of the bill. Managerial problems in joint ventures are extensive. Chinese partners are often affiliated with the government and are 31-19

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China assigned as managers of the joint venture, then rotated after 3-4 years. Thus, they are short-term oriented and tend to have few managerial skills specific to the joint venture. The overall cost of labor is higher than originally planned because the ventures have to accept personnel designated by the government who were not needed and often not qualified. In a country where 80% of the population lives in poverty, it is often difficult to attract good workers because the state provides them with a full range of benefits. If they work for a foreign company, the benefits must be paid for by the foreign partner. Local sourcing is often difficult because it is expensive and requires long lead times to establish. The Chinese view the foreign partner as a technology provider. Unfortunately, their lack of hands-on experience with technology, particularly in the case of machinery and its maintenance, not only creates serious problems in the manufacturing and distribution process but extends to aftersales service as well. Even though the Chinese are quite good at reading manuals, they have great difficulty putting them into practice and thus do not measure up to the ISO 9000 certification standard. RECOMMENDATIONS FOR JOINT VENTURE MANAGERS Allow sufficient time to realize a profit when forecasting the financial commitment necessary. The average time is 10 years. Foreign partners must expect to subsidize their Chinese partner during that time. Maintain a low profile to stay out of the view of the central government. Locate in a small town rather than in a major city like Shanghai. The foreign investor should strive to acquire greater than 50% ownership in the joint venture because equal shares leads to gridlock or a Chinese victory. Expect the Chinese to always vote as a block. Ideally, a 75% ownership should be sought, and establishing a wholly-owned subsidiary should be a serious consideration. For similar reasons, the foreign investor should seek a majority membership on the board of directors. The foreign investor should obtain a "land grant" rather than a "land allocation" for the land on which the venture is to be situated. It is easier for the government to appropriate property that it has made available under a land allocation than under a land grant. The foreign investor should consider using older technology in the joint venture. To improve quality assurance, the joint venture should keep its suppliers close to its headquarter so as to maintain 31-20

Case 31 A First-Time Expatriate's Experience in a Joint Venture in China closer supervision over their performance during the initial stages of production. Adopt a Western-style human resource management system in order to deal with nepotism and corruption. Foreign managers should organize the workforce into project teams, draft position descriptions, create strict merit pay systems, and establish five-day work weeks and sliding vacation schedules. Scholarships and grants should be seriously considered as ways of increasing employee motivation and creating liaisons with suppliers of needed talent, such as local universities.

IX.

EFAS, IFAS, AND SFAS EXHIBITS - Were inappropriate for this case.

X.

FINANCIAL RATIO ANALYSIS - Was inappropriate for this case.

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