Part A

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

The Chinese culture is considered to be different from the West in many ways (Buckley, Clegg and
Tan, 2006). This is the result of Confucian values that emphasize family, a collective orientation,
and the importance of personal relationships (Wilkinson, Thomas and Hawes, 2009).
Characteristics of Chinese culture, such as family orientation, guanxi (personal connection), mianzi
(face), renqing (reciprocity) and harmony are found to have an influence on business relationship
cultivation (Hung, 2004).

In China, business transactions are based on networks of quanxi and trust rather than on the
formal contracts in which is typical of the US. This is the obviously hurdle that exist between the
American and Chinese cultures. For Americans, a contract is the way to protect the business
transaction, because Western culture does not necessarily trust relationships. The Western society
has a sound system of institutional foundation, thus a contract agreement is the best element of
trust. Thus, in the US business negotiation starts straight at the point, no time is waste to build
relationship. Whereas, China holds a weak legal infrastructures do not offer a robust scheme of
contract enforcement (Wilkinson et. al., 2009). The contract agreements do not hold up in Chinese
court. Hence, in Chinese culture, it is the construct of a person face which underpins the trust
(Chan, 2008) not a contractual agreement. Face here means simply vouching for someones
integrity and trustworthiness, by placing ones own reputation and honour on the line (Chan, 2008).
Therefore, Chinese way of business negotiation begins with socialisation and initiation of guanxi
rather than formal business discussion. For example in the case, Motoshuzhuos team spent
considerable amount of time to show Tom Sherman and his team the countryside, hosting get-
together dinner and nightlife entertainment. In China context, business relationships and personal
relationships cannot be separated from each other (Gao, Ballantyne and Knight, 2010) in building
trust.

In terms of decision-making, there are differences between a socialist society and western
democracy. For example, Motosuzhou is a state enterprise with top-level hierarchy overseeing all
daily operations and functional units. Thus, the decision making process is top-down in nature.
Where as in Electrowide, Tom Sherman drives decisions. The Chinese culture tends to take things
more collectively, leading to consensus building decision-making approach. They do not value the
need for speed when it comes to making a decision. They also tend to focus on the complexity of
an issue and be certain that all matters are thought through before coming to a conclusion. On the


other hand, the western individualistic style leads to an approach were the leader sees the need to
drive to a decision and then force it to be followed through. From the text, is obvious that Tom
Sherman believes in the value of making quick decisions and then taking action. In context of this
case study, the Motosuzhous team sees this method as overly aggressive and reckless, while
Tom Sherman see his counterpart as indecisive.

Traditionally, Chinese society is male-centered and the roles of men and women were clearly
differentiated. This culture influence many facets of business environment and it is obvious, that
within the Chinese society there are not many women that hold significant positions in business.
Although Barb Morgan has some experience in international negotiations and spoke
conversational Mandarin. In a face-to-face negotiation, women are not seen as same level to men
in the Chinese culture. Hence, there seem to be negligent of Barb in most of the business
discussions. The Chinese are not accustomed to negotiating important business decision with a
woman. This is a stark contrast to the Western culture, where a significant number of women hold
prestige business leadership position and such discrimination against gender is not tolerated.

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

Joint venture (JV) is a strategic alliance of two or more parties, as a mode of foreign investment
and as a means of technology transfer. It is increasingly popular as a form of international business
growth for multinational companies (MNCs) seeking expansion opportunities in both developing
and developed markets. In order sustain a higher change of success; there are factors that need to
be considered in selecting a joint venture partner. According to Lu (1998) among the criteria that
should be used in the selection process are:

a. Strategic attributes
The partner needs to have complementary skills, products, and markets that will result in a
strategic fit with the organisation. Among the criteria are such as marketing competencies, market
position, industrial experience and corporate image. One of the key strategic objectives of
Electrowide is to become a $10 billion international enterprise and a major player in Asia
automotive electronic market. China seems to be an ideal choice because of its average annual
growth of 9 percent and is predicted to be 1.5 times the size of the US economy by 2025. Thus, the
purpose of the partnership is to help Electrowide to manufacture and sell engine management
systems that run emission-control, fuel nozzle, and ignition systems for Chinese-made vehicles. In
this case, Motosuzhou is a suitable partner because of its industrial experience and strength in
achieving economies of scale in assembly line manufacturing. If Motosuzhou is able to bring these
distinctive skills and assets to the venture, the alliance will be in a balanced relationship.



b. Organizational attributes
Some of the criteria for the organizational fit are such as ownership type, organisation leadership
and human resource skills. It is quite obvious that Motosuzhou does not exhibit these criteria.
Firstly, although Motosuzhou is selected as an experimental company that is free from
governmental interference but it is still a state enterprise of the Beijing municipal government
where it takes ultimate direction. There are no guarantee in politics and the status could be
revoked anytime. Besides, Electrowide have to deal with lack of transparency and bureaucratic
government procedure. For example in this case, Motosuzhou is unable to produce formal
accounting audit records and insisted that these documents are kept by the state agency.
Secondly, leadership in most Chinese state-owned business is a fairly complicated issue because
top management positions are usually assigned to upper level government officials. Motosuzhou
does not escape from this issue either, since Wang Yoo is the Minister of Finance and he is also a
member of the top management. This could mean a double edged sword for Electrowide, as it
may lead to a better access in concession opportunity or it would work against Electrowide thru
tighter financial regulations. Lastly, Motosuzhou employed mostly rural employees that are low
skilled and lack of English proficiency. This might lead to a potential miss communication in the
future between the mid-level management of Electrowide and Motosuzhou. However, the good
news is that Motosuzhou is taking a pro-active initiative to provide English language studies at
local university for its employees.

c. Financial attributes
The local partners financials position will directly influence its ability to make a capital contribution,
fulfil financial commitments, and disperse financial resources to the joint venture. Some of the
evaluation criteria are such as partners profitability, liquidity, leverage or debt ratio and asset
efficiency. Unfortunately, little financial information about Motosuzhou is available from the text but
it is understood that Motosuzhou will rely on Electrowide for most of the cost incurred in
establishing the venture. In addition, Motosuzhou also insisted that Electrowide to reinvest all the
profits from the joint venture in China. In other words, there is a profit transfer risk for Electrowide.
Since, Electrowide is also going thru a restructuring in which will consume financial resources and
the expectation of reinvestment back in China. Therefore, in this sense, Motosuzhou does not
seem to be financially fit to be the venture partner at this point.

3. Evaluate the composition of Electrowides team and of Motosuzhous team. Did each of
the companies make appropriate choices for this negotiation? Give reasons for your
answer?



From the physical composition of Electrowides team, they do not look to be at a disadvantage in
the beginning. Tom Sherman has been with Electrowide for 32 years and considered highly
knowledgeable about industry operation and manufacturing techniques. However, his career is
lacking of business development experience and international exposure. As for Barb Morgan, she
has only been with Electrowide for three years and may not be the best candidate in such an
important business deal for Electrowide. Nevertheless, her latest assignment as an acquisition
project manager in Sweden is thought to be helpful in providing some insights of a negotiation
process. In terms of financial expertise, Mark Porter is the right candidate because he holds a B.S.
degree in Finance and also an MBA. His position as business analyst and experience in corporate
finance and shareholders relation will definitely be valuable in this negotiation as well. In addition,
Marks type-A personality and self-starter is seen as a potential key contributor in the negotiation. I
believe that the composition of the team is a strong one as they can leverage on one another
strength, expertise and experiences. In order to reinforce the team, a professional translator is
recommended to complement Bard Morgan.

Motosuzhou team comprises of Deng Zang, Ai Hwa Chew and Wang Yoo. Both Deng Zang and
Wang Yoo are the top-level management, while Ai Hwa Chew reports to Deng Zang. Although Ai
Hwa Chews English is very poor and he does not pose any tertiary qualification. Nevertheless, it
does not affect the team performance because he is diligent and well respect in the company.
Besides, the other possible candidates are the deputy director of wages and education, chief
engineer and chief accountant based on Motosuzhuo organisation chart. However, none of these
candidates are a suitable nominee to replace him. Their positions are not really relevant in a joint
venture negotiation. Given these circumstances, Motosuzhous team is the best of what it has.

4. Should Barb Morgan have been on the negotiating team? Evaluate and give your
reasons.

There are both positive and negative aspects for Barb Morgan to be on the negotiation team. In
terms of positive aspects, as stated above, her prior experience of an acquisition in Sweden would
be helpful in providing some insights of a negotiation process. Another positive aspect is that she
has a degree in psychology and her knowledge in this subject could help in predicting the
opponent next steps. Besides, Bard also speaks conversational Chinese, although it might not be
up to a standard for negotiation. Nevertheless, in the absence of a professional interpreter, she can
act as one for the team.

However in terms of negative aspects, women are not really seen as equals to men in the Chinese
business culture. This is significant during the face-to-face negotiations with Motosuzhou, where
she did not play any substantial role. Under any circumstances, it is not right to discriminate


against gender, although the other party does it. Although, she might not be actively engaging as a
negotiator but she can help the team with strategies. In addition, Motosuzhou needs to learn to
respect the US culture of openness in having women as business leader as much as Electrowide
needs to learn about the important of developing quanxi in business relationship. Neither party
need to kowtow to each other, as both is in need of one another. On the other hand,
Electrowides team should believe in her professional capacity that she is able to handle her
personal matter such as the recent divorce prudently and it will not influence her work
performance. At the same time, the Executive Committee in Electrowide should temporary take
Bard off the Information Technology Council hook. This will help her to concentrate better in the
negotiation strategy. If there is no other potential candidate in Electrowides human resource
database with international negotiation experience and Mandarin language ability, then Barb
Morgan should be in the team.

5. What does Tom Sherman do?

Caved in the latest development, it is advisable that Tom Sherman and his team pack their
suitcases and head home. Since Tom plans to retire at the end of the year, there is no need for
him to prove anything and stress himself. In addition, he has his daughter convocation to attend. A
joint venture is like a marriage where awareness, credibility, trust and chemistry are the
principles that govern such relationships (Wilkinson, Thomas and Hawes, 2009). The current
marriage proposal has not been romantic enough and there is a feeling of turn-off by both
parties. However, the joint venture courtship should be continued in the near future. The period of
courtship is when two or more companies determine whether they share a common business
vision and if their resources and skills are complementary (Mason, 1993). When there is
chemistry, then the foundation has been laid to build a relationship of trust and mutual
commitment. Both trust and commitment are the secret to a good marriage. In order to build these,
the team needs to develop an understanding in the cultural differences as early as possible before
they enter into the negotiation again. Both Motosuzhuo and Electrowide should focus on improving
their understanding on long-term commitment of the venture rather than short-term benefit. Tom
should reconsideration the negotiation strategy and reinforce the team with additional member. It
is strongly advice that the team develop an understanding in the cultural differences as early as
possible before they enter into the negotiation again. Tom should suggest to the Executive
Committee to hire a local manager, preferably with extensive experience in the industry.
Word count: 2184

References:

Buckley, P. J., Clegg, J., & Tan, H. (2006). Cultural awareness in knowledge transfer to China
The role of guanxi and mianzi. Journal of world business, 41(3), 275-288.



Chan, B. (2008). Demystifying Chinese guanxi networks Cultivating and sharing of knowledge for
business benefit. Business Information Review, 25(3), 183-189.

Deresky, H. (2008). International Management: Managing Across Borders and Cultures: Pearson
Prentice Hall, Upper Saddle River New Jersey. Ebony Magazine

Gale, A., & Luo, J. (2004). Factors affecting construction joint ventures in China. International
Journal of Project Management, 22(1), 33-42.

Gaol, H., Ballantyne, D., & Knight, J. G. (2010). Paradoxes and guanxi dilemmas in emerging
ChineseWestern intercultural relationships. Industrial Marketing Management, 39(2), 264-272.

Hung, C. F. (2004). Cultural influence on relationship cultivation strategies: Multinational
companies in China. Journal of Communication Management, 8(3): 264281.

Lu, Y. (1998). Joint venture success in China: How should we select a good partner?. Journal of
World Business, 33(2), 145-166.

Mason, J. C. (1993). Strategic alliances: partnering for success. Management Review, 82(5), 10
16.

Wilkinson, T. J., Thomas, A. R., & Hawes, J. M. (2009). Managing Relationships With Chinese
Joint Venture Partners. Journal of Global Marketing, 22(2), 109-120.


Part B
Provide your recommendations for a team of NZ managers who as senior managers of the
NZ Argitech are planning to begin their Joint venture negotiations with a Chinese firm, in
the next 6 months. Explain what they must plan, prepare and do and not do in terms of
selection of team, and negotiation process

With the World Trade Organization (WTO) membership in 2001, Chinas GDP has grown at an
average yearly pace of 10.11% from 2002 through 2013. China also records an outstanding
double-digit growth from 2003 until the Lehman Brothers crisis in 2008. With Chinas rapid
economic growth and impressive improvement in the Chinese standard of living in recent years, it
now accounts for approximately one-fifth of the worlds consumers. This has attracted large
numbers of business from all around the world to China, given this marvellous growth. However,
the Chinese Communist Party (CCP) gripped firm control over Chinese society and economy thru
a complex social and business web. The CCP pursues an active strategy of control over business,
although is indirect but is ubiquitous. The Chinese culture is also considered to be different from
the West in many ways (Buckley, Clegg and Tan, 2006). Therefore, in terms of business
negotiation with a Chinese firm, it still turned out to be a challenge for western companies (Fang,
Worm and Tung, 2008).

Previous studies have shown that a negotiation strategy is vital for a successful joint venture with
Chinese firms (Fang et al., 2008; Gale and Luo, 2004; Wilson and Brennan, 2010). Among some of


the challenges faced by Western firms in entering a venture with Chinese firm lies in the
relationship context or networks of interpersonal connections known as guanxi. Besides, western
firms also lack of experience in oriental market and faces problem associated with Western
capitalist and socialist China financial system (i.e. foreign exchange control, capital market liquidity
and etc.). Although empirical evidence suggests that the strategic importance of guanxi is
diminishing (Wilson and Brennan, 2010) due to Chinas changing macro-environment. In addition,
the need of guanxi in business dealing may vary according to industries, location and
organizational size (Chang, 2011). For example, Park and Luo (2001) have found that firms in
inland provinces and smaller cities tend to rely more heavily on guanxi than those in the coastal
zones. However, having managers who understand this culture and are embedded in guanxi
networks will definitely be a bonus to Agritech. What is more crucial here is for Agritech and the
Chinese partner to share the same understanding of the venture objectives. This article aims to
help Argitech to examine the process of joint venture negotiations with a Chinese firm and identify
the key factors for its success.

Firstly, Agritech should be well prepared and have obtained enough information about the partner
before the negotiation process. According to Sun Tzu, in his strategy book known as the Art of
War, victory is never in doubt, when you know your enemy and know yourself. In this context,
enemy does not mean foes but Agritechs partner. By gaining information such as company size,
capabilities, organizational structure, previous experience and reputation, capital assets and
property, business specialists and managerial personnel would definitely help Agritech to be in a
better position during negotiation. This information can be obtained thru various channels such as
business contact, governmental agencies and even the Internet. The information could be a
valuable bargaining chip in the negotiation process, according to Sun Tzu, Those who occupied
higher ground, have a better view of the enemy. From here, Agritech should be able to identified
the managers and skills needed for the negotiating team. It is also suggested, that a professional
interpreter to be included in the team.

Secondly, Agritechs managers need to go thru the joint venture agreement to ensure that is
function well in supervising, regulating and guaranteeing both parties rights, responsibilities and
benefits. The writing style of an agreement maybe different between New Zealand and China,
where the Chinese probably do not defined everything clearly as per western style. Hence, the
managers at Agritech must ensure that the agreement is clearly written and understood by them.
This is to avoid future potential conflicts of interest that may arise, especially due to different
perceptions of profit by either party. Thus, Agritechs team should compose of at least one local
manager that is familiar with legal aspect of business environment in China. This help to avoid
potential problem that will arise in repatriation of profit back to New Zealand. The team should also


compose of financial managers who are well verse with Chinas accounting standard and financial
system.

Lastly, while is important for the profit distribution to be clearly written, it is also very important for
Agritechs team to show significant sincerity during the negotiation process. Agritechs team can
start a social meeting in restaurants as a pre-negotiation activity. In most part of Asia, the process
of building relationships is a prerequisite in doing business. Although a joint venture agreement is
determined at an organizational level, ultimately it is the personal interactions and perceptions of
key individuals that help to shape the success of the relationship. It is all about the Chinese teams
xinyong (trust) and perception of Agritechs team. Trust is a very important aspect of any cross-
cultural joint ventures (Gale and Luo, 2004), not only specific to China context. According to Wilson
and Brennan (2009) study, commitment, cooperation and satisfaction are the important factors
after trust. Therefore, the team must be able to exhibit these factors in the negotiation. Besides
xinyong, the team should also be aware of other Chinese cultural concepts such as mianzi (face)
and renqing (reciprocity) in business relationship. In China context, mianzi is as important as
quanxi (Buckley et. al., 2006) and the team should avoid putting the Chinese partner in a position
that might lose mianzi. The Chinese put much greater emphasis than western culture on respect,
friendship and on saving face (Deresky, 2008).

In summary, various factors and recommendations stated above are vital for a successful joint
venture negotiation. An effective management of negotiation requires an understanding of the
perspectives, values, and agendas of the other parties. In other words, culture affects the decision-
making process and the understanding of partners culture is necessary in any joint venture.
However, long-term commitment of both parties, rather than short-term oriented profit in the
agreement is more likely to predict success of the joint venture. A successful joint venture not only
offers opportunities for expansion but also brings both parties valuable skills together to carry out
projects effectively and efficiently (Gale and Luo, 2004). It should aim to create a systematic
synergy that will take the equation of 1+1=3.
Word count: 1059

References:

Buckley, P. J., Clegg, J., & Tan, H. (2006). Cultural awareness in knowledge transfer to China
The role of guanxi and mianzi. Journal of world business, 41(3), 275-288.

Chang, K. C. (2011). A Path to Understanding Guanxi in China's Transitional Economy: Variations
on Network Behavior*. Sociological Theory, 29(4), 315-339.

Deresky, H. (2008). International Management: Managing Across Borders and Cultures: Pearson
Prentice Hall, Upper Saddle River New Jersey. Ebony Magazine



Fang, T., Worm, V., & Tung, R. L. (2008). Changing success and failure factors in business
negotiations with the PRC. International Business Review, 17(2), 159-169.

Gale, A., & Luo, J. (2004). Factors affecting construction joint ventures in China. International
Journal of Project Management, 22(1), 33-42.

Park, S. H., & Luo, Y. (2001). Guanxi and organizational dynamics: Organizational networking in
Chinese firms. Strategic Management Journal, 22(5), 455-477.

Wilson, J., & Brennan, R. (2009). Relational factors in UK-Chinese international joint ventures.
European Business Review, 21(2),159-171.

Wilson, J., & Brennan, R. (2010). Doing business in China: is the importance of guanxi
diminishing?. European business review, 22(6), 652-665.