Trouble in Paradise

This case of a 50/50 joint venture in China between a US company and a Chinese company could be a classic example of how foreign companies should plan and execute when doing business in China. It clearly showed how adaptation played a key role in the US firm’s success in a foreign market. Mike Graves’ understanding, tolerance and even accommodation of the cultural differences clearly contributed to the success of the joint venture particularly in the last five years where he is general manager.

The US company penetrated the lucrative Chinese market and has benefited from the local expertise and network of the Chinese company. On the other hand, the Chinese company grew, expanded with 3 successful acquisitions and has also benefited from the management tools and innovations brought in by the US company.

More important in the case now is how to plan for the future especially when the parent companies have conflicting visions for the venture.

The conflicting goals of the parent companies are very clear:

1. Bill Windler, the US company’s CEO, wants a 20% ROI whereas the Chinese company is satisfied with the current 4% ROI.

2. The US company CEO wants greater efficiency and full automation which will mean laying off 1,200 employees while the Chinese company plans not only to protect jobs but also to increase the number of employees from 2,300 to 3,500.

3. The US CEO would not want more expansion initiatives that would eat into profits but the Chinese is preparing for another acquisition of an unprofitable company and the creation of a new company to market a national brand.

4. The US company wants to go after the high-end market whereas the Chinese company officials who are not keen on quality are contented with “cha-bu-duo” (almost okay).

Such big differences in the strategic directions of the parent companies do not seem possible to align or reconcile. There are basic cultural differences that influence the decision-making and management style in the two parent companies that will not work going into the future. Cutting costs and laying off workers directly goes against Chinese “guanxi”.

Alignment