Guanxi in Jeopardy

Chelsea Kling
Patrick Hibben
Eric Ansari
Sean Hawbreaker
 Introduction
Electrowide is a United States based company that is responsible for developing new and

advance electronic equipment that is put in cars. They are recently going through an entire

company over haul where they have chosen to practice more lean production methods and

improve the way they do business. Along with this they have decided that they wish to seek over

seas expansion. They have chosen Motosuzhou, a large enterprise in China which is under the

ultimate control of the Chinese government, like so many other businesses in China. Electrowide

wishes to sell their equipment to Motosuzhou in hope that they will be able to better distribute it

across the world and automotive industries, especially those in China. Unfortunately due to a

lack of preparation and research the joint venture was a failure. Our group believes that this joint

venture between Motosuzhou and Electrowide could have been a successful one if some changes

were made in how the strategy of the operation was put in place. We would like to further delve

into these changes in strategy but would first like to observe the company Electrowide and their

troubles through the eyes of both the SWOT and PESTLE analyses.

SWOT Analysis

We believe that the number one strength of Electrowide is their technology due to the fact

that they have developed a number of special electronic products specifically for cars, which can

provide a lot for customers as well as car companies. This technology is also being specially

designed in a center in Tokyo, which is solely devoted to creating products that are specialized

and unique for the company.

We believe that this strength also ties into one of Electrowide’s greatest opportunities.

With Electrowide’s new design center in Tokyo, they were seeking to enter other Asian markets,

such as China. China’s economy has been predicted to be the worlds largest one in 2025 and
there are numerous opportunities for growth in Asian markets, especially with the knowledge

that they hold of making reliable and affordable cars. If Electrowide could have successfully

entered this market they would have been able to develop certain expertise about the types of

electronics to put into cars, by working hand in hand with the automotive companies. Along with

this expertise is the idea that Electrowide could create new technology that other companies have

not discovered yet. We believe that this is an opportunity that the design center in Tokyo also

provides Electrowide with. The center in Tokyo is described with having special engineering

abilities that are expected to help Electrowide develop a number of these new electronics that

could dominate the market.

A large weakness that we see within Electrowide is that the company needs to expand

worldwide operations. Asia is a huge market for electronics, and especially automotive

electronics, if Electrowide could have entered the Chinese market they would have had the

potential to be a multibillion-dollar company. Therefore the limitations of the Electrowide,

before their attempted joint venture, were that Electrowide desperately needed to expand

operations globally.

We believe that the major threat that Electrowide was presented with was the massive

company overhaul. We as a group feel that Electrowide could have been spreading themselves

too thin; trying to expand globally into one of the most difficult markets, as well as undertaking a

full company structural change. Although, we believe that the structural overhaul will result in

many positive outcomes for Electrowide, we fear that Electrowide should have finished this

operation before expanding globally because headquarters could potentially be very distracted.

PESTLE Analysis
 Through the eyes of the PESTLE analysis we would first like to examine the Political

aspects of the joint venture between Motosuzhou and Electrowide. It appeared on the outside that

Motosuzhou was a dream come true company for Electrowide to do business with. Motosuzhou

was known for its excellence in achieving economies of scale specifically in assembly line

manufacturing. Motosuzhou was seeking a company to create a relationship with that consisted

of importing technology and then transferring and applying it to the Asian car industry.

Motosuzhou was also one of the 1,000 companies within China that was given free reign to run

their company apart from the Chinese government’s specific and demanding restrictions.

Although they are approved to operate apart from government interference, Motosuzhou is very

hierarchal and if there are any requests for change, they must go through a government-audited

process.

Motosuzhou appeared to be a perfect company for Electrowide to do business with

because they were one of the companies that were not fully government regulated, however there

were still many problems that Electrowide can run in to. China still holds all power over the

imports through China. Due to the nature of the relationship that both companies were seeking,

they would greatly rely on the ability to import the technology in order to apply it to the cars that

were being manufactured. Also if there were any need for major changes, once Electrowide went

into business with Motosuzhou, they would need to go through the Chinese government, which

could be extremely difficult and stressful process.

In analyzing the case of Electrowide and Motosuzhou, there were many Economic issues

that we believe were significant. To begin with the costs of entering the Chinese market are

extremely high, making it a difficult country to enter, and then especially difficult to succeed in.

A second economic difficulty that Electrowide encountered in their interactions with

Motosuzhou was the demand from them that all profits were to be invested in yuan only,

Motosuzhou also demanded to control all financial operations between the two companies. This

obviously created huge disagreements between the two companies because it is risky to only

invest in Chinese currency due to exchange rates risks. It also seems mildly unfair to us that

Motosuzhou would control all financial operations when it is originally the technology of

Electrowide that is being put into the cars. A final economic concern for Electrowide was that

Motosuzhou wanted all the training consulting and warranties provided for them by Electrowide.

It appears that this joint venture would be a lot of money for Electrowide to undertake, and that a

lot of expenses would be considered Electrowides responsibility. Electrowide needs to ensure

that they can economically support this venture or compromise with Motosuzhou to split the

financial expenses.

Unfortunately these issues were never discussed between the two companies because

there were many obvious differences in culture. In the end the economic issues were not solved

because it appears that neither company wanted to bend in their relations. It was important for

the employees of Motosuzhou to receive training, however it was a cultural difference that raised

the question of who was to pay for these training and consulting expenses. In China they viewed

it as a gift to receive the training that was necessary to do business with Electrowide, however

the United States companies believe that it is your responsibility to learn and conform to the

companies that you plan to do business with. These issues were probably not resolved because

there was no research involved in learning how the Chinese viewed these expenses. Headquarters

also demanded that Tom and his team not budge on the original outlines of the negotiation

contract.
 Next in the PESTLE analysis that we believe is applicable to our case was the

Socioeconomic issues. Within the Chinese society there are not many men that hold significant

positions in business. It is quoted in the text that “males account for over half of the work force

and have the majority of leadership positions”. When Electrowide chose Barb Morgan to be a

part of the joint venture team in order to organize the teaming up of the two companies, we do

not feel that this was a smart decision. If the headquarters of Electrowide had done further

research they would have discovered that women were not viewed as significant parts of the

workforce, and that Barb’s contributions to the team would be overlooked by those of the

Motosuzhou. We believe that Barb was chosen for her previous international experience and her

brief knowledge of the Chinese language. However we feel that a male would have made a more

significant influence in China, in the end Barb only became good at sitting back and watching

the interactions between Tom and those of Motosuzhou.

The next step in the analysis of PESTLE was Technology, although technology is what

brings both companies together because of the nature of the business, we do not believe that

technology was a specific issue in the failed joint venture between Motosuzhou and Electrowide.

The next important issue that arose within the PESTLE analysis was the Legal issues. We believe

that some legal issues were continuations of the political ones. However the major legal issues

that we saw that created a barrier between the two cultures were that contracts are not recognized

in China. This is obviously a huge barrier between the American and Chinese cultures. For

Americans, a contract is a way to protect the business interaction, as well as your employees,

because we as a culture do not necessarily trust relationships. However the Chinese value and

spend time on these relationships, building them and making them worthwhile so that contracts

do not need to be written. Due to the nature of the Chinese culture, when Tom and his team went
and sought out a lawyer to write a contract it was a huge insult and they were very

misunderstood, which is essentially why this joint venture failed. If the company had done some

more research in order to discover how the Chinese viewed contracts and valued relationships,

they might have been more successful. The Electrowide employees could also have been able to

better explain their way of business to the Motosuzhou employees in order to hopefully meet at a

compromise.

Another legal issue that our group saw as a concern was that the financial records of

Motosuzhou were with held from Tom and his group. Motosuzhou demanded the control of all

the finances, and would not turn over their records. From what Tom could see, he discovered that

the accounting practices of Motosuzhou were in a complete mess, so it was an extremely difficult

dilemma that the team was in. It would be extremely irresponsible for Electrowide to hand over

all of the financial aspects when they saw that they were not responsible with their own financial

aspects. This obviously created large difficulties for Tom and his team and we believed that there

needed to be more support from Headquarters in order to resolve this issue.

The final aspect of the PESTLE analysis that was applicable to our case was that of

Environment. Although we did not see any sort of environmental concerns we decided to take a

different approach on environment, the environment of doing business in China. In the Chinese

culture there is an extreme emphasis put on the importance of guanxi, which is defined in our

textbook as “the intricate pervasive network of personal relations that every Chinese person

carefully cultivates”. This describes why for the first 5 weeks of the venture, that Tom and his

team were expected to go to dinners and events that did not include any business talk or

negotiations at all. The Chinese viewed that time as an opportunity for the two companies to

learn about one another and their lives. For the Chinese culture knowing your business partner on
a deeper level is important and essential, such as how many family members they had, and what

they liked to do on their spare time. We believe that Tom and his partners were severely

unprepared for this aspect of the Chinese culture, if not totally unaware of the importance of this

guanxi or relationship building.

It is hard to point the blame of who is responsible for the lack of training and preparation,

however it is clear that the right members may not have been chosen for this venture. Barb being

a woman was an extremely risky person to go to China on the venture, Mark Porter could have

also been a risky choice for the venture. We believe that Mark was not good for this venture due

to his inexperience and his personality type. He is described as having a type-A personality and

will excel at a project no matter what the cost. We believe that Mark’s personality was most

likely too strong for the Chinese culture, and someone who was more focused on the relationship

of the venture, and the future, as opposed to the present and immediate success, would be more

suited for the venture.

Throughout the entire venture we believe that Tom, Mark, and Barb do not receive

enough support from Headquarters. From the case it appears that Headquarters did not properly

prepare their expatriates, and did not make themselves readily available to help them while they

were in China. Headquarters seemed to only send the expatriates to China with specific orders

and no room for negotiation or compromise. We believe that if Headquarters had supporter their

expatriates more, or prepared them better with doing more research, and made sure to pick the

right people for the job, this joint venture could have had a more positive outcome.

Goals and Objectives

 The goal of Electrowide, Inc. in our case study is ultimately to find a business partner in

Asia that will allow it to globalize its operations. The purpose of this would be help manufacture

and sell engine management systems that run emission-control, fuel nozzle, and ignition systems

for Chinese-made vehicles. By doing so, the hope for Electrowide is that this partnership to lead

the company into becoming a ten billion dollar International enterprise. One of the main reasons

for this is because it is forecasted that by 2025, China will have the largest economy in the world.

Electrowide’s main objective that would put it in the best position to attain its goal was to

secure a joint venture with China-based company, Motosuzhou. Motosuzhou is under the watch

of the Beijing municipal government. It specializes in assembly-line manufacturing of engine

control subassemblies. Accordingly the joint venture that was proposed by Electrowide Inc.,

Electrowide would be in charge of taking care of the design, finances, and technology in the

partnership while Motosuzhou would be in charge of providing a manufacturing plant facility as

well as provide the technical labor force for the plant. In the details of the joint venture,

Electrowide planned to hold a 51 percent stake, with Motosuzhou taking 39 percent, and the

remaining ten percent would go to the Beijing municipal government. This is primarily because

Electrowide was going to finance a larger portion of the joint venture.

Problems with Current Entrance Strategy into China

Electrowide failed to take into account many cultural variables that were associated with

doing business in China. From the physical composition of the team to the way in which they

went about conducting negotiations with Motosuzhou, Tom Sherman and his team were at a

disadvantage right from the beginning.

 When comparing the two negotiating teams for each company, Tom was the most senior

on his team, with 25 years; his remaining two associates had a combined nine years experience

and were also somewhat young (Barb 44, Mark 31). Motosuzhou was represented by three of its

most senior and top executives in Zang (62), Chew (55), and Yoo (65). In addition to youth, Tom

having a woman on his team did not bode well for Electrowide Inc. as the Chinese culture is

traditionally male-centered. This was apparent when it was mentioned that she was not being

included in discussions and that the majority of the eye contact during discussions was directed

at her male constituents. Although, Barb had some experience in international negotiations and

spoke some Chinese, we felt that it was more detrimental to have her on the team during the face

to face negotiations because women are not really seen as full equals to men in the Chinese

culture.

Besides the physical make-up of the team, there were also problems with the way in

which Tom’s team approached the negotiations upon arrival in China. The first being the amount

of time that was allocated to attain the joint venture agreement. It is understandable that a

company would want to put a deadline on the completion of any project, but it seems that the

American-based Electrowide may have failed to do diligent research in coming up with its

deadline. Tom states that the company wanted him and his team to attain the joint venture in no

more than 8 weeks. Such a small window of time would not lend itself useful to the American’s

because the Chinese were believed conducting business can often lead to lengthy negotiations.

The Chinese focus on building a relationship and familiarizing their guests with the ways of their

culture. They were more concerned with their visitor’s interests, families, and other details

pertaining to their personal lives. The Americans were very much focused on immediately

getting down to business and talking about the details of the joint venture. We believe that this
was another impeding factor in the negotiations because it says in the case study that certain

members of the groups were not showing much interest in the activities that the Chinese team

was planning for them, whether it is the long dinners or the tours. This could have been seen as

somewhat disrespectful in the eyes of the Motosuzhou team members which may have been

another reason that the deal didn’t go as smoothly as they would have hoped.

Another aspect of the negotiations that were muffed up by the team from Electrowide

was the way in which we felt the team members tried to strong arm their deal on Motosuzhou.

They tried to do a number of things through contract, and even went as far as to draft a brand

new contract after the members of the Motosuzhou team declared a reprieve to celebrate the

Chinese Winter Holiday. Contracts, as we have said previously, do not hold up in court in China,

so we thought that it was rather ironic that Tom rushed to make sure that the revised contract was

ready to submit by the time he saw Ai Hwa again. Ultimately, this is the straw that we believe

broke the proverbial camel’s back and led to a stop in the negotiating process.

One final thing that we would like to point out pertains to Electrowide as a whole; it felt

as if maybe the timing of this joint venture wasn’t quite right for the American-based firm. It

mentions right in the beginning the Electrowide domestically is going through a “massive

structural overhaul” of its company. They are trying to bring more autonomy to each division

within the company. This is no small task as one might imagine. For Electrowide, we feel that

the combination of the massive structural overhaul combined with efforts to secure an

international joint venture was too much for them to do simultaneously. The reason for this is

because each of these projects are large enough that they should get a large percentage of the

companies attention and resources devoted to them. During the joint venture negotiations, it was

apparent that there was a lack of communication between Tom’s team and the parent company.
We feel that Electrowide would have been better overall with the projects being done at different

times so that more focus could be put on each.

New Entrance Strategy into China and Implementation

In order for Electrowide to attain this joint venture with Motosuzhou, there would have to be

some changes made to the way in which they approach negotiations. As we said before, from a

company standpoint, we feel that they should wait until they have completed to overhaul of the

company so they can focus their efforts on the joint venture. This will be imperative, especially

since you are hoping that this deal with turn you into a ten billion dollar enterprise. With the

overhaul complete, you would be able to do the proper research that needs to be done before

hand so that you can send a team into the negotiations that knows what to expect from their

Chinese counterparts. This would also help to alleviate some of the communication issues that

were experienced with the first negotiations, which would make it easier to solve problems when

they arise.

One major change that we would recommend in the new strategy is putting a new team in

place for the negotiations. We realize that the part of the reason that only expatriates were used in

the first negotiations was for protection of intellectual property rights. It is understandable that

Electrowide wants to keep their technology to themselves, but we also feel that it would benefit

Electrowide to have a local on the team in order to help them adapt and familiarize themselves

and ultimately alleviate some of the culture shock that was be experienced. At the very least, we

feel that they should have an interpreter that is fluent in Chinese as opposed to someone that can

only speak it conversationally. The Chinese are renowned for their ability to be tough negotiators
and it would be a benefit to have someone there making sure that nothing is being lost in

translation.

Finding a new team to send over there would also be a recommendation of ours. First, we

would need to establish a new time frame on getting the deal done and find people that would be

able to satisfy that requirement. Personally, we feel that there should be at least six months

dedicated to the acquisition of this venture. As we saw, the team representing Motosozhou was

far more concerned with building the relationship and getting to know their counterparts in the

beginning. Electrowide would be better off sending people that understand that they will be over

there for an extended period of time rather than trying to meet what is really an unrealistic

deadline so that they can get back to their personal lives at home. In addition, whoever is sent

over there should be focused solely on the joint venture. When Barb was sent over with Tom’s

team, she had other tasks that she was still working on and had to complete in addition to the

contributions she was making towards the joint venture. She was burning the candle as both ends

and when you start doing that, it is inevitable that something will be lacking the proper attention.

So we think that it is imperative to have a team in place whose sole purpose is to do what it takes

to get the agreement put into place.

Another small caveat about the make-up of the time would be not to include any woman

on the front lines. That’s not to say that there may not be woman who are qualified to do the job

because Barb had more international experience than either Tom or Mark, but because you are

doing business in a male dominated culture you want to make sure that you are giving yourself

the best opportunity to succeed. There were times in the negotiations that Barb did not feel as

equal and felt as if she was not being included in the discussions purely because she was a
woman. Therefore, we feel that this is a special case that you would want to have a team

composed of all males.

Finally, we feel that the communication between the team in China and Electrowide in

the U.S. needs to establish a better system of communication. In addition to a team that is in

China, there should be a separate team that is operating from the U.S. whose sole purpose is to

make sure that they are up to date with the status of the negotiations. If there is any

correspondence or extra resources that are needed, that team would be the ones responsible for

making sure that it’s taken care of. One way of doing this would be to have weekly

communication between the two teams so that they can discuss different aspects of the

negotiations. If something changes or doesn’t go quite as planned, they can communicate that to

the homeland and discuss a solution that way. By communicating on a weekly basis (or even

daily for that matter), the parent company will already have an idea of what is going on and they

will be able to better realign the moving parts and come to a feasible solution. This would be

much different than the first time around when it said that Tom was experiencing a lot of

difficulty to seek support and approvals from the parent company during the negotiations. This

led to further delays which put even more of a time crunch on Tom and his team. Our plan would

alleviate that.

Conclusion

In clsing feel that in order for Electrowide to attain this joint venture with Motosuzhou, they

need to change a few things in how their approach:

1. The team make-up having more senior members and preferably one member from China

who can act as a translator and negotiator with Electrowide

2. Finishing domestic overhaul before trying to enter into international negotiations
 3. Allow for a longer window of time for the completion of the agreement due to the

cultural variables experienced when doing business in China.

4. Establish a domestic team whose job is to maintain regular communication with the team

in China so that problems, changes, and other issues can be addressed quickly and

efficiently.

We feel that these are the four most critical issues that need to be addressed if Electrowide is still

going to have any chance at securing a joint venture with Motosuzhou. By doing a more research

into the culture and ultimately preparing your team better for what they are going into,

Electrowide will give themselves a better chance to succeed in their efforts.