James Rudolfs Joint Venture In China Management Essay
Controls Inc is located in Chicago and began its first Joint Venture about three years ago as an in house supplier to Filtration Inc. Controls became a subsidiary of Filtration Inc. which is a huge Chicago-based international manufacturing conglomerate, specializing in the design and production of temperature control and filtration systems. It is really important for Controls to compete for business against its global competitors. Therefore, Controls must utilize cheaper labor and be located closer to key prospective customers. Over the past three years, Controls has had operations in several countries in Europe, Asia and South America. A Joint Venture in China would benefit Controls in several ways. It would provide them company with an opportunity to gain a foothold in this untapped market for temperature control systems. In this case, if the Joint Venture would be successful it could lead to the establishments of plants to manufacture various products for the entire Asia/Pacific market. Filtration being the parent company has a lot more knowledge an experience. Since Controls Inc was the subsidiary of Filtration Inc; they were expecting to gain knowledge from Filtration. Filtration did not share enough knowledge with its subsidiary which resulted in many issues with the Joint Venture in China.
Controls Inc’s goals of having a Joint Venture in China were to gain a foothold in the untapped market for temperature control systems, and to lead to the establishment of plants to manufacture various products for the entire Asia/Pacific market. Their primary objective was to establish a manufacturing and marketing presence. James met with one of Controls business units, Freezer & Cooler Unit to discuss the Joint Venture in order to accomplish the goals and objectives he had in mind. The Joint Venture agreement was made with the Chongming Electro-Assembly Company, a state-owned electronic device assembly operation. We believe James was the right choice for this assignment because he has many years of experience and knows the company from different angles. As I mentioned earlier, he has worked in different managerial positions that he could utilize during his experience in China. He is also married to a Chinese woman, which would be easier for him to get used to Chinese people and culture, than for someone else who had no experience with that culture. Also, James particularly understood the need for relationship building and never tried to impose his opinion or values on the Chinese.
As an expatriate with a position of a manager, James Randolf needs to adapt to the local environment and people and to manage accordingly. The adaption can be complex because he confronts differences not only in culture, but also in business practices.
The chart below describes the cultural distance between the US and Chinese according to G.Hofstede’s Value Dimensions:
We introduce these value dimensions here to aid in the understanding of different cultures, their relevance and application to management functions. As a manager in China, James Randolf must know that China country display high power distance. This respectful response results in a centralized structure and autocratic management style in China. Employees acknowledge the boss’s authority simply by respecting that individual’s formal position in hierarchy. For instance, when James picked up trash from parking lot, the next day he would observe the trash has all been cleaned up. The Chinese workers seemed to be influenced by James’ every action.
Confucian dynamism is much higher in China than US, uncertainty avoidance is somewhat lower, and masculinity is similar, while individualism is much lower. China, where low individualism prevails that is where collectivism predominates. It has tight social frameworks, emotional dependence on belonging to the organization, and a strong belief in group decision. The higher score on Confucian dynamism (LTO) result in Chinese respondents perceiving even greater learning benefits than the US. Also, we need to know that managers in China are more future oriented and so stride towards long-term goals. They value investment in the future and are prepared to sacrifice short-term profits.
By understanding Hofstede’s dimension, James Randolf can be more effective when interacting with people in China. If understood and applied properly, this information would help James reduce his level of frustration, anxiety, and concern.
Furthermore, the concept of face is of paramount importance in China. Without it, we cannot function in China. Face often requires little effort, but merely an attention to courtesy in relationships with others. Face involves a high degree of self control, social consciousness, and concern for others. In fact, James and Lily truly felt the promise of exciting, new, deep and long-lasting relationships as the result of their interactions with the Chinese partners and Shanghai area residents. In Chinese society, displays of temper, sulking, loss of self control, or frustration create further loss of face rather than drawing respect.
Another variable that communicates culture is the way people regard and use time. For the Chinese, time simply flows from one day to another. For example, if a job is not completed today, they will carry it forward to the next day or the day after next. Polychronic people- Chinese often may focus on several things at once, be highly distractible, and change plan often. An important cultural difference between the West and China is the Chinese custom of giving precedence to form and process in completing a task over the task itself, an approach which is typically more time-consuming.
To understand more about Chinese people, we need to know their cultural beliefs. Among the Chinese, they believe that their culture is the oldest and the best. It is the center of the universe. They believe themselves to be totally self-sufficient. In Chinese, the character of the word China means “middle kingdom”, thus implying that everyone other than themselves is beneath them.
Communication is crucial to management. But communication depends on a common language, a condition seldom existing in many international business settings. Language both reflects and affects one’s view of the world, since language and culture are dimensions of each other, interrelated and inseparable. However, before James came to China, he was unable to take the Mandarin languages course- China’s official language. After February 1993, he hired a language tutor to supplement the training. Actually, James and his wife-Lily learned as much of the local Shanghai dialect as they could and they spend much of their spare time interacting with people of the area. Thus a candidate for expatriation must be well-acquainted with his/her capabilities to easily adapt the other culture.
Undoubtedly, the general business environment in China is very inviting for multi national corporations. This can be explained from different aspects of China’s economic growth, larger market segments, higher consumption capacity, and fast pace growth in infrastructure. However, for an expatriate working in China, there are still plenty of PESTLE factors that can limit the effectiveness of their assignment.
Among the various features of the Chinese business environment that James Randolf (and other Controls, Inc. employees) encountered were the following:
Culturally, 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.
A mandatory technique used in Chinese business environment 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 they react. This was probably one of the reasons why the negotiation process with Chongming Electro-Assembly Company took so long.
Another general term in Chinese and Japanese social networking is Guianxi, which 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.
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 wisest.
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.
Legally, 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 there from 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.
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.
Politically, 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 “substitute parents” due to both their likely age (not young) and their status (in society and government). 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. In China, it is the Managing Director who is ultimately responsible for the company.
Governmental processes in China are neither clearly defined nor formalized and therefore tend to be conducted on an ad-hoc 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.
It is also of supremely important 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. 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.
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 after-sales 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.
Expatriates also need to be aware of the Environmental factors as China is the world’s most populous country and fastest growing market. China continues to develop economically and demographically at a record pace. Energy, water and infrastructure needs continue to be in high demand, and although the Chinese government doesn’t enforce environmental friendly business practices, the company and its employees needs to be aware of future laws regarding that.
In order to remain on Chinese market, we believe that James Randolf’s removal will not solve any major problems for the company in terms of long-term internalization strategy; therefore, we believe that the way the company’s structure is implemented should be changed. There had always been plans to reduce the number of expatriates, for the cost saving perspective, however, because of the poor strategic planning, done by the corporate management of Controls Inc., this idea together with any other possible solutions, was abandoned. During the selection period, Randolf might not have been the best fit for the position, however, because of the experience he gained from being in China during this period and managing the manufacturing operations, he has become a more valuable asset for the company than ever before. In addition to this, James has been with the company for 23 years and last 15 years he has been working on several managerial positions. As we know, Chinese culture is very unique and different from Western cultures, because of this, not every joint venture is successful, and however, James’ personality and his wife’s Chinese background, had helped him and the company itself to build strong ties with Chinese representatives and also governmental units, which is also a benefit for the company in the long-term perspective. We believe that it will be better for the company to let James stay in China and continue his duties.
During the recall period, James was having negotiations with Chinese JV partners that they needed to reduce the numbers of workers significantly, which in our opinion is one more reason why the company should send him back and let him finish his duties. In case of successful accomplishment of this negotiation, this will save the company lot of money, and this will also strengthen the argument why James should not be recalled.
We also believe that the company is making a huge mistake by hiring Jimmy Chao as James’s replacement, because the guy is relatively young, with a relatively less experience limited by supervising production in one of Control’s factories in the country. Jimmy Chaos’s attitude towards the job seems to be centered around managerialism, which basically is a tendency for managers to make decisions based on personal self-interest rather than the best interest of shareholders, and we believe that his type of attitude will create a problem in a long term relationship with the company’s Chinese JV partners. However, if the company still decides for some reason to recall James Randolf and leave Jimmy Chao on the position, we think that they should let James train his replacement for at least month or so, in order to avoid the same types of problems that James was facing during his entry period. It will also eliminate any additional cost that might be required for future in order to retrain the replacement.
However, keeping James is not the only recommendation that we would make. We think that the company’s organizational structure was very vague, which made it difficult for the company to manage their employees and also for their employees to be responsible to certain department or company representatives. The fact that James Randolf, after so many years of working with the company, had no information, to which he should have reported, makes it clear that the company was facing serious issues in terms of dissemination of responsibilities among its employees. As a result of locating a weak side of the company, we believe that as a first step, company should reevaluate its corporate strategy and find the structure that would best fit that strategy. In our opinion, the best organizational structure, that would benefit the company, is decentralized structure, where many employees are expected to report to one manager. In this case, we will create a new position, an International Human Resource Manager (IHRM) that will be responsible for dealing with all international business ventures. This position will also fit with the company’s cost saving perspective, by eliminating unnecessary levels of management. In this case, it will be easier for employees to find out whom they should report and it will also improve a communication level among expatriates and HQ representatives.
This IHRM position we recommend creating will be held accountable for implanting a number of changes in the human resource sector of Control’s Inc. First off, we will focus on revising the selection process for vacant expatriate positions. The current selection process is poorly organized and does not allow the company to take advantage of the best qualified applicants for these expatriate positions. Every employee within the company must be made aware of any new available expatriate positions and also a summary of requirements for each of these positions. The requirements for each position will be carefully investigated by having a research analysis of the internal and external factors that could affect the region of international business.
The implications from running a detailed research analysis will help tremendously in the planning process. It will help to prevent future cultural or political mistakes that Controls Inc. was making previously in its international business affairs. It will help save both time and money because resources will be better allocated throughout the value chain. The key to any international business operation is examining the PESTLE factors and making calculated decisions based on research and planning. The previous business model for Controls Inc. did not allow the company to make the best calculated decisions because they were unprepared and disorganized.
To help in the planning stage, we recommend that Controls Inc. formulate specialized research teams that will be responsible for preparing these detailed research analysts. The teams will focus on obtaining any information that will help our position in the international landscape. These teams will result in a greater understanding of how to execute our international business ventures. They will be given the responsibility of working firsthand with the expatriates and making sure that they receive current and relevant information that will help in their assignments. In this case, James and his wife were left by themselves to succeed; we want to create a better support system for these expatriates.
One important aspect that will be required of these research teams is to establish a better working relationship with Filtration Inc. The parent company of Control’s Inc. has valuable international experience that Control’s needs to utilize in its future operations. One key to making smarter business decision is to utilize all available resources at your disposal. We must make use of the knowledge and information that Filtration Inc. has, in order to have the best chance at succeeding. Controls’ previous perception and attitude towards international business ventures have been highly unprofessional and poorly planned and aligning ourselves with Filtration Inc. should change that.
The IHRM specialist will also be responsible for creating a more open communication structure that utilizes today’s current technology. The expatriates sent off need to be aware of any major structural or philosophical changes that are occurring in the corporation. We recommend that Controls’ international division, made up of the expatriates, the IHRM, and partners, create a new e-mail account which provides the employees one consistent mode for communication. Along with the e-mail, the account will have webcam capabilities which will allow face to face interaction when needed in the making business decisions. This new communication channel will also help in the process of repatriation. Control’s Inc. needs to take advantage of the enhanced skills and experience that these expatriates and find ways to incorporate this new knowledge into future business deals. Ultimately, we believe the creation of the IHRM, the specialized research teams, and new communication structure should drastically change the company’s ability to access new markets more effectively and efficiently.
Another possible solution to the problem of managing activities in multiple markets would be to create a multidivisional structure. In this case, the company can organize its divisions around geographic market, which will also improve a level of communication and also increase the company’s involvement in the market. This will make it lot easier for expatriates to get any necessary help from their HQ in a short period of time, which we also believe will result efficiently on the company’s performance. We examined this option closely, but we felt that the creation of the IHRM and the specialized research teams was a better fit for Control’s Inc.
This case reminds companies to be aware of certain PESTLE factors that can affect international business operations. The more knowledge a company can acquire about these factors, the better chance they can make better and more informed decisions. Companies need to minimize their risks whenever possible and the planning stage of international business is crucial to succeeding. After we analyzed the different variables in the case, we focused on creating an organizational structure that could better suit the international division. We reviewed all the information in the case and concluded that an IHRM would be best in this situation. If the circumstances were different, we might have chosen a different route. Finally, the last point we discussed was about creating a new method for communication. We felt that this was a quick and cost effective solution to help Controls Inc. maximize their human capital. In any case, communication between employees and partners is very important to succeeding in international business.