Shui Fabrics Essay
1. How would you characterize the main economic, legal-political, and sociocultural difference influencing the relationship between the partners in Shui Fabrics? What GLOBE Project dimensions would help you understand the differences in Chinese and American perspectives illustrated in the case?
Many of the local Chinese authorities viewed profits made by Western companies on Chinese soil as just one more instance of exploitation in a long history of foreign attempts at domination. As a result, Shui Fabrics needs to watch its profit levels very carefully so that they can still make a profit but not make so large a profit that they upset the local authorities. Shui Fabrics is providing jobs to 3,000 people in a country where the unemployment rate was estimated to be around 30 percent. This is a significant and positive economic and sociocultural influence. There is also apparently pressure from the local Chinese authorities to keep the labor force at Shui Fabrics at least at its present level. On the other hand, the company’s success gives Rocky River access to a huge Chinese market, cuts labor costs, and helps protect the firm from the uncertainty of U.S.-Chinese textile trade negotiations in which U.S. tariffs and quotas can change at any time.
GLOBE Project dimensions that might help in understanding the differences in Chinese and American perspectives in this case include:
Assertiveness – a high level of assertiveness in the U.S. contributes to the competitive approach taken by Ray’s boss, evident in his disappointment that Shui Fabrics is not making 20 percent profits instead of five percent profits. The Chinese are likely to have a low level of assertiveness, leading them to care less about profits (especially Western profits) and more about keeping workers employed.
Uncertainty avoidance – the Chinese have low uncertainty avoidance, suggesting that they are less bothered by the uncertainty of textile trade negotiations, tariffs, and quotas than their American counterparts who have high uncertainty avoidance.
Societal collectivism and individual collectivism – China has collectivist values, both and individual and societal, that compel the local authorities and employees of Shui Fabrics to be more concerned about their members’ interests than they are about the Americans’ profits. In contrast, Paul and, to a lesser extent Ray, as Americans, have more of an individualism orientation that compels them to be more concerned about themselves and their profits than they are about Shui Fabrics’ employees.
Performance orientation – similarly, a high performance orientation in the U.S. is pushing Ray’s boss to demand higher performance (i.e. more profits), while the low to medium performance orientation in China suggests less emphasis on performance.
2. How would you define Shui’s core problem? Are sociocultural differences the main underlying cause of this problem? Why or why not? How would you handle the conflict with your boss back in the United States?
There are different perspectives to this question. The Chinese view of Western profits on Chinese soil as exploitation represents a significant sociocultural difference that is likely to be the main cause of this problem. Shui’s core problem really hinges on the conflict between the U.S. desire to make ever-higher profits and the concerns of local authorities that profits not become excessive by their standards. This issue is driving the secondary conflict of the size of Shui’s workforce. Paul wants Ray to reduce the workforce to reduce costs (i.e. increase profits). Another secondary conflict is that reducing the workforce at Shui will have a negative impact on an already very high unemployment rate locally.
Paul says he “appreciate[s] the pressure the government is putting on” Ray, but he may not understand the strong view of the local Chinese authorities concerning Western profits made on Chinese soil as exploitation and domination. Ray should work at helping Paul understand this view and the need to be careful about profits. If Paul still insists on higher profits, then Ray should suggest an alternative type of foreign involvement, such as buying out Shanghai Fabric Ltd.’s ownership in Shui Fabrics to create a wholly owned foreign subsidiary. This would give Rocky River complete control over the company; however, it would not alleviate the problem of Chinese authorities’ skepticism over Western profits.
3. If you were Ray Betzell, what other options to the 50-50 joint venture would you consider for manufacturing textiles in China? Make the argument that one of these options is more likely to meet Rocky River’s expectations than the partnership already in place.
Licensing would mean Rocky River would have to sell its ownership in Shui to Shanghai Fabrics Ltd., thus giving up any potential for future profits. Rocky River would have an initial infusion of cash, assuming Shanghai Fabrics agreed to the buyout, but then would receive only licensing fees in future years.
Rocky River could also create a greenfield venture by selling off its interest in Shui Fabrics and then building a subsidiary from scratch. This is not a good option, though, because Rocky River would then have to start over after spending ten years building Shui to a point where it is a profitable operation. Moreover, the new company would face competition from Shui whose managers were trained by Rocky River and who likely have inside information about the company.
The only real option available to Rocky River is to buy out Shanghai Fabric Ltd.’s ownership in Shui Fabrics to create a wholly owned foreign subsidiary. This would give Rocky River complete control over the company and the sole rights to its profits; however, it would not alleviate the problem of Chinese authorities’ skepticism over Western profits. No matter what Rocky River does it will still have to deal with this critical sociocultural issue.