Finn has the ultimate decision of deciding whether o accept a contract that has been deviated from the original agreements or confront the deviations and risk the possibility of losing the Chinese market and other international connections for the company. One of the partners in this joint venture is Minimizing, a large Chinese government investment and finance agency, which has international prospects for Richmond Engineering assuming this relationship can be built with trust.
Richmond Engineering would receive 25 percent equity in the joint venture for a minimal input of the required equipment and training, if Finn an work with the method of negotiation the Chinese use to get the deal closed. My recommendation is that Finn is firm and applies pressure to the Chinese in order to ensure that this deal is finalized and keeps a long-term outlook on the future benefits this joint venture, specifically Minimizing, can do for Richmond Engineering.
Problem Statement It is essential that Fin’s response to the final agreement is in the best interest of Richmond Engineering without impacting the progress they have made in Chinese market. The problem she is facing is how to respond to the aviations of the initial contract, should she have trust in the Chinese that the kinks in the contract will be worked out in the future and the potential of other international markets outweigh these deviations, or should she challenge the deviations and risk the potential of losing this deal and the possibility of entering the Chinese market.
Analysis Finn is familiar with the Asian culture and their business tactics from her dealings in Indonesia, she is aware that the Chinese are tough negotiators that do not trust easily as they have been burnt in the past by other nations. Their tactics of placing Finn in an isolated hotel and monitoring any contact to Richmond Engineering are a good indication that they do not yet trust Finn or Richmond Engineering.
Their attempt to deviate from the agreed upon terms is an indication that the 28 Chinese negotiators see this stage of negotiations as the start of a flexible relationship not as the end of this long negotiating process. This is a rare circumstance that the Chinese have taken the lead with a majority of the planning by brining three of the partners together and lagging all required resources to have a turnkey operation. The Chinese have been known to put the foreign company attempting to enter their market through hoops with the government in a long and drawn out process.
This buyback joint venture is exactly what Richmond Engineering needs to enter the Chinese market without a large cash investment or concern about the interference of the local government. They may be concerned about the 35 percent equity that Beefing Steel would receive which would allow Beefing to have the final say on all decisions. This highlights the importance of trust within the partnership and that each partner must be firmly committed to the goals of the joint venture and put them first in order for this to be a success.
The 25 percent equity in the joint venture that Richmond Engineering would receive requires them to provide machinery and training which management sees as extremely minimal for a piece of the China market and with partners such as Minimizing, many doors can open for Richmond Engineering. Benefits such as utilizing their international marketing expertise and connections to entering other international markets like ABA Dhabi could break the ice on the Middle East market and propel international profits as the oil rich countries are growing there infrastructure.
Richmond Engineering will need to view this joint venture as a long-term profit potential for minimal input and the potential that the joint venture could be bought out by one of the partners after it gains expertise within the local market Future Expansion The training component of the contract requires Richmond Engineering to train individuals who may not be very motivated as they may feel as though it s beneath them. In China individuals tend to be well educated and hard working however most of them lack advanced professional training and will require a more intensive on-the-job training that is tailored to local practices.
Any employees from Richmond Engineering working in China during the training period should be well versed in the Chinese culture to warrant a successful response to necessary training. The risk of losing this joint venture is a major concern as Richmond Engineering has been working on entering the Chinese market since 1 984 and if this deal is tarnished it is hard to say owe long it could take for a third chance to come along.
Cultural elements are a key element that influences international business negotiations, in China it is important that both parties refrain from embarrassing one another and to meet any differences halfway to ensure a successful negotiation. If Finn can enhance the current relationship to build trust between Richmond Engineering and the joint venture partners to negotiate the final terms of the agreement cautiously but firm I feel that this joint venture has various advantages for Richmond Engineering. Discussion of alternatives
There are various alternatives that Finn can take when approaching the final negotiation. The most abrupt option would be for Finn to pack her bags, as suggested, and refuse to return to the negotiations unless her demands are met. This option runs the risk of Richmond Engineering losing the entire deal and damaging the relationship within the partnership. Another approach would be for Finn to accept the changes that the Chinese made to the contract and trust that this is a test of flexibility and that when the relationship is validated the Chinese will adjust the details to better suit Richmond Engineering.
The Asians will often insist that contract be flexible so that any future adjustments can be made easily in changing circumstances. This could cause many trust issues in the partnership as well as could result in unexpected costs for Richmond Engineering making the deal a potential financial burden. My final suggestion would be for Finn to return to the board room and request that the negotiating is adjourned until the next morning to allow time for her review and consideration. This would allow her the time to review it with management and get a better understanding for the company’s session on the deviations.
The only deviations that Finn should be concerned with are: 1 . Supply of more equipment than originally decided – this goes back to the evaluation of the equipment, it is clear that the Chinese are not convinced of the value of the equipment or technology. Finn should stick to the original amount with a possibility of more if demand dictates it. 2. Changing the thickness of materials that the machinery’ can handle – this is where a good reasoning should be provided, was the machinery going to be used to process other types of posts?
Finn should highlight that if these specification changes were to be made the value of the equipment would increase and a greater amount of equity would be required. 3. Annual capacity increase -? As long as the Chinese can keep the quality of the product at or above standards the capacity level should not be an issue. The Chinese may have shifts running 24/7 unlike our work ethic in Canada. This option could place a little pressure on the Chinese and in a reserved way Finn can express that she is aware of the deviations from the initial contract.
Upon returning to the estimating table Finn could request that reasoning for the changes as there could be legal reasons for these changes and possibility counter with her own to level out the playing field. This could drag out negotiations further and postpone the opening of the plant. Recommendation After reviewing the pros and cons Of the joint venture as well as the deviations from the original contract feel that this deal is necessary for the future success of Richmond Engineering’s international expansion. Finn will need to be firm in her negotiations while ensuring the trust and relationship s not completely dissolved.
I recommend that Finn returns to the board room and requests that the negotiations continue the next day, placing pressure on the Chinese and potentially having them revert back to the original contract. Finn should ensure that the deviations were not as a result of translation errors, if not she use her best judgment to choose her battles as not all the deviation are major issues. The three deviations mentioned above, are the items that Finn should request that they meet in the middle on, however they should not prevent the deal from closing, as for the other teems they can be use as bargaining chips.