Wyoff and China-Luquan: Negotiating a Joint Venture(a)

This paper presents the results of the authors’ detailed research into competition between multinationals and local Chinese companies in 10 industries over the past five years. They conclude that local companies are now threatening multinationals’ plans to conquer the China market. They analyse this new competitive game in terms of a dynamic battle of competencies. Multinationals start off with better industry-specific technology and know-how, and a higher level of competence in key functions like marketing and financial management. Chinese companies enjoy a better understanding of the local market, lower

Same methodology cannot be used in Chinese market since high tariffs are charged on import goods, and this would further increase retail price of the goods. Local companies do received advantages from the Chinese government, it was beneficial to establish a joint venture with experienced local corporation and more helpful if one of the partners had relationships

International joint ventures is an overseas business owned and controlled by two or more partners; starting such a venture is often as an entry strategy (Deresky, H. 2014.p.377), while joint ventures refers to an independent entity jointly created and owned by two or more parent company.

The conceptual framework of international joint venture negotiations created by Luo (1999) also includes the bargaining power as one of the organizational antecedents. For JVC partners, examining eight bargaining power sources including the availability of substitute partners, strategic importance, technology, management experience, global support, local knowledge, distribution channel and resource procurement are beneficial (Yan and Gary, 1994). Both parties could use listed sources to gain more bargaining power in order to better shape the initial distribution of control in the negotiation (Yan and Gray, 2001). For example, in the exercise, foreign parties could use the strategic importance, technology contribution, management expertise and global sales and market experience to enhance the bargaining power, while CNI could put more emphasis on the strategic importance, substitute partners, local know-how as well as low cost in labour and material. The availability of alternatives is also positively associated with the bargaining power. The more alternatives a bargaining party has to achieve the same goal, more power it has in the negotiation (Yan and Gary,

The Chinese negotiators take their time when making business decisions. They are not quick to come to an agreement in joint ventures; this is very different that the American way of doing business. It is essential that Costco takes their time to research all their options and strategize an effective business plan that will enable them to do business in China while mitigating the risks of losing control over their assets and ethical business practices as a result of doing business in China.

It seems there was once a clear strategy that has been forgotten over the course of ten years. Another social factor that is different between the partners would be that a profit over 20% return on investment may be perceived as Western exploitation. When it comes to doing business in China, respect for people’s feelings is paramount - this sensitivity that needs to be taken in respect to people’s ‘face’. Face - a cliché, is the currency of advancement. It’s like a social bank account. You spend it and you save it and you invest. And when you take away somebody’s face you take way someone’s fundamental sense of security. Because of China’s history of exploitation by foreign countries who colonized China or raided China for business purposes, particularly in the business sphere, Chinese do not want to be seen culturally as having been ‘had’ by Western businesspeople.(http://www.nytimes.com/2010/12/14/business/global/14iht-busnav14.html)Chiu Wai is pleased with the way the company is operating and feels that Shui is generating just the right level of profit especially because many U.S.-Chinese joint ventures are still operating in red tape. He sees no reason why Ray’s American bosses shouldn’t be more than satisfied with their 5% annual return on investment. This tells me that Chiu is unclear of his company’s strategic goals. Without a clear strategy it is

CASE DESCRIPTION The primary subject matter of this case concerns the management of international joint ventures. Secondary issues examined include: business in Russia; government’s intervention in business and how it affects multinational companies; market entry and modes of market entry decisions;; and dimensions and elements of culture (Fang 2003). The case has a difficulty level appropriate for first or second year graduate level. The

Chinese enterprises make acquisitions to enter and penetrate a host economy by using state-sponsored soft budget constraints (Warner

Volkswagen (VW); Market Entry Strategy; Foreign Direct investment (FDI); China’s car industry; Shanghai Volkswagen; Joint Venture.

4. K.C. Fung, Hitomi Iizaka, Sarah Tong. 2002. ‘Foreign Direct Investment in China: Policy, Trend and Impact’, paper prepared for an international conference on “China’s Economy

It’s a trend that the Chinese government increasingly open market to foreign investors by reducing the barriers of entry. Recently, the State Council of China has altered the foreign investment policies, encouraged and supported the foreign investment on the service sector, especially the labour intensive but environmental friendly business in low developed central or western China (Chen & Liang, 2010). The government has also permitted the foreign investors to set up partnership business with local firms (Cao & Tai, 2009) rather than formerly approved options of joint venture and wholly owned. On the other hand, the current government and communist party are working to ease the social inequality. The minimum wage and annual income protection have been approved and increased in China at present (Wang et.al., 2009). Also, they have promoted the establishment of government-led labour union in major foreign business and expect to require all of them to set up in later (Kahn, 2006), which aim to create official-approved labour protection chapter and collective bargaining in foreign firms.

2016 is said to be “Record Breaking Year” for Chinese Investors. According to Forbes News, five major acquisitions of U.S companies and stakes totaled up to 28.16 Billion dollars. Yet, this was only a quarter of China’s entire outward investments in 2016. Many foreign firms suppose that China’s oversea merging and investing in next decade will reach tremendous amount, but it will not occur as they expected depending on Emma Johanningsmeier’s current event reports on Wall Street Journal about “New Chinese Regulations and wary foreign governments hamper M&A investors” in august 2017.

In the planning stages we decided on an integrative negotiation style and were willing to make a number of concession to achieve our BATNA, as we had prioritised the most desirable needs and wants for Universal. Having prior knowledge into Chinese values was a major advantage as we were able to use this within our planning as a tactic within the negotiation itself. The Chinese had all of the power here, so to shift this and ensure we were still able to achieve our goals I

China is second largest economy in the word. Size of the Chinese economy and future growth potential has attracted the foreign companies to operate and earn profits. Thrust for cost saving and market expansion direct Multinational companies towards China. China has open the door for foreign companies between 1978 and 1990. Mode of entry utilized by multinational firms includes direct export, franchising, joint venture & wholly owned subsidies. The various factors affecting the success of any foreign company in mainland, including but not limited to the time of entry, mode of entry, institutional framework, and culture difference. However, doing business in China is not as easy as doing in developing nations. A lot of companies have burnt their fingers in China operation.

From 1979-2000, China pursued a policy this promoted FDI related to export promotion, which contributed to Taiwan and Hong Kong investment, because it helped it helped protect China’s local businesses. Market driven FDI, which is primarily what the US, EU and Japan are interested in investing, was limited in China because it would potentially hurt Chinese firms due to intense competition from western firms (Naughton, 403). The “western” firms were less interested in investing in China for export purposes, but rather wanted to take advantage of the massive market for consumer products present in China (Zhang, 294). Because of this, Taiwan and Hong Kong investment contributed a larger amount to FDI in China than compared with the US, EU