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Case Study Presentation for MS International Marketing/Management 2010
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Clariant & Tianjin #8 Negotiations
Andy LoBethan Thomas
BJ McCahillDaniel Malone
1.Criteria for the Joint Venture
2.Interdependencies
3.Analysis of Negotiations
Process
4.Future Challenges
The Perfect Partnership
Favourable Background Factors
Balance between financial superiority and superior strategic traits
Legitimacy
Complementary Expertise
Alternative Options
Clariant Overview
• A world Leader in specialty chemicals
• Headquartered in Muttenz near Basel, Switzerland
• Approximately 17 500 employees
• Sales of approximately CHF 6.6 billion in 2009
• International Presence on 5 Continents
• Four Operating Divisions...
• Future of the Organic Pigments Industry?
Shanghai Dyestuff Corporation No. 9
•Location: Shanghai, prosperous and industrial
•Higher labour costs
•Experienced and established in dye production especially Copper Phthalocyanines pigments
•Contact with suppliers
•Wanted to build a new Greenfield plant
•Wanted state of the art technology transferred to China
•Payback estimate: 5 years
The Chemical Factory Tianjin No. 8.
•Tianjin
•Developmentally behind larger cities
•Low labour costs
•Good reputation
•Neither state nor governing Bohai group provided appropriate support
•Promises utilities and running factory
•Approved for JV by state
•Estimated Payback: Less than 5 Years
Interdependencies
Lower cost
structures
Clariant’s prior experience in China
Corporate
Tax
IncentivesGrowth
Potential
Reasons for
entering China
Joint Venture
Law
No8’s need
for
investment
Objectives
Clariant Tianjin #8
Reduce workforce by 85% Keep all employees on the payroll
Reinvest dividends Take quick payouts of profits
Maintain environmental policy Not invest in environmental policy unrelated to profit
Produce limited products mainly for terrestrial market and some export
Broad and high-margin product set (most raw materials from Bohai)
High quality products Could not produce standard
Take majority stake
Invest little cash Technology Transfer
Use Clariant sales force Use Bohai sales group
Negotiations
Process
•Location: Tianjin
•Memorandum of Understanding- ensure negotiations would run smoothly
•Problems outlined: face-to-face negotiations began.
•Negotiations conducted over two years
Strategic Factors
•Clariant representatives highly knowledgeable•NEED FOR AN AGENT: Asia Link helped the two negotiating teams to communicate and understand each other better•No.8 violated the trust created and undermined their position in the negotiations. •No.8’s weaker position due to bankruptcy•Clariant employed a tougher stance by expecting concessions from No.8.
• Compromise
Collaborative ••Competitive
•Avoidant Accommodative •
Uncooperative CooperativeCooperation
Assert
iven
ess
+
-
Cultural Practices
•Culture is not a problem
•AsiaLink mediated in understanding cultural differences
•No.8 reps more reserved and complicit to hierarchy to maintain harmony
•Hofstede’s dimensions show high power distance for Chinese and low individualism
•Chinese give few concessions early in negotiations
•High Swiss individualism led to assertive negotiations tactics
Outcomes
•Increased financial value of intangible assets and the relative value of the facilities that No.8 contributed
•Clariant Germany would buy large amount of JV production = calm No.8’s desire for complex portfolio and high payout
•Clariant took over key management positions but left positions closer to community for No.8: Avoid appearance of takeover
•No new sales organisation for JV
•Decreased workforce but high severance payments
•Clariant as JV’s majority partner (40/60)
Future Challenges
•Will the municipal authorities allow Clariant to remain open in the residential zone?
• Should Clariant open a new plant in a new location or not? •Should Clariant strike up a new joint venture with a different partner or not?
•Should Clariant remain in China or venture into a new country for example Vietnam?
Possible Solutions
Remain in Current JV Pursue New JV
within China
New JV outside China
Recommendations
•Volatile Chinese legal system could mean factory could be closed by municipalities therefore preemptive action is suggested
•Chinese workers are demanding higher wages than neighboring countries so futile to simply change partners
•Conduct preliminary assessment of low-cost alternative production markets
•Open low-end production in Vietnam with appropriate technical staff
•Maintain Chinese JV due to its success and proximity to huge Chinese market
Actual Findings
•Expansion of joint venture with Zhejiang Baihe Chemical Holding Group in China and a new plant in Guangzhou (2008)
•Demand in Europe and North America drops but emerging markets continue to grow steadily, albeit at a slower pace than during the first six months of 2008.
•Industrialized markets such as the E.U. and U.S. will see further migration of industries to emerging markets in Asia
•Paper pigment sales in China weakened substantially but strong sales in Indonesia and India balanced the shortfall.
• turnaround or cut non-profitable plants, shift production closer to market needs and rationalize our production capacities