Print Preview
Page 1 of 2
Chapter 15: Leadership and Management Behavior in Multinational Companies: 15-5a The Cultural Context and Suggested Leadership Styles
Book Title: Multinational Management
Printed By: Dr Anne Nelson (nelsona@surry.edu)
© 2014 Cengage Learning, Cengage Learning
15-5a The Cultural Context and Suggested Leadership Styles
Probably because of the extreme variability among cultures and nations, there are few
prescriptive theories of multicultural leadership; there is no simple formula identifying
how to lead in every national context. However, some writings by Hofstede and Rodrigues
suggest some general recommendations.
Using the dimensions of national culture
considered most important by Hofstede for organizations—power distance and uncertainty
avoidance—Exhibit 15.11 shows these experts’ recommended leadership styles for different
cultural settings.
Exhibit 15.11
National Culture and Recommended Leadership Styles
Source: Adapted from Hofstede, Geert. 1991. Cultures and Organizations: Software of the Mind. London: McGrawHill; Rodrigues, Carl A. 1990. “The situation and national culture as contingencies for leadership behavior: Two
conceptual models.” Advances in International Comparative Management, 5, 51–68.
Power distance is important for leadership because it affects both subordinates’ and
superiors’ expectations regarding the leader’s degree of directiveness or task orientation.
In high power-distance countries, leaders generally behave autocratically. Subordinates
also feel, “You are the boss, so tell us what to do.” Hofstede suggests that managers from
low power-distance countries can usually adjust to a high power-distance country without
much difficulty;
they just develop a more authoritarian leadership style. However, he
suggests that it is more difficult for managers from high power-distance countries to
become less authoritarian and more participative or person-centered.
The uncertainty-avoidance norm also affects the range of acceptable leadership styles.
In high-uncertainty-avoidance national cultures, both leaders and subordinates often feel
more comfortable when the leader removes ambiguity from the work setting. In countries
such as France, this may take the form of le directeur telling subordinates exactly what to
do. In countries such as Germany, substitutes for leadership such as professional training
may make the work setting predictable and allow leaders more discretion for participation.
Ultimately, multinational managers must diagnose the institutional, organizational, and
cultural situations that may affect the success of their leadership style. Too many
contingencies exist to predict what may work in all situations, but successful global leaders
remain flexible and highly sensitive to national context.
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 2 of 2
Chapter 15: Leadership and Management Behavior in Multinational Companies: 15-5a The Cultural Context and Suggested Leadership Styles
Book Title: Multinational Management
Printed By: Dr Anne Nelson (nelsona@surry.edu)
© 2014 Cengage Learning, Cengage Learning
© 2016 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or
mechanical, or in any other manner - without the written permission of the copyright holder.
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 1 of 11
Chapter 15: Leadership and Management Behavior in Multinational Companies: 15-6e Chapter Case Cheung Yan: China’s Paper Queen
Book Title: Multinational Management
Printed By: Dr Anne Nelson (nelsona@surry.edu)
© 2014 Cengage Learning, Cengage Learning
Chapter Review
15-6e Chapter Case Cheung Yan: China’s Paper Queen
It was August 2008, and Cheung Yan (张茵), the 51-year-old chairperson and co-founder of
the Nine Dragons Paper Holdings Company (“Nine Dragons”), could look back upon a
successful year. Nine Dragons had, three months earlier, acquired a controlling interest in
a Vietnamese paper mill, thereby expediting the company’s entry into the Southeast Asian
markets.
For Cheung, this was just another milestone in an illustrious career. In
November 2006, Forbes magazine had ranked Cheung the richest woman (and the fifthrichest person) in China, with a fortune of US$ 1.35 billion.
By any measure, Cheung
was a truly successful business leader. The firm she had founded just over a decade ago, in
1995, was by June 2007 a pulp and paper powerhouse—it had 13 giant papermaking
machines, about 8,600 full-time employees, US$1.4 billion in annual revenue and US$300
million in profits.
Cheung started off modestly by setting up a small scrap paper brokerage in Hong Kong in
1985. When the market did not appear large enough for someone of her ambition, she left
for the United States in 1990. In the United States, with her new husband, she started a
paper recycling unit called America Chung Nam. This unit collected waste paper from the
United States and shipped it to China. Cheung soon realized that there was a huge
opportunity for her in China—there was an ever-rising demand for export packaging there.
Thus, in 1995, with a bank loan and the support of her husband and brother, Cheung
established Nine Dragons in Dongguan, China. The unit started off modestly with two paper
machines and made 600,000 tons of kraft linerboard per year.
By 2006, the company
had an annual production capacity of 3.3 million tons of containerboard, with ten paper
machines running and five more under construction.
With a huge expansion program
in place, it was expected that by 2009, Nine Dragons, in which Cheung and her family had a
72% stake, would be Asia’s top producer of packaging paper, and the first in the world in
terms of production capacity.
In a male-dominated industry in Asia, how had Cheung succeeded in being celebrated
globally as a business leader? What were the qualities and abilities that made her such an
effective strategic leader?
Cheung Yan and the Making of Nine Dragons
Cheung Yan (also called “Zhang Yin”) was one of eight children born in Lioaning province,
northeast China. Her father was an army official who was imprisoned during China’s
Cultural Revolution. Cheung lacked formal education and experienced early hardship
when she started work in a textile company, supporting her mother and seven siblings on a
mere US$6 a month.
She left the textile plant in the early 1980s for a job with a small
paper trading company in southern China.
In 1985, the 28-year-old Cheung relocated to Hong Kong as an accountant at a Chinese
trading company, which, however, closed within a year.
Instead of looking for another
job, Cheung, with just about US$4,000, set up a waste-paper trading business. She saw an
opportunity in China’s chronic paper shortages. At that time, straw was the main raw
material for the manufacture of paper in China because recycled paper was unpopular due
to its high moisture content. Hence, Cheung’s first success was realized when she managed
to procure high-quality waste paper to send to China. Cheung’s partner in Hong Kong, Ng
Weiting, said that Cheung was successful because she was “driven and tough, and had
figured out how to get the best performance out of those who worked for her.”
By 1990, Cheung found the Hong Kong market too small for her ambitions, and despite the
fact that she spoke very little English, she left for the United States. In her view, “vision and
methods matter more than language.”
It was in the United States that Cheung really
saw the huge potential of the Chinese paper-making market. Along with her new husband,
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 2 of 11
Liu Ming Chung,
she started a paper trading unit called America Chung Nam in 1990.
America Chung Nam collected paper for recycling from all over the United States and
shipped it to China, where it was used for manufacturing boxes for packaging. By 2004, the
company, which had shipped 2.6 million tonnes of recovered paper to China, was named
the top U.S. exporter to China by the Journal of Commerce.
Cheung enjoyed her stint in
the United States and said that she benefited a lot from her experience there. She found
that the Americans shared her long-term views about businesses and had high credibility,
keeping to their promises.
As Cheung kept shipping these numerous containers of paper from the United States back
to China, she realized the immense potential for manufacturing paper in China’s fastgrowing economy. An early effort was made to enter this business through a passive
investment in a Chinese paper-making company which, however, failed. Cheung returned
to China in 1995.
With the help of her husband and younger brother, Zhang Cheng Fei, Cheung availed of
financing from a bank and set up Nine Dragons in Dongguan, an industrial hub located in
the Pearl River Delta area near Hong Kong.
Fortunately, I had the wholehearted support from the bankers because of Nine
Dragon’s vision of the business and the valuable assets of the company, so I was able
to get the funding. I believed that one day China would be like Europe or the USA. So
that’s why I started to invest in the first paper machine in Dongguan with an
international approach—meaning that I imported the machines from overseas,
components from the USA and Europe, and also the scale of the machines was much
bigger than my peers at that time.
— Cheung Yan, chairperson of Nine Dragons
Cheung’s business model was classically simple: it followed a cycle where her companies
would procure tons of waste paper from the United States and Europe (essentially
developed countries where the quality of waste paper was high), and ship it to China.
Freight costs of shipping to China were cheap, as container vessels transporting goods to
the United States often returned empty. In China, this waste paper was recycled and used
for making boxes in which Chinese-made products would be packed, and then shipped out,
invariably to the same Western market from which the raw material had been sourced.
When these boxes were thrown away, the cycle would begin again. As Cheung said, her
inspiration came from a statement made by someone in the business, “Waste paper is like a
forest: paper recycles itself, generation after generation.”
On 3 March 2006, Nine Dragons went public and was listed on the main board of the Hong
Kong Stock Exchange. The three founders continued to be actively involved: Cheung as the
chairperson; Liu, her husband, as the deputy chairperson and chief executive officer; and
Zhang, her younger brother, as the deputy chief executive officer.
Nine Dragons
In China, the paper industry was strewn with manufacturers who were typically small,
inefficient and environmentally unfriendly. Cheung’s vision was the opposite of the market
trend—she wanted Nine Dragons to be the biggest, most efficient and environmentally
friendly paper company.
As of August 2008, Nine Dragons was the largest producer of containerboard products in
China in terms of production capacity. It offered a large range of products in three major
categories of packaging paper products—linerboard (kraft linerboard, test linerboard, and
white top linerboard), high performance corrugating medium and coated duplex board [see
Exhibit 1]. The company and its subsidiaries thus served “as a one-stop shop for a wide
range of packaging paper-board products.”
Its paper machines were located in two
locations in China: Guangdong and Jiangsu. There were two more units planned at
Chongging and Tianjin. The group also had operations in Sichuan to produce high value
specialty paper and pulp.
It further produced unbleached kraft pulp through a joint
venture in Inner Mongolia. In May 2008, the company acquired a 60% controlling interest
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 3 of 11
in an existing paper mill in Vietnam, thereby getting a foothold into the South-East Asian
markets [see Exhibit 2 for significant milestones].
Exhibit 1
Nine Dragon’s Products
Nine Dragons’ main products included linerboard (kraft linerboard, test
linerboard, and white top linerboard) high performance corrugating medium,
and coated duplex board.
Linerboard
Kraft linerboard was the
unbleached linerboard
manufactured from unbleached
kraft pulp and recovered paper.
Test linerboard was a more
environmentally friendly, lower-
cost linerboard made completely
from recovered paper.
White top linerboard was a threeply sheet, with one layer
bleached, and allowed for superior
printing.
High performance corrugating medium
This product had superior
strength as compared to standard
corrugating medium, thereby
reducing the amount of weight
and material used, and the
Coated duplex board
customers’ shipping costs.
This product had a glossy coated
surface, and was basically used for
small boxes that required high
quality printing.
Source:Nine Dragons Paper (Holdings) Ltd. 2008. “Our
business.”http://www.ndpaper.com/eng/business/products.htm, accessed October 6, 2008.
Exhibit 2
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 4 of 11
Milestones in Nine Dragons’ History
July 1998
The first paper machine (PM-1)
achieves a successful test run,
marking the entry of Nine Dragons in
the Chinese paper industry.
June 2000
PM-2 commenced operations.
May 2002
PM-3 commenced operations, raising
the total annual production capacity
of the company to over 1 million
tonnes per year. By this time, further
land had been purchased in the
Taicang and Dongguan areas of China,
so that the production could cover a
wider geographical network of the
Pearl River Delta and the Yangtze
River Delta.
October 2003
PM-4 commenced production,
breaking the productivity records of
standalone units round the world at
that time.
November
2003
PM-5 commenced operation.
February 2004 Established Nine Dragons Xing An Pulp
and Paper (Inner Mongolia) Co. Ltd.
(“ND Xing An”) as an equity joint
venture with China Inner Mongolia
Forestry Industry Co., Ltd., which owns
abundant forestry resources.
October 2004
PM-6 and PM-7 commenced
production of high performance
corrugating medium, which expanded
the variety and market reach of the
company.
April 2005
PM-8 has a successful test run.
May 2005
210MW thermal power generating
units successfully commence on-grid
power generation, thereby becoming
the largest in the industry in terms of
power generation capacity. As a
result, the total thermal power
generating capacity of the Dongguan
production base of the company
increased to 350MW, comparable to a
medium scale power plant. This
assured Nine Dragons a stable and
sufficient electricity supply, and also
eased the pressure on the local
electricity supply, thereby winning
government and public recognition.
December
2005
March 2006
PM-9 and PM-10 begin production of
corrugating medium.
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 5 of 11
Nine Dragons is successfully listed on
the main board of the Hong Kong
Stock Exchange and included in the
MSCI Standard Index, the MSCI Global
Value and Growth Index, and the Hang
Seng Index.
November
2006
Plans are announced for the third
production site in Chongqing, to meet
the rising containerboard demand in
the region.
January 2007
PM-11 commences production,
bringing the company’s total annual
production capacity in coated duplex
board to 950,000 tonnes, the largest
in China. Also, another two machines,
PM-12 and PM-13, commence
production of high performance
corrugating medium.
August 2007
PM-14 and PM-15 commence
operations, and the total annual
designed capacity of the
containerboard products reaches 5.35
million tpa.
September
2007
Nine Dragons finalizes the location of
its fourth production base in Tianjin,
improving the geographical coverage
in China. It is expected to commence
operations in 2009.
May 2008
The company starts the development
of highvalue specialty paper
production and bamboo and wood
pulp manufacturing. It also enters
Vietnam by acquiring a 60%
controlling interest of Cheng Yang
Paper Mill Co. Ltd. in Vietnam.
Source:Nine Dragons Paper (Holdings) Ltd. 2008. “About ND
paper,”http://www.ndpaper.com/eng/aboutnd/major_achievements.htm, accessed October 6, 2008.
The Nine Dragons group showed consistent growth in turnover and profits. For the
financial year ending on 30 June 2007, revenues increased by approximately 24% over the
previous year to US$1,436 million. The annual gross profit too increased by about 35% to
US$369 million, while the net profit registered an increase of 47% to US$300 million [see
Exhibit 3 for further financial details].
Exhibit 3
Nine Dragons’ Income Statement from 2006 to 2008 (US$ Millions)
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 6 of 11
Source: Nine Dragons Paper (Holdings) Ltd. 2007 “Annual report.”http://www.ndpaper.com, accessed September 12,
2008.
For the six months ending on 31 December 2007, the group continued to perform
exceedingly well. The total revenue amounted to US$976.7 million, an increase of 44.2%
over the corresponding period of the previous year. Similarly, the gross profit increased by
30.9% to approximately US$230 million over the corresponding period of the previous year,
and the profit attributable to the shareholders grew 11.4% more than the same period of
the previous year to US$154 million. This success was attributed to Nine Dragon’s
competitive advantage, that is, economies of large-scale production and the lower costs
associated with it.
In terms of operational efficiency, Nine Dragons continually looked at technological
improvements to achieve higher product quality. To improve operations and management,
the company had adopted advanced management techniques and systems, such as
enterprise resource planning (ERP).
Vision for the Future
The plan was for Nine Dragons to be the “world’s leading fully integrated paper
manufacturer, from forestry to paper.”
The company hoped to expand its annual
capacity of the overall packaging paperboard from 5.35 million tons per annum (tpa) as of
June 2007 to 10.15 million tpa by 2009.
To pursue this vision, the following initiatives were planned:
• To expand the containerboard production capacity, such that the company could
continue to capitalise on the large scale economies of the paper making industry to
become the largest packaging paper-board manufacturer in the world.
• To widen the product range to include high performance products through which the
company could get a stronghold in the high value categories market.
• To stabilize recovered paper costs (the main raw material expense of the company)
by sourcing from a wider set of geographical locations across the globe, and
participating in pulp production and forestry projects.
• To work towards a comprehensive and balanced geographical coverage in China,
from where most of the company’s business was sourced.
• To expedite the entry into the ASEAN markets, in particular, Vietnam, Laos, and
Cambodia, through investment in a paper mill in Vietnam.
In April 2007, the company successfully raised about US$25 million for future core business
expansion.
Cheung Yan: The Leader
Strategic Direction
Cheung clearly and simply articulated her vision as: “My desire has always been to be the
leader in an industry.”
However, for someone to have this ambitious vision and
actually succeed at it would require considerable effort and determination.
My success didn’t come so easily and simply. It’s a lot of hard work over the past
twenty years. The industry is good. That is a prerequisite definitely. And I have a
passion for the business. I like the paper recycling business.
— Cheung Yan, chairperson of Nine Dragons
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 7 of 11
Cheung’s vision and strategy were clear—economies of scale mattered, and the bigger the
better. Unlike many family-owned businesses in Asia, her company had not overdiversified. Nine Dragons continued to specialize in paper products and the paper market
alone. She looked at Nine Dragons as a legacy, “a long-term business with a 100 years’
foundation.”
As a Woman
In the male-dominated paper manufacturing industry in China, Cheung maintained that
gender inequality had never been a concern for her, and claimed that men had always
respected her.
I didn’t feel I was affected by any sex[ual] discrimination in the business community.
Actually I felt that whether it was in China or whether it was in the USA, males and
female[s] are actually now equal. And in my career development, I didn’t feel that as
a woman I experienced any difficulty because of that. And my belief is in any business
transaction, it’s not [gender] that makes the difference. It’s actually [ … ] your
intelligence [ … ].
— Cheung Yan, chairperson of Nine Dragons
In her opinion, a problem only arose when a woman lost confidence and put herself down,
thinking that being a woman meant that she was inferior.
Managing the Resource Portfolio
Human Capital
Cheung believed that Nine Dragon’s people were one of its critical success factors. She had
defined the spirit of the company as “Spirit and Dedication, Cooperation and Aspiration,
Excellent Product Quality, Enviable Market Reputation.”
Some of the measures followed by the company to ensure staff satisfaction and loyalty
included:
• A fair performance management system to realize staff potential.
• Opportunities for transfers and promotions to improve overall staff development.
• Provision of comfortable staff residences.
• A staff communication system where new recruits could meet management three
times during the probation period so that assistance in settling in could be offered.
• Adoption of an opinion feedback system to strengthen communication and handle
staff advice and complaints promptly.
• Strict adherence to a fair appraisal system based on performance.
• Ensuring competitive remuneration and incentive schemes adjusted annually to
market levels.
Cheung claimed to be critical of “heavy-handed family-style management” and had tried to
run her company professionally, with three non-family members appointed as general
managers responsible for all aspects of the business.
However, as of June 2007, she, her
husband, and her brother (the three original founders of the company) continued to have a
major say in the company’s affairs. Cheung was the chairperson responsible for the overall
corporate development and long-term strategy, supervising the functions and performance
of the Board. Her husband, Liu, was the deputy chairperson and chief executive officer
responsible for the overall corporate management and planning of the company’s
businesses, the development of new technologies, and human resources management. He
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 8 of 11
also assisted Cheung in managing government relations. Cheung’s brother, Zhang, was the
deputy chief executive officer and executive director, responsible for the management of
the company’s operations and the business of marketing, finance, procurement, and
information technology (IT). In February 2006, Cheung appointed her 25-year-old son, Lau
Chun Shun, as a nonexecutive member of the Board of Directors. This move was criticized
by analysts for nepotism, but vehemently defended by Cheung, who said that her son was
qualified and exposed to the paper recycling business, and Nine Dragons was, in any case, a
family company.
She did, however, say that while he would “take priority in being
considered as a successor,” it would only happen when he could prove that he was capable
of doing so.
Government Relations
Cheung had always worked at maintaining good relations with the government and
claimed that “there had never been any conflict with the government.”
In the 1990s, the
Chinese government was actively promoting foreign investment, and Nine Dragons,
founded as a subsidiary of America Chung Nam to be able to benefit from preferential
government policies such as tax cuts,
fell into that category. Moreover, as the container
box manufacturing industry was still nascent then, the company had been further
encouraged by the government.
In 2007, the government stipulated the Paper Industry Development Policy to ensure that
there was no monopolistic behavior and to promulgate open market competition. Cheung
publicly supported this stance through the company’s annual statement.
As of June 2007, Cheung had been recognized as a member of the National Committee of
the Chinese People’s Political Consultative Conference, vice-chairperson of the Women’s
Federation of Commerce of the All-China Federation of Industry and Commerce, executive
vice-president of the Guangdong Overseas Chinese Enterprises Association, and an
honorary citizen of the City of Dongguan.
Effective Organizational Culture
Cheung had demonstrated an entrepreneurial mindset. Nine Dragons was dramatic
evidence of her having pursued opportunities to become a first-mover in the industry. She
had also supported innovativeness by being open to new ideas and creative processes,
whether in improving technology or in going public with her family-held business. She had
displayed her risk-taking abilities on several occasions, and said, “I can withstand a lot of
pressure.”
Whether in the United States, or later in China, Cheung was truly proactive,
anticipating market needs. Because of her competitive aggressiveness, she had often
outperformed her rivals.
Nine Dragons had been awarded the ISO Quality and Environmental Standard
Certifications and the OHSAS 18001 certification
in recognition of its superior
occupational health and safety standards. In August 2008, Cheung admitted that her
company imposed fines on its workers to ensure work safety, and that these fines had
amounted to approximately US$152,000 in the previous year. She was responding to a
report filed by the Hong Kong-based group called Students and Scholars Against Corporate
Misbehaviour (“SACOM”) and two Hong Kong University Student Unions, which had
described her factory as “shameful among Hong Kong funded companies” for its unsafe
working conditions, poor welfare, and violation of labor laws.
Cheung vehemently
denied the criticism and also went on to mention that the company had so far paid out
about US$3,068,000 in bonuses for outstanding performances and to those who had
contributed to work safety. She said that her company was capital- and technologyintensive, rather than labor-intensive.
The feed-in plant is what the SACOM has condemned most; however, I can assure
[you] that the working conditions in the plant are at least equal to or even better
than those in developed countries.
— Cheung Yan, chairperson of Nine Dragons
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 9 of 11
The Guangdong provincial trade unions agreed with Cheung, and said that there were no
major violations like those mentioned in the SACOM report, but “minor mistakes” like fines
did exist, which the company had begun to amend.
Ethical Practices
In an environment where Cheung would be faced with numerous ethical conflicts, she
simply claimed, “I’m an honest businesswoman.”
In her view, anyone could see the
company’s results and books—after all, she said, “I run a listed company and I’m
transparent. I have nothing to hide.”
Following Nine Dragons’ listing on the Hong Kong Stock Exchange in 2006, the company’s
annual statement certified its adherence to the Code on Corporate Governance Practices as
set out by the Hong Kong Stock Exchange.
In terms of a corporate governance structure, the company’s Board of Directors served as
the core, with a separate stratum of management employees looking after the day-to-day
operations.
As of June 2007, the Board had nine directors, of which four were executive
directors—Cheung; her husband, Liu; her brother, Zhang; and her husband’s cousin.
Cheung’s son, Lau, was a non-executive Board director, and the other four non-executive
Board directors were independent.
Corporate Social Responsibility
It was Cheung’s belief that corporate development had to be accompanied by social
responsibility. During the financial year 2007, the company made donations totaling about
US$ 1.02 million to local charities and included subsidies to students from poor regions in
China to pursue further studies in the mainland’s education institutions.
In terms of environmental responsibility, the company had from the very start invested
substantially into facilities aimed at protecting the environment. The paper manufacturing
industry was known to be a polluting one as it used substantial quantities of chemicals.
Nine Dragons aimed at not just meeting the stringent industry standards set by the Chinese
government, but rather becoming a role model for the industry. “No environment, no
paper” was Nine Dragons’ widely publicized philosophy. In December 2006, the company
was awarded the “Green/Environmental Creditable Enterprise” by the Guangdong
Environmental Protection Bureau in recognition of these efforts.
Cheung believed that in the long run, Nine Dragons had benefited from being
environmentally friendly from the very start as government policies were such that those
paper makers who could not comply with these standards were being forced to leave the
industry, thereby helping Nine Dragons consolidate their market position.
Cheung
claimed that she had started appreciating the importance of environmental protection
early in her life, particularly during her stints in Hong Kong and the United States.
Organizational Controls
Cheung has played a critical part in managing the balance between the strategic controls
and the financial controls of the company. While ensuring that the consistently profitable
Nine Dragons remains financially stable, she also made appropriate investments for future
viability. For instance, recognizing that the company’s reliance on good quality waste paper
from the United States could be a real risk in the future, she invested in a joint venture in
Inner Mongolia to ensure a steady supply of kraft pulp required to manufacture
containerboard.
Nine Dragons did not restrict itself to investing in just the paper machines—rather, looking
towards the future, it invested in two power plants that provided it with power and steam,
it acquired land use rights in case of further development and expansion, and it went
ahead and constructed a shipping pier to reduce port charges and avoid potential
transportation bottlenecks.
Financial Perspective
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 10 of 11
Seen from a shareholder’s point of view, Nine Dragons had a strong cash flow and healthy
return on equity and return on assets. Cheung and family (with about 72% shareholding in
the company), were perhaps the most tangible evidence of the company’s strong financial
balance sheet, with a net worth of approximately US$3.4 billion in August 2007.
Customer Perspective
Cheung had correctly predicted the huge demand for the paper that Nine Dragons
produced. Prices remained firm, and net profit margins increased steadily from 6% in 2005
to 20% for the quarter ending in March 2007.
The company also used its extensive
customer network to assemble a library of data which would help forecast future customer
needs and demand.
Internal Business Processes
By 30 June 2007, Nine Dragons had successfully installed 13 paper-making machines, and
the average utilization rate of these machines was an impressive 94.6%.
To boost morale, remuneration packages were competitive and performance-linked
incentives were offered. As Cheung said, her company’s lowest-paid worker earned
between about US$220 and US$350 a month last year (2007), in addition to pension and
other benefits, compared to the average monthly income of about US$140 for workers in
the city (Dongguan).
Learning and Growth
Cheung would have kept a close watch on new requirements in the market. For instance, to
meet the “3R” principles of “Reduce, Reuse, Recycle,” the company planned to launch
lightweight, high performance corrugating medium- and light-weight linerboard products
in China, in a move that would make the company a pioneer in introducing this product
category into China, and help broaden the product range.
To improve employee skills, Nine Dragons’ staff were encouraged to pursue further studies.
Staff were sent to university for advanced studies. The company also collaborated with
Zhongshan University in Guangzhou to launch EMBA and MBA courses as part of their staff
incentive schemes. Further, students who had dropped out of school in the poor regions of
China were provided assistance to study in the South China University of Technology, and
then hired after graduation.
Cheung Yan: The Successful Leader
My achievement was a natural consequence of the building of values in my
enterprise. The Nine Dragons development was a step-by-step process. Today the
achievements are all derived from excellent management in the company and my
own long-term vision about the market. It is from the raw material market that I had
a good vision of the potential of the Chinese paper market and started to build a
business and become successful. In my management, I emphasized a humanized
approach and also an approach that you may say is an amalgamation of the Chinese
and Western management.
— Cheung Yan, chairperson of Nine Dragons
Cheung was proud of her capacity to meet challenges. She often attributed her success to
the long-term vision she had about the industry and company. Woo, an analyst at BNP
Paribas, agreed, calling her a “visionary.”
It was also believed that Cheung’s “ebullient
personality made her a great saleswoman and a savvy deal maker.”
How did Cheung, a woman from modest beginnings, succeed in being globally recognized
as one of the foremost strategic business leaders of Asia? What are the special qualities and
abilities she possesses that has allowed her to successfully transform her vision and dreams
into reality? What must she now do to ensure that Nine Dragons continues to grow from
strength to strength?
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 11 of 11
Case Discussion Questions
1. What is strategic leadership?
2. What would constitute key strategic leadership actions? What are the key
elements of a “Balanced Scorecard”?
3. How has Cheung Yan seen such success as a strategic leader? What are the
qualities she possesses?
Case Credit
Havovi Joshi prepared this case under the supervision of Prof. Stephen Ko for class
discussion. This case is not intended to show effective or ineffective handling of decision or
business processes.
© 2008 by The Asia Case Research Centre, The University of Hong Kong. No part of this
publication may be reproduced or transmitted in any form or by any means—electronic,
mechanical, photocopying, recording, or otherwise (including the Internet)—without the
permission of The University of Hong Kong.
Chapter 15: Leadership and Management Behavior in Multinational Companies: 15-6e Chapter Case Cheung Yan: China’s Paper Queen
Book Title: Multinational Management
Printed By: Dr Anne Nelson (nelsona@surry.edu)
© 2014 Cengage Learning, Cengage Learning
© 2016 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or
mechanical, or in any other manner - without the written permission of the copyright holder.
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 1 of 10
Chapter 13: International Negotiation and Cross-Cultural Communication: 13-4e Chapter Case Cross-Cultural Negotiation Americans Negotiating a Contract in
China
Book Title: Multinational Management
Printed By: Dr Anne Nelson (nelsona@surry.edu)
© 2014 Cengage Learning, Cengage Learning
Chapter Review
13-4e Chapter Case Cross-Cultural Negotiation Americans Negotiating a Contract in China
Markus Pudelko, Tübingen University
This comprehensive fictitious case covers the essential aspects and facets of a cross-cultural
negotiation, in this case between an American and a Chinese company. The difficulties,
problems, and misunderstandings both sides are facing are particularly stressed. In
addition, the case’s unique contribution is in presenting cross-cultural negotiation from
both perspectives, the American and the Chinese. The presentation of both perspectives is
structured in the same way, facilitating a direct comparison. This multi-perspective
approach is rather distinctive in so far as cross-cultural negotiation tends to be regarded in
most texts of Western origin exclusively from the angle of the Western side. However, it is
only through a better understanding of the respective “other” party that performance in
cross-cultural negotiation can be significantly improved.
In order to facilitate group work, the various aspects covered in this case are clearly
divided into various sections. This allows the class to be split up into different groups,
which can each discuss specific sections in more detail and subsequently present their
results to the entire class.
The case should be useful in all courses that cover cross-cultural negotiation, that is mainly
in Management Across Cultures and International Business courses. The case has been
written primarily for business students at the MBA level and for participants in executive
education programs. However, students in advanced undergraduate classes should also
benefit substantially from this case.
Introduction
Mr. Jones: I had just come back to our headquarters in Alabama from two months of
negotiations in Shanghai. We hoped to set up a Joint Venture (JV) with a Chinese stateowned vehicle component company. It was our intention to outsource some of our
production to China to reduce our costs. When I was assigned to lead our negotiation team,
I realized this could substantially boost my career and I was determined to bring these
negotiations to a successful end.
Of course I was aware of the fact that the Chinese are known for being tough negotiators,
but so what I thought, we Americans are certainly tough as well when it comes to business.
And I was probably chosen because I have a reputation for my no-nonsense,
straightforward, and sometimes even aggressive way of negotiating. What I had
subsequently to discover however was that the Chinese are not tough, which would have
been fine with me, they just don’t know how business is done these days and they just try to
cheat and play unfair games wherever possible. They still have a lot to learn if they want to
be successful on the world markets. Anyway, we decided to pull out of the negotiations.
You just can’t trust them.
Mr. Wang: We were negotiating over the last two months with a major vehicle component
company from Alabama, USA. We hoped to set up a JV which would have allowed us to
improve substantially our technological knowledge base. Of course we knew about
Americans always being direct to the point of rudeness and indeed we had to put up with a
lot of just uncivilized behavior. Anyway, we did our best to build up a long-term
relationship. And after many difficulties we were almost there, but then the Americans lost
their nerve and pulled out. You just can’t trust them.
Preparing for the Negotiations
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 2 of 10
Mr. Jones: Before flying over to Shanghai we did our homework very thoroughly. We made
inquiries about the Chinese company and had a pretty good picture about their production
facilities, product quality, and their amazingly low production costs. We thought about
each little detail and knew exactly what specific information we needed. So, all that we
wanted from our Chinese counterparts at the start of the negotiations were specific
answers to specific questions and once we had all the missing numbers we could have
simply put them into our equations and come up with a proposal which would be fair for
both sides.
I stress fairness because successful negotiations are essentially a positive sum game. You
learn that in every MBA program. We should all know each other’s interests and
viewpoints and as adults we should be able after some tough negotiations to come to a
mutually satisfactory solution. All that it takes is a little bit of trust, openness, frankness,
and transparency. But, as it turns out, these are terms which apparently don’t exist in
Chinese.
Mr. Wang: Before the Americans came over we had done our homework very thoroughly.
We made inquiries about the American company and had a pretty good picture about their
overall business philosophy, their corporate culture, the people running the company, and
their sophisticated production technology from which we could learn much. We were keen
to get to know them and hoped to enter a long-term partnership built on mutual trust. We
prepared their arrival carefully, arranging meetings with everyone whom they should
meet. Business is in the end about people and for people to get to know each other it takes
time and we were willing to invest this time. But as it turns out, Americans don’t care for
people and trust, all they care about is the bottom line.
Upon Arrival
Mr. Jones: Upon arrival we were very impressed and positively surprised by the reception
we received. A delegation was waiting for us already at Pudong Airport and once we
arrived at the company’s headquarters a huge banner across the gate was put up to
welcome us. In the consecutive days, we had many meetings, not just with people from the
Chinese company but even with local government officials. So, we felt greatly honored. And
in the evenings we had one banquet after the other.
While appreciating the hospitality of our hosts, we were kept completely ignorant about the
schedule and agenda: we had no idea what we would be doing the next day, whom we
were going to meet and talk to, or even when the official negotiation would start. And we
became increasingly impatient, also because my boss back home called me every day to
find out where we were with the negotiations and every time I had to tell him that we
hadn’t even started yet.
Then we noticed that during all this friendly chitchat with our hosts, they dropped from
time to time and in seemingly casual ways questions about our business plan. In order to
maintain the good atmosphere we were quite willing to answer openly. But whenever we
asked questions the topic quickly changed again to the quality of Chinese food or the “longestablished” friendship between China and America.
Mr. Wang: In order to show our guests how much we valued their visit, we invested a lot of
time and effort to make them feel welcome. We took them out to lavish dinners, organized
meetings with government and party officials, so that they could report home that they
were treated with great honor. Being introduced to people with high rank and influence
increases your own status and opens doors and what matters more than status and access
to important people?
In their ignorance and short-sightedness, all they could think of was their business
presentation and kept asking when we would start the negotiations, and even got quite
annoyed by some changes of agenda, without any understanding that sometimes we
ourselves didn’t have the detailed schedule either. This was decided by our bosses. By
openly showing their annoyance and asking us questions about the agenda we didn’t know
the answers to, they made us lose face. How rude!
And what was this talk about when to start negotiations? As far as we were concerned the
negotiations started with the first handshake. By the time we formally sat down for formal
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 3 of 10
discussions we had already learned a lot about them and their actual intentions. But for the
Americans only facts and figures presented in formal presentations or written down in
documents seem to count. And if they felt increasingly under time pressure, which they
naively even openly admitted, well that’s part of the game.
General Principles
Mr. Jones: Fortunately, after more than a week the first real business meeting was
scheduled. It was with the CEO, Mr. Chen, of the company. He is of a much higher rank and
may be twenty years older than I am so I rehearsed my entire presentation carefully, in
order not to make any mistakes. But then again, the whole meeting didn’t touch upon any
material content of our contract, instead we wasted time discussing the history of Chinese
civilization and the promising business environment in China.
Finally the CEO stressed the important purpose of this meeting was to reach an agreement
upon the general principles between both partners. And when I tried to raise some detailed
issues, Mr. Chen just laughed and referred to Chairman Mao’s meeting with U.S. Secretary
of State, Henry Kissinger. At Kissinger’s mere mention of political issues, Chairman Mao
stopped him in courtesy, saying “You can talk about any detail with Prime Minister Zhou
later on, but with me only about general principles.”
I didn’t quite understand what this talk of “general principles” was all about, but I just went
along. So, Mr. Chen highlighted the importance of mutual understanding, good-will, trust, a
long-term relationship, the importance for the Chinese side to learn from us technological
know-how, and so on and so forth. I said yes to everything, but also mentioned our
interests. Later on a communiqué was even drafted. I noticed that our interests were
hardly mentioned, but in the interest of keeping a good atmosphere I was happy to sign the
document, after all it was just a legally non-binding statement of some intentions.
As I found out later, that was a huge mistake. Much later on in our negotiation of concrete
details, whenever we refused to make any more concessions, the Chinese would refer to
these general principles, pointing out our failure to understand the spirit of those general
principles which were clearly spelled out and warned us not to jeopardize our mutual
understanding. How they managed to build up the connection between every detail of the
contract and these non-binding wishy-washy general principles was just far beyond any of
us.
Mr. Wang: After one week we invited Mr. Jones and his delegation to see our CEO, Mr.
Chen. We were not overly impressed that the American CEO did not fly over for this
meeting. After all this was the meeting where the “general principles” for the JV were to be
agreed upon: the most important part of the negotiations. This was for us a sign of
disrespect and insincerity, but in order not to spoil the atmosphere we didn’t mention it at
all.
Apparently, Mr. Jones yet again failed to understand the importance of this meeting and
foolishly agreed to everything we suggested. And when he refused to make concessions
later on in the negotiations and we referred back to what he himself agreed upon when
discussing the “general principles,” he made it clear to us that he didn’t care much about
them. But these mutually approved principles constituted the foundation of our entire
cooperation. How can you trust someone who ignores general principles which are based
on trust? All that mattered for the Americans were the details of the actual contract. Only
those with bad intentions hide behind paragraphs of some contract.
Patience
Mr. Jones: When it finally came down to negotiating the details of our contract, it appeared
that our Chinese counterparts always controlled the pace of the negotiations, using delays
very purposefully to put us under pressure. The Chinese never missed any chance to ask
for concessions, and it seems the only thing they’re willing to sacrifice is time. Whenever
we thought we had made some progress, the Chinese had to double-check with their
superiors and even government and party officials and that could take forever. And when
we asked to resume the talks, they replied that consistent with the general principles of
“mutual understanding,” we should make more efforts to understand the slowness of
Chinese bureaucracy.
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 4 of 10
However, whenever we had to get advice from our headquarters back in the States and the
response took a bit longer than foreseen, then this was unacceptable to the Chinese. They
thought that, as we were from such an efficient and advanced capitalist country, there
could be no other reason for delays than some malice intentions. So much for the principle
of mutual understanding!
Mr. Wang: We actually felt quite annoyed and almost insulted by the insistence of the
Americans on discussing specific details, coming to an agreement, and moving on. What is
the point of hurrying and discussing some details of a contract if you haven’t even got to
know the people well with whom you will actually have to implement the contract. That
matters much more than some details which would need to be adapted over time anyway,
because things just develop and change. And how can you adapt if there is no mutual
understanding?
Also we can’t just take decisions at the negotiating table, as we often need approval, not
only from our superiors but also from certain government agencies and this takes time. Of
course we can’t always admit to this openly, it makes us lose face, but they should have
understood that negotiating teams in China don’t have the autonomy Americans have.
Decisions in Chinese companies are often taken by people in the background.
Friendship, Trust, Harmony, and Contracts
Mr. Jones: One thing we felt really strange about was the constant insistence on friendship
and long-term trust relationships between the two sides throughout the negotiation
process. Whenever the Chinese “offered” something we considered as a matter of course
anyway, they made a big story out of it, implying that it was only because of our friendship
that they “offered” us this “favor.” And whenever they wanted something we considered as
out of question they tried to pressure us with the hint that refusing would endanger our
friendship. As far as I am concerned, I never considered these Chinese (or for that matter
any other persons I ever negotiated with) as friends. We have common interests to start
negotiations, during the negotiations themselves we certainly have more opposite interests
and to sort this out is a question of professionalism, not of friendship.
Another of their constantly repeated buzzwords is harmony. In the beginning we were
always very polite, soft spoken, and even tolerated some attempts from the Chinese side to
take advantage of us. But the more we gave them, the more they wanted and so we became
increasingly direct in communicating where our limits were. And at times that included
some outburst and door slamming. But the next day it was all forgotten and we moved on.
With all their talk about trust, one thing the Chinese never seemed to fully trust was what
has been written in a contract. They constantly asked to whom they should turn if
something went wrong. But if “something went wrong,” that can only mean that one of the
two parties broke the contract, and that should be solved by required legal procedure. But
the Chinese insisted on adding some clauses about arbitration through a third party into
the contract, again with the emphasis on mutual understanding and trust. But how can you
trust someone who apparently already thinks about breaking the contract before it is
actually signed?
Mr. Wang: We Chinese do business on the basis of personal relationships, friendship, and
trust and not on the basis of some written document. We give ourselves a long time before
doing business with someone, but once we believe we can enter a business relationship,
then we stick to it and we would never give it up, only because, say, someone would offer
us for some deal a better price.
Although it didn’t seem at all a problem for the Americans, they behaved at times quite
rudely. Even if you don’t agree with the other side, you should always control your anger
and maintain harmony. How can the Americans still get along when they just had a furious
argument the day before? To keep harmony is our way to express intention to build up
long-term relationship. We wouldn’t mind taking more time and patience when problem
arises, so long as both sides remain calm and discuss in a peaceful way. However, the
Americans only cared for speed in the negotiation.
Then the Americans who were always so interested in the specifics of the contract, were
very reluctant to introduce arbitration clauses in case some changes occur which need to
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 5 of 10
be taken into consideration. They said: “If something goes wrong, we have to go to court.”
How can you trust someone who wants to sue you if a problem comes up? If you really are
interested in a long-term business relationship, no contract in the world can foresee all
eventualities. It’s like a marriage. Its success is based on trust, not on a contract.
Guanxi
Mr. Jones: If one thing is known to Westerners about Chinese business culture it is the
concept of guanxi. Of course all over the world connections and networks do matter in
business, but the Chinese take it to an extreme and apply it to virtually every aspect in
society. In order to get planning permission for the plant we intended to build, our Chinese
partner encouraged us to take the senior officials of the local planning approval
commission out for a luxurious dinner. Building up good connections might shorten the
application process from several months to just a couple of weeks. However, what our
Chinese business partners labeled as building up connections sounded to us very much like
corruption. It is our company’s strict policy not to engage in any kind of such activities, no
matter where in the world.
Apparently, also the recruitment and promotion policy of our Chinese business partner was
mainly determined by guanxi. Sons and daughters of business partners and influential
bureaucrats clearly received preferential treatment. Once engaged in the JV we would have
had to make an end to all that to make sure that only the best candidates got recruited or
promoted. What a mess, to clean all this up!
Mr. Wang: As always the Americans only thought about business in terms of abstract
concepts. We don’t dispute the validity of these concepts, but we take a more holistic
approach and don’t forget that business is done in the end by people, and people have to
get along with each other. Everything comes down to give and take and what matters is
that in the end there is a balance between the favors you receive and do. We like to do
someone a favor, as we know the person will feel morally obliged to return the favor at one
point. Therefore we also like to repay a favor as soon as possible, so that we don’t feel
indebted anymore.
Moral obligations are much smoother, flexible, and adaptable than contractual obligations.
We don’t like to sue each other, which seems to be a national sport in the United States. If
you go to court, all parties involved lose face. And a system which is built on moral
obligations can only work if a high degree of ethical standards are observed. That is why
we get so upset, if the Americans equal guanxi with corruption. I freely admit that we have
the problem of corruption in China, but this is because of the abuse of power by
bureaucrats, not because of the importance we attach to mutual obligations, which goes
back to Confucius. Why do you think overseas Chinese are so successful in so many
countries? It is because of trust and sense for obligation, in short because of guanxi.
America might be at the moment the most powerful country in the world, but their values
are not as universal as they might think. And our American business partners, with their
usual combination of arrogance and ignorance, did not follow our advice to build up guanxi
with the planning commission and I am sure they would still be waiting today for approval.
Overseas Chinese
Mr. Jones: Considering the difficulty we anticipated to have in communicating with our
Chinese counterparts, we had a fellow in our negotiation team who was of Chinese origin.
We thought that his fluency in Chinese and his deeper understanding of the Chinese way of
doing things would be useful. And indeed, we benefited greatly from his accurate
interpretation and prediction of responses from the Chinese. Even though both sides had
professional interpreters, his role was appreciated also by the Chinese, as he was able to
better interpret conflicting standpoints and mediate between both sides.
However, it didn’t take long before we ran into problems. Whenever there was some
dispute over the contract details, our Chinese counterparts began to pressure him to sort
out things in their favor. Never mind that he was born in the United States, was an
American citizen and was working for an American company, they just saw him as one of
theirs and couldn’t grasp that he represented the other side. This was not China against
America, this was a negotiation between two companies and he was an employee of our
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 6 of 10
company, so what did they expect? It’s completely ridiculous that the Chinese felt entitled
to ask so much from him just because he was of Chinese origin.
Mr. Wang: There was this U.S.-born Chinese guy on the American negotiation team, and we
interpreted his presence as a sign of sincerity and goodwill on the part of the Americans
and their wish to establish a good relationship with us. Finally someone who would
appreciate how business is done here. So we focused on trying to make him understand our
position. But instead of acting like a bridge between the two sides, he showed no sympathy
whatsoever for us. He was coming from rich America and should have had more
consideration for our situation. And when he overheard us discussing in Chinese, he must
have passed on what he heard to his bosses. So, the man we thought of as a friend was
nothing but a spy. Not exactly the right way to establish trust.
Honesty
Mr. Jones: Our Chinese partners constantly stressed the values of trust and harmony in
business. But how can you expect to be trusted if you are not completely honest. And the
Chinese were the masters of deception and game play. Of course no one puts his cards on
the table, but there is a difference between holding back some crucial information and
telling stories which are not true. Overall we were quite frank with what we wished to see
to come out of the negotiation, because we were convinced we were in a win-win situation
and we wanted to build up trust. But we didn’t get anything back for our honesty. In the
end I think they considered our honesty as a weakness.
Mr. Wang: Life in society would not be possible without honesty. You should never lie to
your parents, relatives, or close friends. But in a business negotiation you have to act
strategically. To our great surprise, the Americans turned out unbelievably naïve with
being overly honest. With all their money and technological know-how they might think
they can afford to be completely honest, but if you start out at the weaker end, one needs to
compensate for this by being cleverer. At one point the American negotiation leader even
called us dishonest. What an insult! Only because we were cleverer by not revealing
everything, we are not dishonest. And what the Americans mistook for honesty and
frankness was often nothing but impolite and rude behavior.
Face/Shame
Mr. Jones: The Chinese concept of “saving face” soon began driving us mad. In a business
negotiation you have to think logically, you need to be objective and look at the facts. In the
interest of the project you have to be able to criticize and accept criticism. Once we were
discussing the optimal way of setting up machines in the factory. It was a purely technical
detail. The head of the Chinese negotiation team, Mr. Wang, made a proposal which simply
didn’t make sense. We had it all figured out and based on our calculations. I calmly but
firmly explained to him that what he suggested was simply nonsense. He became angry
and left the meeting. What is this? First not getting the math right and then getting upset? If
we hadn’t picked up on this, we could have incurred lots of costs which would have been of
no interest to anyone. I might have been more diplomatic, but I wasn’t putting him down, I
only made my point.
Still, I apologized later on and he replied I shouldn’t worry, there was no problem. But the
following day when I just confused two figures, he corrected me like a teacher would a
schoolboy, looking triumphantly to his team. Apparently, he tried to regain face by
shaming me. What childish behavior! What we never could quite comprehend when
communicating with the Chinese is how much they care about the formal way of
communication, instead of its actual content. No problem to tell a blunt lie, if you only do it
with a polite smile!
Mr. Wang: Being completely fixated on profits and efficiency, our American counterparts
showed no respect to people. Once I made a point which was probably not well thought
through. It was just a detail, no reason fighting over. But instead of just leaving it for the
moment and telling me later on, Mr. Jones lectured me for 10 minutes about why I was
wrong, thus causing me embarrassment in front of my entire team. I think he was not even
aware of the fact that I lost face, but that is even worse: the Americans always seem to
think that their way of behavior represents the universal standard and everything else are
just folkloristic oddities which should be abandoned for the sake of the only right
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 7 of 10
(American) way. And in addition, Mr. Jones is 10 years younger than I am. How dare he
treat me with so little respect!
Haggling
Mr. Jones: What amazed us quite a lot was the fact that the Chinese adopt exactly the same
strategy in business negotiation as in shopping on the street market. The seller demands an
unreasonably high price, followed by some intense haggling which usually ends at around
half of the initial asking price. In the end, both parties feel happy, even though they could
have settled for half the price right away without wasting all the time on fierce negotiation.
It took us quite a while to realize what satisfaction the Chinese take from asking and
receiving concessions. The bargaining ability is something the Chinese take pride in, and
they enjoy practicing it no matter if it is for obtaining better conditions in a multi-million
contract or for getting cheaper vegetables for dinner. At each item on the agenda, our
Chinese counterparts started out with some totally unacceptable conditions, waited for our
counter-offer, which was much closer to a realistic solution, and then continued asking us
for concessions with an unbearable patience.
Before coming to China an expert on Chinese business suggested to me to read The Art of
War, written by Sun Tzu more than 2000 years ago. At that point I laughed at this advice,
but it turned out I should have taken it more seriously, as the Chinese themselves interpret
negotiation as psychological warfare and use the war metaphor quite frequently when
talking about negotiations. Chinese just don’t understand the concept of a positive sum
game. They only think in terms of losing or winning. How can you enter a JV if you are
always perceived as the rival and not as the partner?
Mr. Wang: We are surprised how little negotiation skills the Americans had. They always
were so upfront with their real intentions that we could easily get concessions when we
pushed the right buttons. And we could read from the expressions on their faces like an
open book. I thought the Americans were so good at poker, but apparently not. In
negotiation you should never reveal what you think.
Also, the Americans reacted always so nervously if there was a delay in the negotiation.
Whenever we agreed on something important we told them we needed approval from our
superiors which was also often the case. We just don’t have the decision-making authority
the Americans are used to. Anyway, as they often reacted so impatiently, we delayed
sometimes the process on purpose. And in particular when they became irrationally
agitated and furious we always got the concession we wanted.
Skillful negotiation is about ascertaining the genuine intention of the other side, and
preparing responding strategies so as to reap the most benefits from the final result. This is
what real negotiation encompasses, which is far more than “haggling” as the Americans
refer to our tactics. Of course, for a long-term partnership both sides need to be satisfied,
but it is always good to be a little more satisfied than the other side.
Strategic Behavior
Mr. Jones: Negotiating with the Chinese feels almost like walking in complete
darkness—you never know what their next move will be, you can’t even figure out whether
they are content with your proposal or not. Always seemingly modest and courteous, we
never knew what they were thinking. Whenever we suggested something and explained in
detail why this should be good for both sides, they never contradicted, always nodded,
frequently said “yes,” but in the end, they often just ignored what we just laid out or said
they needed to refer this to their superiors and come back to us, which they never did.
And every time they pushed us for another concession, they started by emphasizing the
importance of looking at the long-term benefits, as if we were just myopic and unwise not
to agree with the conditions more favorable to them. And when asked what these long-term
benefits would be, they usually vaguely described them as the possibility of much more
lucrative contracts in the “near future.” Whatever that means.
Mr. Wang: One of the most crucial criteria in our society to judge a person’s social status
and social skills is the ability to control one’s own emotions. The more someone plainly
shows satisfaction or irritation, the more people will regard this person as shallow,
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 8 of 10
undignified, and inexperienced. Americans with their noisy directness and openness will
never understand this. This has put us into an advantageous position, as we always knew
where we were with them, but they had no clue about our position. As a result, they also
felt less and less confident and more willing to compromise.
Americans like to feel dominant. They like to talk a lot and explain this and that. So we let
them talk, we listen and nod encouragingly. The more you listen the more you learn, but
the more you talk the more you reveal your position. At the end of a negotiation day, our
American friends were happy, because they felt they were in charge and we were happy
because we understood their intentions better.
What Means “Yes” and “No”
Mr. Jones: What frustrated us most was the fact the Chinese negotiators were never
prepared to give a definitive answer, everything remained “subject to approval” of their
superiors. And even if we got what we thought was a definite agreement, the Chinese were
not the slightest embarrassed to reopen a subject we thought to have settled. So, a “yes”
could mean anything, including “no.”
While we often got a “yes” without knowing what it meant, we never got a clear “no.” Only
after a while we understood that phrases such as “it’s possible, so long as …” or “this would
be very difficult” were equivalent to “forget it.” In short, you never knew what was going
on. When we said “yes” we meant it and they could count on it. And also when we said
“no,” we meant it as well, but the Chinese never took “no” for an answer. Sometimes I felt
like I was in a kindergarten!
Mr. Wang: Reality is just too complex for simple “yes” or “no” answers. Everything
depends on everything else and everything is in flow, so what matters is the overall picture.
The Americans are always so proud of their analytical approach. But to “analyze,” means to
“take apart” and you simply can’t just tear things apart and treat them as independent from
each other. This is for us a sign of an immature view of the complexities of reality. We don’t
analyze reality, we take a holistic view, in order to comprehend the totality of the problem.
Therefore, we could never comprehend how upset the Americans became when we asked
to revise a certain point. Negotiations are a circular and iterative process, not a linear and
sequential one!
Chinese Lack of Technological Know-How
Mr. Jones: Another point we were never able to comprehend was the following: Often we
detected a certain feeling of cultural superiority with the Chinese who appeared to look
down on us. But then, at times, they fully surprised us by putting themselves down to the
verge of self-humiliation. This was specifically the case when the negotiation touched upon
technology and R&D. Here the Chinese openly admitted how backwards their technological
standards were, which was all due to foolish Chinese politics in the past. Now they had to
catch up and so our Chinese partners expressed straightforwardly their admiration for our
advanced technology and their willingness to “learn from the Americans,” pleading for our
help. Deeply impressed by the Chinese ambitions, we felt it, to certain extent, as our moral
duty to contribute with our technology to the development of this amazing country.
However, things soon went completely wrong when, after exploring the possibilities of our
cooperation on the technology level, we moved on to the estimated costs of R&D, licensing
fees, and others. What shocked us was that the Chinese refused to even consider paying for
anything, and said they were truly disappointed at our intention to charge them for our
technological know-how which was in clear opposition to the spirit of trust and good
relations. They argued that it wouldn’t cost us anything to just provide them with the knowhow, as we already had the technology. Besides we are from a rich company and a rich
country, while they were from a poor state-owned company in a still-developing country.
The fact that we had spent hundreds of millions of dollars on R&D and that our company is
fiercely competing with other big corporations on the world market and that we have to act
in the best interest of our shareholders and can therefore not just give away technology for
free was incomprehensible to our Chinese partners.
I think they somehow still had this notion in the back of their mind that for centuries
foreigners traveled from all parts of the world to China, bringing with them their
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 9 of 10
knowledge and goods which they freely offered as tribute and sign of respect to the Chinese
who perceived themselves as the only real civilization on earth and the center of the world.
Well, not with us!
Mr. Wang: We were deeply disappointed with the Americans’ attitude about passing on
technological know-how. We very much admire the American ingenuity to develop new
products and we were eager to learn from them. But they apparently only wanted to
engage in the JV to use cheap Chinese labor. And when we discussed technology transfer
and expressed our interest in learning from them, they asked for outrageously high fees
which we would never have been able to pay. We are from a still poor country and the
Americans shouldn’t try to take advantage of this and exploit us. I think they were acting
very selfishly and immorally.
Criticism
Mr. Jones: The Chinese never accepted any constructive criticism, however well intended. I
admit, we Americans might be more direct than the Chinese and this might cause some
friction, but why is it that we always have to adapt to them?
Mr. Wang: We were just tired of the Americans lecturing us all the time. They kept making
critical comments about everything, about our interpreter who had a strong accent which
made it difficult to understand him, about people in the streets who seldom obey traffic
rules, about air pollution in the cities, and so on. At one point they even touched upon
sensitive issues such as democracy, human rights, and Taiwan. How dare they mingle into
our internal affairs? That’s none of their business.
Conclusion
Mr. Jones: Despite all the obstacles and everything we had to put up with, we were almost
there! We had gone through all points and agreed with much difficulty on each item. The
day for the formal signature of the contract was set and our CEO planned to fly in for this
event. We were all enthusiastic to finally go back home. At this point the Chinese
negotiation leader came to us, apologized to us and said that some “little points” still had to
be revisited on the request of his superiors. And it turned out that these “little points” were
absolutely fundamental and purely unacceptable to us. I was absolutely furious and called
him a dishonest game player. He realized that he might have gone too far, but it was too
late. I told him that the deal was off. The next day we flew home. With people who behave
in this way one can’t do any business.
Mr. Wang: For us Chinese a negotiation starts with the first handshake and hasn’t finished
until the contract is signed. But the Americans seemed to be all content to have gone
through their checklist with all their little items and only thought about going home. For us,
however, it makes sense to leave everything open to further possible adjustment up to the
very final stage, so that we can always re-consider earlier agreements. We can’t just say
“yes” or “no” to a little issue and then move on until you reached the end of the agenda.
This is just a sign of naivety and immaturity.
And of course it is standard tactical negotiation behavior to try to score some final points at
the very end, taking advantage of the tiredness of your negotiation partners. One of the
advantages to negotiate on your home turf is that at the end the others are eager to return
home and often willing to make some last minute concessions. Of course I didn’t expect the
Americans to fully agree to my proposals, but just a little concession would have been
sufficient. They are rich enough to make one more compromise and I would have been
regarded by my superiors as a clever negotiator to obtain some last minute concessions.
Mr. Jones should have known that. But instead, he became all angry, shouted at me, and
thus completely lost face. It is very unfortunate, but even in the future we cannot take up
the negotiations again. With people who behave in this way one can’t do any business.
Case Discussion Questions
1. What are the different approaches both parties take toward business
negotiations?
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Print Preview
Page 10 of 10
2. What are the mistakes both parties have committed in this cross-cultural
negotiation process, and what should they have done better?
3. What are the key characteristics of a successful cross-cultural negotiator?
4. How could both sides have prepared better to anticipate the problems faced
in the negotiation?
Case Credit
This case was written by Markus Pudelko, now Professor of International Business at
Tübingen University, with assistance from Brian Stewart, former diplomat in China and
from 1981 to 1998 adviser to American and British companies entering the Chinese market;
from Sally Stewart, former Head of Department of Management at the University of Hong
Kong; and from Xunyi Xu, student of Economics at Fudan University. Copyright 2005
Markus Pudelko. All rights reserved.
Chapter 13: International Negotiation and Cross-Cultural Communication: 13-4e Chapter Case Cross-Cultural Negotiation Americans Negotiating a Contract in
China
Book Title: Multinational Management
Printed By: Dr Anne Nelson (nelsona@surry.edu)
© 2014 Cengage Learning, Cengage Learning
© 2016 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or
mechanical, or in any other manner - without the written permission of the copyright holder.
http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html
9/29/2016
Purchase answer to see full
attachment