international negotiations

The present case study focuses on the topic of international negotiations, but please note that mediation plays a role in the creation of the joint venture in question.  One of the most closely studied Chinese joint ventures is that involving Celanese Corporation of the United States, a producer of value-added industrial chemicals, and China National Tobacco Corporation (CNTC). The venture produces tow, the fluffy synthetic fiber in cigarette filters.

In 1982, when CNTC decided to increase its production of filter cigarettes, it was on the lookout for international suppliers. Since all tow providers refused to sell their technology to China, CNTC approached Celanese, a highly regarded tow producer, with a view to setting up a joint venture. Celanese declined the offer after two years of arm’s-length, long-distance discussions through its Chinese agent, London Export Company (LEC), which was well regarded in China. Celanese believed that the joint venture would destabilize the international market and adversely affect its cash flow.

In early 1984, LEC reviewed the negotiations and found there might be greater mutual benefit than had at first appeared. A senior LEC executive asked Celanese for permission to continue mediating the joint-venture proposal and, by mid-year, he had persuaded both parties of the potential joint-venture benefits. As a result, CNTC promptly made Celanese the preferred supplier of tow, even before the joint-venture plant was finished; classified the output of the new plant as import substitution, so that foreign exchange would be conserved and CNTC would not need to buy tow abroad; and would share top management decisions fifty-fifty.

First Steps

Next came face-to-face negotiations, discussions, and communications between the parties. Differences in formal communication almost stalled these discussions before they got off the ground, with suspicion arising over the language used and the legal requirements put forward. Some of the main issues were:

• The Chinese insisted on a holistic approach, asking the U.S. team to agree to a macro-concept for the new venture, with details to be agreed to later. Meanwhile, the U.S. party insisted that they would only regard the overall venture as generally agreed to after agreement on each component of the new venture had been reached.
• The Chinese insisted on the prior development of friendship and harmony, while the U.S. negotiators were blunt in their demands for openness and frankness about differences.
• The Chinese opposed the U.S. Company’s proposal that lawyers be brought into the discussions.

LEC, which was respected by both parties and brought expertise about China helped resolve the problems and develop an atmosphere of trust, so that basic agreement was eventually reached.

Stage Two

The second stage, comprehensive planning, cost $1 million, took two years to complete, and involved the translation of the basic agreement into a new plant and business organization.

It had been agreed in early talks that Chinese regulations on technology transfers, feasibility studies, and joint ventures were not well suited to the new enterprise, so much time was spent anticipating problems related to the design and construction of the plant, its general management, human resources policies and practices, purchasing, finance, and accounting. As a result, specific plans were drawn up by U.S. and Chinese teams, with some 50 experts involved at any one time.

Cultural problems were not lacking, and included the difficulty the Chinese encountered when their Celanese colleagues argued with them or expressed differences of opinion. As one senior Chinese manager said: “I had to learn that someone could argue with me and still be my friend.” Cross-culturally sophisticated LEC personnel mediated for both sides on a number of troublesome issues.

Stage Three

The third stage involved construction of the plant, in the city of Nantong, Jiangsu province. New cultural difficulties arose daily, as Chinese practices collided with Western performance imperatives. Celanese employees noted:

• Crews of Chinese subcontractors would disappear for days at a time, leaving work unfinished.
• In work units supervised by foreigners, the Chinese observed workloads; but in those supervised by Chinese, the workloads were usually reduced and additional employees hired.
• Many employees appeared indifferent to the satisfactory completion of the project.
• The Celanese habit of flagging errors or shortcomings was taken by many Chinese as a personal affront—compounded by the indignity of seemingly being “talked down to.”

The Nantong factory was completed in 1989, when the joint venture went into operation, with a mixture of Chinese and U.S. managers and staff. Most of the Chinese managers appointed to the new enterprise saw themselves as loyal to CNTC, and their allegiance to the new venture was initially fragile. The Chinese managers discussed problems with their seniors at CNTC, rather than with their U.S. venture colleagues. Neither side could identify with the new entity at first.  Also, managers held meetings in their native tongue, which upset those on the other side.

But overall, a long-term perspective was taken regarding the factory, where training was provided to enable employees to carry out prescribed operations.

At the same time, Celanese managers, believing that the performance of local suppliers had to be upgraded, spent much of their time helping suppliers improve deliveries. William Newman (1992, 72) points out: “Chinese plants … are accustomed to loose standards. Erratic delivery times are common with last-minute flurries of action to meet emergencies.”  (though things have changed in past decades)

By 1992, the Nantong plant was meeting corporate goals and becoming profitable, and so it was expanded; and in 1994, the production of acetate flake (the raw material for tow) was added. Then two additional manufacturing sites for acetate tow, each a separate joint venture with CNTC, were built and started up in 1995—one in Zhuhai, Guangdong province, and one in Kunming, Yunnan province.