CASE ANALYSIS: CULTURE CLASH IN THE BOARDROOM Miao yu 14300680032 Course: English for Academic Purposes(Business Date: 27 December 2017
CASE ANALYSIS: CULTURE CLASH IN THE BOARDROOM Miao Yu 14300680032 Course: English for Academic Purposes (Business) Date: 27 December, 2017
ase Analysis: Culture Clash in the Boardroom As one of the most dynamic economies in the world, China has been attracting successful foreign enterprises to enter the promising Chinese market with its promotion of economic status and open policies. However, as a result of different culture systems, many foreign companies have encountered unprecedented challenges in their cooperation with local Chinese partners. Almond China trouble is a typical example of these cultural conflicts Part 1: Summary of case information Almond China is a German-Chinese joint venture whose parent company is a German chemical company, Almond Chemical, established in 1999. Until now Almond China has two joint ventures with local partners and one of them, Chongqing No. 2 Chemical Company, is very active. The divergences mentioned later are mainly concerned with this partner company. In general, the divergences among Almond China, local partners and Almond Chemical are about two issues. Firstly, executives of Almond China and Chinese partner company complain that the prohibition of commission has negatively affected the venture's selling performa And secondl Chinese partner company believes that the current German safety standard and European environment standard undertaken by Almond China are costly and much tricter than Chinese standard In addition, there is some other valuable information that we should acquire before our analysis ions are common in Chinese business circles Almond was listed in the U.S., meaning it was required to adhere to the U.S governments Foreign Corrupt Practices Act, which specifically forbade the bribing of foreign government officials Almond's Chinese partner, Chongqing No. 2 Chemical Company is unsatisfied with joint venture's sales volumes. If they quit, the joint venture will be dismissed
Case Analysis: Culture Clash in the Boardroom 2 As one of the most dynamic economies in the world, China has been attracting successful foreign enterprises to enter the promising Chinese market with its promotion of economic status and open policies. However, as a result of different culture systems, many foreign companies have encountered unprecedented challenges in their cooperation with local Chinese partners. Almond China’ trouble is a typical example of these cultural conflicts. Part 1: Summary of case information Almond China is a German-Chinese joint venture whose parent company is a German chemical company, Almond Chemical, established in 1999. Until now Almond China has two joint ventures with local partners and one of them, Chongqing No. 2 Chemical Company, is very active. The divergences mentioned later are mainly concerned with this partner company. In general, the divergences among Almond China, local partners and Almond Chemical are about two issues. Firstly, executives of Almond China and Chinese partner company complain that the prohibition of commission has negatively affected the venture’s selling performance. And secondly, Chinese partner company believes that the current German safety standard and European environment standard undertaken by Almond China are costly and much stricter than Chinese standard. In addition, there is some other valuable information that we should acquire before our analysis: Gifts and commissions are common in Chinese business circles. Almond was listed in the U.S., meaning it was required to adhere to the U.S. government’s Foreign Corrupt Practices Act, which specifically forbade the bribing of foreign government officials. Almond’s Chinese partner, Chongqing No. 2 Chemical Company is unsatisfied with joint venture’s sales volumes. If they quit, the joint venture will be dismissed
ase Analysis: Culture Clash in the Boardroom Background information above has notable effect on the final decision and will be covered in solution part Part 2: Identification of problems According to our previous statements, it is clear that there are two issues should be settled in the case Should Almond China keep following the stricter business ethical rules of its parent company or offer gifts and commission to customers just like other companies do? Should Almond China follow the stricter European standard on safety and environmental practices or lower these standards to reduce costs? In order to solve the problems mentioned above, the third part will offer some basic assessment Part 3: Assessment of case information According to previous introduction, a matrix can be established for further Gift commission High Standard Advantages Higher sale volumes Lower risk of safety accidents Partner's satisfaction Less pressure from government Disadvantages Possibly breaking FCPA More costs Figure 1: Basic assessment Learnt from the matrix, some questions are required to be answered for a reasonable decision: Which one is bigger? The possible loss for losing Chinese partner and leaving Chinese market or the possible fine for breaking FCPA? The possible loss for serious safety accident and government regulation or the gain from fewer costs? As a sub company of a global enterprise, Almond China should a setup strategy
Case Analysis: Culture Clash in the Boardroom 3 Background information above has notable effect on the final decision and will be covered in solution part. Part 2: Identification of problems According to our previous statements, it is clear that there are two issues should be settled in the case: Should Almond China keep following the stricter business ethical rules of its parent company or offer gifts and commission to customers just like other companies do? Should Almond China follow the stricter European standard on safety and environmental practices or lower these standards to reduce costs? In order to solve the problems mentioned above, the third part will offer some basic assessment. Part 3: Assessment of case information According to previous introduction, a matrix can be established for further analysis: Gift & Commission High Standard Advantages Higher sale volumes Partner’s satisfaction Lower risk of safety accidents Less pressure from government Disadvantages Possibly breaking FCPA More costs Figure 1: Basic assessment Learnt from the matrix, some questions are required to be answered for a reasonable decision: Which one is bigger? The possible loss for losing Chinese partner and leaving Chinese market or the possible fine for breaking FCPA? The possible loss for serious safety accident and government regulation or the gain from fewer costs? As a sub company of a global enterprise, Almond China should a setup strategy
ase Analysis: Culture Clash in the Boardroom that is consistent with the significance of Chinese market. Bartlett- Ghoshal model came up with by Bartlett and Ghoshal in 1989 depicts a subsidiary's role by its marketing capability and the significance of the local market. With the help of the Bartlett-Ghoshal model, the role of Almond China and its corresponding action will be settled. The detailed result will be shown in the next part. Besides, the influence from FCPa should also be evaluated. The original laws and concepts in FCPa must be totally understood firstly. The estimation of possible fine can be calculated roughly hrough the record of punishment As for the second problem, the attitude of Chinese government will be influential In recent years, with the slowdown of the economic growth, Chinese government has switched to focus on economic transition(high quality growth) instead of simple growth. Environment-friendly and upgrading technology are exactly the key of the economic transition. Actually, it seems that not only China but also many other countries choose to transform after a period of rapid growth. If such tendency proved by statistics, it will be easier for Almond China to choose a better standard Part 4: Solutions justifications 4.1 Gifts commissions The gift and commission will still exist for a long time in China. According to the rent-seeking theory the rent-seeking behavior is the result of the insufficient resources which include information. Since the chemicals market in China is not so mature as those in developed countries, information on trading opportunities can be considered as a scarce resource. As long as Chinese markets cannot transmit sufficient information to buyers and sellers, the rent-seeking will be inevitable. Therefore the gifts and commission are indeed helpful to enhancing sales volume in the Chinese market. In addition, the role of almond China alse the necessity of Bartlett, C. and S Ghoshal, Managing Across Bonders: The Transnational Solution, Harvard Business School Press,1989),p.55 2赵邦宏,刘晓东等,发展经济学(北京大学出版社),p54
Case Analysis: Culture Clash in the Boardroom 4 that is consistent with the significance of Chinese market. Bartlett - Ghoshal model1 came up with by Bartlett and Ghoshal in 1989 depicts a subsidiary’s role by its marketing capability and the significance of the local market. With the help of the Bartlett - Ghoshal model, the role of Almond China and its corresponding action will be settled. The detailed result will be shown in the next part. Besides, the influence from FCPA should also be evaluated. The original laws and concepts in FCPA must be totally understood firstly. The estimation of possible fine can be calculated roughly through the record of punishment. As for the second problem, the attitude of Chinese government will be influential. In recent years, with the slowdown of the economic growth, Chinese government has switched to focus on economic transition (high quality growth) instead of simple growth. Environment-friendly and upgrading technology are exactly the key of the economic transition. Actually, it seems that not only China but also many other countries choose to transform after a period of rapid growth. If such tendency is proved by statistics, it will be easier for Almond China to choose a better standard. Part 4: Solutions & Justifications 4.1 Gifts & Commissions The gift and commission will still exist for a long time in China. According to the rent-seeking theory2 , the rent-seeking behavior is the result of the insufficient resources which include information. Since the chemicals market in China is not so mature as those in developed countries, information on trading opportunities can be considered as a scarce resource. As long as Chinese markets cannot transmit sufficient information to buyers and sellers, the rent-seeking will be inevitable. Therefore the gifts and commission are indeed helpful to enhancing sales volume in the Chinese market. In addition, the role of Almond China also points to the necessity of 1 Bartlett, C. and S. Ghoshal, Managing Across Bonders: The Transnational Solution, (Harvard Business School Press, 1989), p.55.. 2 赵邦宏, 刘晓东 等, 发展经济学, （北京大学出版社）, p.54
ase Analysis: Culture Clash in the Boardroom maintaining the Chinese market. According to the Bartlett-Ghoshal model, the role of a subsidiary is related to its marketing capability and the significance of the local market(as shown in the Figure 2). In this particular case, Almond China is an enterprise with advanced techniques and organizing abilities, and demand from the Chinese market is also growing rapidly. The joint ventures in China are promising to take the"strategic leader"role. It will be unwise to give up such an enormous market But if Almond China is still not willing to improve the declining selling performance their disappointed Chinese partner might withdraw their investment, which will drive Almond out of Chinese market. To make sure the cooperation, almond China should compromise with their local partners about the gift issue Black hole Strategic leader Local market importance: High Local market importance High Subsidiary abilities: Low Subsidiary abilities: High implementer Contributor Local market importance: Low Local market importance: Low Subsidiary abilities: Low Subsidiary abilities: High Figure 2. Bartlett- Ghoshal model However, Almonds concern is reasonable. Supervision of the FCPA, the U.S law should be considered. The penalty of breaking FCPA could be high but FCPA only forbid bribery to government officials or executives of state-owned enterprises That means the gift and commission to private enterprises is not restricted by FCPa Perhaps almond China should focus on these customers as a breakthrough point 4.2 Safety environment Despite the gift and commission are unavoidable in future, the current Chinese safety and environment standard might be raised soon. Based on the history data of Bartlett, C and S Ghoshal, Managing Across Bonders: The Transnational Solution, Harvard Business School ess,1989),p.55
Case Analysis: Culture Clash in the Boardroom 5 maintaining the Chinese market. According to the Bartlett - Ghoshal model3 , the role of a subsidiary is related to its marketing capability and the significance of the local market (as shown in the Figure 2). In this particular case, Almond China is an enterprise with advanced techniques and organizing abilities, and demand from the Chinese market is also growing rapidly. The joint ventures in China are promising to take the “strategic leader” role. It will be unwise to give up such an enormous market. But if Almond China is still not willing to improve the declining selling performance, their disappointed Chinese partner might withdraw their investment, which will drive Almond out of Chinese market. To make sure the cooperation, Almond China should compromise with their local partners about the gift issue. Figure 2: Bartlett - Ghoshal model However, Almond’s concern is reasonable. Supervision of the FCPA, the U.S. law should be considered. The penalty of breaking FCPA could be high but FCPA only forbid bribery to government officials or executives of state-owned enterprises. That means the gift and commission to private enterprises is not restricted by FCPA. Perhaps Almond China should focus on these customers as a breakthrough point. 4.2 Safety & Environment Despite the gift and commission are unavoidable in future, the current Chinese safety and environment standard might be raised soon. Based on the history data of 3 Bartlett, C. and S. Ghoshal, Managing Across Bonders: The Transnational Solution, (Harvard Business School Press, 1989), p.55.. Black hole Local market importance : High Subsidiary abilities : Low Strategic leader Local market importance : High Subsidiary abilities : High Implementer Local market importance : Low Subsidiary abilities : Low Contributor Local market importance : Low Subsidiary abilities : High High
ase Analysis: Culture Clash in the Boardroom other countries( as shown in the figure 2), we can find out that the fraction of the gDP per capita and CO2 emission per capita" is rising since 1980. Especially for the countries such as Japan and Korea which once had remarkable economic performance in this period, the fraction of GDP and Co2 emission rise suddenly at the end of their growth. The statistic indicates that the most major countries'governments will take environment as an important factor after the first several years of growing. Since Chinese economy has stepped into the "new normal, it is predictable that the Chinese government will upgrade the out-date environment standard to finish the economic transformation. It might not be an informed decision to lower safety and environment standard now-If Almond cater to current Chinese standard now, they may have to adjust this new standard again to fit the new policy, which could be costly for training employees and equipment changing and influence the efficiency of production. Indeed the current rigorous standard is also expensive to maintain, but Almond China can try to produce advanced products which require advanced techniques and provide high margin profits to cover the costs, for example, AMPS, a chemical widely applied in petrol industry. As a result of the high technical requirements, AMPS production is mainly monopolized by western countries now. If Almond China successfully manufactures AMPS in China, their product will bring them considerable profits because of less transportation cost than their western competitors. As for the less profitable products, exporting them to European countries might be feasible. Higher juality requirement in Europe must lead to higher price for these low-end chemicals, which means higher profits for Almond China. Of course, an extra assessment on the China-Europe transportation cost will be necessary to calculate the net profit 4WorldBank,opeNData,https://data.worldbank.orgl,accessedinOctober2017
Case Analysis: Culture Clash in the Boardroom 6 other countries (as shown in the figure 2), we can find out that the fraction of the GDP per capita and CO2 emission per capita4 is rising since 1980. Especially for the countries such as Japan and Korea which once had remarkable economic performance in this period, the fraction of GDP and CO2 emission rise suddenly at the end of their growth. The statistic indicates that the most major countries’ governments will take environment as an important factor after the first several years of growing. Since Chinese economy has stepped into the” new normal”, it is predictable that the Chinese government will upgrade the out-date environment standard to finish the economic transformation. It might not be an informed decision to lower safety and environment standard now—If Almond cater to current Chinese standard now, they may have to adjust this new standard again to fit the new policy, which could be costly for training employees and equipment changing and influence the efficiency of production. Indeed the current rigorous standard is also expensive to maintain, but Almond China can try to produce advanced products which require advanced techniques and provide high margin profits to cover the costs, for example, AMPS, a chemical widely applied in petrol industry. As a result of the high technical requirements, AMPS production is mainly monopolized by western countries now. If Almond China successfully manufactures AMPS in China, their product will bring them considerable profits because of less transportation cost than their western competitors. As for the less profitable products, exporting them to European countries might be feasible. Higher quality requirement in Europe must lead to higher price for these low-end chemicals, which means higher profits for Almond China. Of course, an extra assessment on the China-Europe transportation cost will be necessary to calculate the net profit. 4 World Bank, “Open Data,” https://data.worldbank.org/, accessed in October 2017
ase Analysis: Culture Clash in the Boardroom Figure 3: GDP/CO2 per captia form 1980 to 2014 7000.0 6000.00 5000.00 4000.0 1000.0 0.00 198019821984198619881990199219941996199820002002200420062008201020122014 中国GDP/CO2 一印度GDP/C02印度尼西亚GDP/C2 南非GDP/CO2 土耳其GDP/CO2 俄罗斯联邦GDP/C2 大韩民国GDP/CO2 以色列GDP/CO2 欧洲货币联盟GDP/Co2 日本GDP/CO2 美国GDP/CO2 Part 5: Conclusion Based on analysis above, answers to the major problems listed in Part 2 have been given: compromise on commission and adhere to the principle on safety standard Nevertheless, one fact should be alerted that these conflicts actually stem from the discoordination between Chinese and German culture, which can only be solved by more communications. Almond Chemical should promote more executives with Chinese culture background to smooth the future coordination in Chinese market
Case Analysis: Culture Clash in the Boardroom 7 Part 5: Conclusion Based on analysis above, answers to the major problems listed in Part 2 have been given: compromise on commission and adhere to the principle on safety standard. Nevertheless, one fact should be alerted that these conflicts actually stem from the discoordination between Chinese and German culture, which can only be solved by more communications. Almond Chemical should promote more executives with Chinese culture background to smooth the future coordination in Chinese market. 0.00 1000.00 2000.00 3000.00 4000.00 5000.00 6000.00 7000.00 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Figure 3: GDP/CO2 per captia form 1980 to 2014 中国 GDP/CO2 印度 GDP/CO2 印度尼西亚GDP/CO2 南非 GDP/CO2 土耳其 GDP/CO2 俄罗斯联邦GDP/CO2 大韩民国GDP/CO2 以色列 GDP/CO2 欧洲货币联盟GDP/CO2 日本 GDP/CO2 美国 GDP/CO2