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SH+I -A.*ICS: CAS' A(A,/SIS

Submitted to: Professor Carolina D. Guina Submitted by: May Despi AC Guanco Jan Ilo Miguel Manalysay Han elle So August !"# $"%!

A&'(') G*AD+A&' SCH)), )- .+SI('SS P*I(CIP,'S A(D D/(AMICS )- MA(AG'M'(&

I.

Introduction Globalization paved the way for the spread in cultural ideas, information and investment opportunities. However, present in these conditions are economic, legal-political, and sociocultural differences that create barriers for effective managerial decisions. For joint ventures that are made in a global scale it is more challenging for managers as they deal with understanding cultural differences athat may e ist and where greater cooperation is needed to ma!e a successful business partnership. "he case of #hui Fabrics is an e ample of the challenges faced by managing in a global business environment. #hui Fabrics is a joint venture business between $oc!y $ivers, an %merican company and #hanghai Fabric &td. of 'hina. "he underta!ing was that of producing dye and coat fabric to be sold to domestic and international sportswear manufacturers.

II. #ituation (ey )oints #hui Fabrics in the past has e perienced money losing years coupled with the challenges of strict regulation from the 'hinese government. However, in the recent years of its operation the company has been generating a steady $*I of +, and has provided -,... jobs for the 'hinese wor!force. $ay /etzell the company0s general manager is facing pressure from $oc!y $ivers president to generate an $*I of 1., and reduce wor!force. "hey are willing to pull out of the venture if $ay cannot find a way to turn the situation around. In addition, 'hiu 2ai the 'hinese deputy general manager saw no reason for $ay0s %merican bosses to not be satisfied with the return the company is currently generating. III. )roblem 3efinition "he problem arises from the differences in the joint venture0s cultural values, economic environment, and legal-political environment. "his results to the endangerment of the jointventure, #hui Fabrics, of being ended by $oc!y $ivers, their %merican counterparts, due to its low returns to their investments. I4. 3iagnosis "he cause of the problem comes from a number of factors. /ecause of the 'hinese culture, local government policies are built in such a way that may be constricting to foreign businesses and favors local businesses more because of their high collectivism values 5. "he benefit of 'hinese businesses and its people is always of high interest of 'hinese authorities. "his was highlighted when the local authorities are pleased when #hui was able to provide a number of jobs for 'hinese wor!ers. It was also noted that a close monitor was put to !eep #hui in chec! if their profits will result to e ploitation and domination of western companies. $

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"he 'hinese culture, particularly in terms of communicating, is also a big adjustment to $oc!y $ivers. "he 'hinese 6and %sians in general7 naturally would just want to blend in the group. "hey also want to use communication to build long-term relationships and trust. "he %mericans on the other hand, want to spea! up and voice out. "hey also communicate directly to e change information and give more importance to business concerns.1 4. *ptions and %lternatives "wo contrasting options were derived from the case. *ne is to directly cut ties and end the joint partnership for #hui. "his would incur more cost for the company and it will be harder for them to penetrate the mar!et by operating from outside 'hina, losing out to a fast growing economy with big opportunities for businesses. *n the other hand, this can be seen as an opportunity to e pand to other potential big mar!et countries such as India. "he second option is to convince the %merican partners and give ample time to study the 'hinese business environment and culture to align the %merican business objectives with it. "hey maintain the current benefits that they get li!e low labor and production costs. "his decision can also maintain their momentum of building a good relationship with the 'hinese government, which in the long run will be beneficial for #hui to e pand to other opportunities in the 'hinese mar!et. "hen again, waiting out for a longer time for these opportunities to rise can ma!e the business potentially lose out on other opportunities. %n alternative option also developed where specific options such as manpower downsizing and e ploring licensing agreement possibilities are presented. "his presents options that may be advantageous to one part of the business, but may be detrimental to the other components of it. 4I. %lternative selection "he selection of the alternative will be based on the value of potential returns for the business in the perspective of $ay /etzell and $oc!y $ivers. "his perspective was also chosen to highlight the importance of cultural intelligence in a global business setting. 4II. $ecommendation "he option to convince the %merican partners and give ample time to study the 'hinese business environment and culture to align the %merican business objectives is the recommended decision for the business. /ecause of 'hina0s fast growing economy and population, it has a huge mar!et potential for companies to e pand their business. 'hina also has low labor costs ma!ing it logical to setup factory operations there, as compared to setting up in the 8.#. or other western countries. #hui is in a good position to tap into other business opportunities as they0ve already proved their contribution to their economy by providing jobs. *nce this trust is fully gained from the local government, the 'hinese mar!et can be penetrated further by #hui. !

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%n added value of this decision is it aids in decreasing the unemployment rate in 'hina. If this forms part of #hui0s corporate social responsibility, they0ll be able to contribute to the community just by setting up and e panding their business there.

Case Questions: 5. How would you characterize the main economic, legal-political, and socio-cultural difference influencing the relationship between the partners in #hui Fabrics9 :conomic 3ifferences; $*I of +, for the last - years is unsatisfactory to $oc!y $ivers and considers possibly pulling out from the venture. #hanghai Fabrics believes that the company is operating at an optimum $*I of +,. Increasing it, the company could land in hot water from local authorities. Has already created -,... jobs added to the economy for a country with a 1., unemployment rate.

&egal-)olitical 3ifferences; Highly regulated foreign investment policies in 'hina. #tricter regulations faced by foreign companies. /e in line with legal political standards

#ocio-'ultural 3ifferences; 3ifferent in performance orientation 'hinese pay less attention to profit and focuses on creating jobs for its population. %mericans are determined to achieve a higher $*I by reducing wor!force and focusing on efficiency

2hat G&*/: )roject dimensions would help you understand the differences in 'hinese and %merican perspectives illustrated in the case9 Performance orientation: "he %mericans places high emphasis on performance and rewards people for performance improvements and e cellence. "hey want to see a better economic performance, e pect higher profits and are tas!ed oriented. Has to plan to lay-off wor!ers or pull the flag on its joint venture if the company does not improve its performance. Humane Orientation: "he 'hinese are more concerned in job creation that will pose a real contribution to the local economy. "hey are relationship oriented. 0

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1. How would you define #hui0s core problem9 "he core problem is the lac! of cultural intelligence and lac! of communication. "he 'hinese and %merican partners of #hui Fabrics have dissimilar measurement of success from both partners. "he 'hinese partners are satisfied with the company0s performance since it helped created jobs and boost the economy. In the part of the %mericans they are displeased with the +, $*I that the company e hibited in the last three years. %re socio-cultural differences the main underlying cause of this problem9 2hy or why not9 <es, we believe the difference in cultures of both partners is the underlying cause of the problem. #ocio-cultural bac!ground influence a lot in the way a person determines his success. 2e all !now that %mericans always deals with numbers, while 'hinese have a strong sense of social responsibility, aside from ma!ing money. 'hinese are !nown to lean towards long-term orientation. "his means they have greater concern for the future and high regard for frugality and perseverance, somewhat more conservative and not too bold. %lso, they are !nown to be living in a highly collectivist culture. "hey have more concern with their surroundings, thus, valuing more the jobs they created in the community. "he 8nited #tates is a highly individualistic culture. "his translates into a loosely-!nit society in which the e pectation is that people loo! after themselves and their immediate families. "his is displayed by )aul 3anvers whose main concern is to recover his invested money and ma!e profits the soonest. How would you handle the conflict with your boss bac! in the 8nited #tates9 If we were to handle the situation, we would just say that we cannot totally increase the profit drastically since we might be open to e ploitation from 'hinese government. /asing from the given scenario, if they found out we are ma!ing a lot of money, they could e tort 6in a discreet, probably lawful way7 from us. "he way to handle the conflict is to introduce =r. 3anvers to the cultural differences that any manager faces when operating in a global scale. Help him learn about the culture, so that he would be more sensitive in dealing with the situation. %llow for an open communication between =r. 3anvers and his 'hinese counterparts to cultivate a sense of collaboration. In addition, this will help the decision to be become a >win-win? situation for both parties. -. If you were $ay /etzell, what other options to the +.-+. joint venture would you consider for manufacturing te tiles in 'hina9 Option 1: 'ut ties with 'hinese partners and turn to e porting products from the 8#. However, this would incur more cost for the company. It will be harder for them to penetrate the mar!et by operating from outside 'hina, losing out to a fast growing economy with big

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opportunities for businesses. *n the other hand, this can be seen as an opportunity to e pand to other potential big mar!et countries such as India. Option 2; 'onvince the %merican partners and give ample time to study the 'hinese business environment and culture to align the %merican business objectives. %fter careful gaining !nowledge of the 'hinese culture and its business environment, all sta!eholders involved will need to meet and discuss their concerns to find ways to address their differences and mutually agree on how they can improve profitability. )eriodic short meetings 6at least @uarterly, during its initial stages7 must be held in order to recalibrate and realign everyoneAs standing in terms of achieving the goal. "his will also be the channel for all to gauge their performance if everyoneAs headed towards the same direction. "his is idea will be favorable to the %merican partners as they will be able to see their achievements immediately, as well as for their 'hinese partners so they can blend in and be part of the decision ma!ing for #hui. "his will also improve cultural intelligences for both sides, where it is a means to see! out new opportunities and not as a hindrance to growth. %n alternate option is to do specific business decisions that will be beneficial to parts of the business; $educeBlay off wor!ers - "his will reduce labor and produce cost with the money saved will be used by the company to invest in technology that will increase $*I and foster efficiency. "his is favorable to the %merican partners as streamlining generally e@uates to lowering costs and therefore improving profit. However, 'hinese authorities may not be too !een on this because the welfare of their wor!ers will be at sta!e. 'onsider entering a licensing agreement C "his could cut cost in terms of foreign operations 6e.g. housing of e pats, etc7. %lso, this could mean a smaller investment from 8# partners, thus increasing the chances of a higher $*I. However, 8# will have no full control on operations and management. . If 'hina could wor! and decide almost independently, they could study the ins and outs of the mar!et and could re-strategize depending on what the trends are on the local mar!et.

=a!e the argument that one of these options is more li!ely to meet $oc!y $iver0s e pectations than the partnership already in place. "he presented options will be more li!ely to meet $oc!y $iver0s e pectations as the progress and maturity of the joint-venture is visible. If they are to pic! the decision of learning the 'hinese 'ulture and the business environment, their opportunity to e pand their business on a global scale is much bigger. 4III. #ources 5 Geert Hofstede C 'hina http;BBgeert-hofstede.comBchina.html 2

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1 $ichard 3aft C Dew :ra of =anagement, )age 5--