Three is a Crowd:

Expediting Joint Venture Negotiations to a Speedy Conclusion in China

 

The Big 3 automobile maker was clear on the requirement: if its supplier wanted The Big 3 automobile maker’s China business the supplier would have to open a factory in Chongqing, the same city in China as the Auto Maker’s factory. It was Silk Road Advisors’ job to expedite the Supplier’s research and negotiations in Chongqing.

 

The Big 3 car maker was clear on one thing: the supplier would certainly have car maker’s business if the supplier moved to Chongqing; however, the Client would have to play by Chongqing’s “rules of engagement” to get the business. After all, the car maker was in a joint venture with a world-famous Chinese company, which made all the difference in the way the Supplier was going to be able to sell into The Auto Maker.

 

In many ways, Chongqing is like San Francisco a hundred years ago – hurly burly, with the trappings of Western mores and business standards, but ultimately guided by rules of survival developed through its isolation from the rest of the country. For the Supplier that meant that going it alone in Chongqing would not be fruitful: the Chinese buyers had favorite suppliers, and the big American Supplier was not on their short list.

 

Chongqing rules had it that to sell product to the car-making Joint Venture the Supplier would have to partner with a local Chinese supplier that the Chinese side of the Joint Venture liked.

 

A Chinese auto parts supplier on the East Coast of China knew just the Chongqing partner for the American supplier – at least, that’s what the President of the East Coast company told the Americans. The East Coast company had worked a few months with the American supplier. The East Coast company President quickly put together a meeting between a Chongqing supplier and SRA’s client.

 

The East Coast supplier proposed a joint venture between the three companies to supply product to the Chongqing automaker. The three would-be suppliers met executives of the Chinese automaker and the Big 3 automobile maker in Chongqing. The executives gave their blessing to the convoluted supplier-marriage. In Chongqing, that sort of arrangement was natural; that is, if a company wanted to be successful in the area.

 

Still, the Americans scratched their heads over the arrangement: they were already having difficulties in their outsourcing relationship with the Chinese East Coast company. The Americans were unsure whether they really wanted to be more closely related with the East Coast company in such an intimate business arrangement in central China.

 

In Shanghai, executives of the American company met with the Presidents of the two Chinese suppliers. Silk Road Advisors provided a team to translate and to moderate the discussions. American executives at the end of the half-day session were baffled as to why the Chinese were always laughing, whispering and passing notes to each other while the Americans were talking. The Americans found the meeting frustrating and unproductive.

 

The Client had already commissioned an SRA team to travel to Chongqing to research Economic Development Zones in the area. The American auto parts supplier was feeling its options limited in just where it could build a factory in Chongqing, since the potential joint venture partners and the Chinese auto maker were exerting pressure on where the Americans should break ground. The Client executives asked SRA to also try to draw from the Chongqing company just why the East Coast company had to participate in the joint venture between the parts suppliers. The Client explained that if the East Coast company was not involved in the joint venture, the Client would move quickly ahead in forming an enterprise with the Chongqing supplier to service the Big 3 automobile maker and its Chinese partner.

 

SRA traveled to Chongqing to meet with the President of the Chongqing supplier. Over dinner and during several hours of singing Karaoke an SRA negotiator explained to the President the confusion and hesitation the Americans were experiencing in the formation of the three-way joint venture between the auto-parts suppliers. The President of the Chongqing supplier explained the obligation he felt he owed to the East Coast company because of the East Coast company’s contribution to the relationship between SRA’s client and the Chongqing supplier. Comfortable in his relationship with SRA, the President of the Chongqing supplier shared that the East Coast company did not have to be part of the joint venture, if that was the primary barrier in the creation of the joint venture with the Americans. The Chongqing supplier would curtail the East Coast company’s aspirations for a link-up with the Americans in Chongqing. The key to a successful arrangement, the Chinese President explained, was that the Americans had to be explicit about what they wanted in the joint venture.

 

SRA let the Americans know they could have an exclusive joint venture with the Chongqing supplier if the Americans moved swiftly and confidently.

 

One month later the American supplier and the Chongqing supplier inked an agreement for a joint venture between them. The Big 3 car maker and its Chinese counterpart put their stamp of approval on the partnership between the two suppliers; and the Chinese car manufacturer assured the new supplier-enterprise of sales to the rest of the Chinese group’s businesses in South China.

 

For more information about this or any other SRA case, or to contact SRA, email us at: contactus@silkr.com .