BUSINESS REPORT – PROPOSED JOINT VENTURE
Executive Summary
Our company, Five Towns Optical Limited, is opting to strategize internationally by means of considering a proposed joint venture with Adius Optical Company Limited in China and Magrabi Optical Company in Saudi Arabia. Both of this company is currently developing market reach and Five Towns Optical Limited could take advantage of this in widening our own market reach. Behavior differences noted for the first are virtuous behaviors, importance of initiative taking and respect for authority and passivity and politeness in communication. On the other hand, for Arabs, behavioral differences to take note of are negotiating and bargaining as a part of Saudi negotiation style, differences in thinking and decision-making processes, emotional expressiveness and socialization in the business as the norm.
Introduction
Global integrationism is taking a toll on the way a business operates, requiring such business to strategize nationally, regionally and internationally. In achieving sustainable competitive advantage, businesses strategize to grow fast ahead of the competitors, grow in line with the industry or to simply catch up and defend an existing status. Our company, Five Towns Optical Limited, is opting to strategize internationally by means of considering a proposed joint venture with Adius Optical Company Limited in China and Magrabi Optical Company in Saudi Arabia. Our company is a family-run, independent company and has been producing quality eyeglasses since 1959 hence our wealth of knowledge and experience is adequate to finally build a presence overseas. Whereas, Adius Optical Company which was established in 1995 commits to professional manufacturing and marketing of sunglasses, reading glasses, safety glasses and sports glasses among others and Magrabi Optical focuses on premium and luxury eyewear.
Both of this company is currently developing market reach and Five Towns Optical Limited could take advantage of this in widening our own market reach. However, this is not without difficulties as Adius and Magarabi resides in two otherwise hard to penetrate host countries because of their cultural identities. Doing business in China and Saudi Arabia must undergo specific etiquette, protocol and business customs. In this report, the cultural profile of China and Saudi Arabia will be explored. Whether there is a necessity for Five Towns to improve cultural intelligence and in what specific ways will be likewise investigated.
Cultural Profiling
Doing business in China
Ambler, Xi and Witzel (2008, p. 250) noted that business operators should understand that China is both timeless and modern. China is indeed a country which faces simultaneously backwards and forwards and draws on its cultural heritage while also looking to the future. The Chinese government knows this very well and spends much time promoting its history, culture and heritage to its people. Nevertheless, China infused firms around the world with immense economic possibilities as world economies further globalize and integrate hence practicalities of running joint ventures in China was not seen as a problem. Venturing in China starts from the presupposition that Chinese business culture strongly contrasts with Western business culture (Dahles and Wels 2002, p. 2). True enough, Western market cultures are characterized by individualism, rationality and secularism compared to that of collectivism, familism and Confucianism of Chinese businesses.
Evidently, there are two central themes that should be understood: the role of social connections is very visible and surrounded by many explicit and implicit rules of conduct and these social connections are instrumental in social, economic and political relations of Chinese business operators (Dahles and Wels, 2002, p. 5). Both of these stemmed and built upon a value system based in Confucianism. Our managers should therefore take note that in Chinese business culture virtuous behaviors towards others as one would not like to be treated oneself is critical. From a humanistic rationalism perspective, one should understand that Chinese business operators aimed at perfection of the moral self (xiushen) to its most practical objectives, regulation of family relationships (qijia), good government of state (zhiguo) and peace under heaven (pingtianxia). Put simply, Chinese proprietors acknowledge how precious business resources are regulated (Ju 1996, p. 48).
Dahles and Wels (2002) also noted that concerns these Confucianism-embedded values and principles had serious implications on more important issues such as organisational leadership, succession, decision-making, management-labor relations, superior-subordinate relations, promotions, corporate culture and teamwork among others. Long-standing cultural stereotypes are part and parcel of the intensified cultural exchange between China and the West. Western business operators should embrace business strategies that rely heavily on personal social networks (guanxi). Chinese believes that the effective mobilization of family and other personal ties are a distinctive feature which could serve the purpose of avoiding Western individualism. In urban areas with dynamism and uncertainty of opportunities, personal ties are extremely important. Understanding how a business works in China, one needs to understand how personal networks are operated, what cultural norms and values are at their basis and how these networks are related to bureaucratic power.
Thereby, being a successful businessman or woman requires the combination of skills including individual entrepreneurial zeal and access to bureaucratic power through family relations and friendships (Dahles and Wels 2002, p. 3). With this said, the typical Chinese business today is a small and medium enterprise run by a close group of family and friends, particularly those who graduate from the same university. The new generation of entrepreneurs tends to be young yet conscious of the fact that they still have a lot to learn but acutely focused on a specific business opportunity. The group of new business operators views as the world as a potential market, aside from used to living with Western influences. Five Towns managers should thus consider the importance of initiative taking and respect for authority as well. Chinese business operators – either young or experienced – do not command respect, instead their culture impose such respect as a way to dignify partnerships.
Guanxi is well-practiced in China, for instance, implicating notion of “You scratch my back, I’ll scratch yours.” Essentially, this is exchanging favors that are expected to be done regularly and voluntarily. Lo (2009) noted that by getting the right guanxi, a joint venture could minimize risks, frustrations and disappointments especially because the right guanxi with the relevant authorities will determine the competitiveness of the venture. Chinese, notably, prefer to deal with people they know and trust, requiring Western companies to make themselves known to Chinese before any business can take place. Establishing guanxi is simply not between the venturing companies but also between individuals at personal levels. Partners, however, should bear in mind that developing and nurturing guanxi could be very demanding on time and resources.
On the other hand, Western businesses have been becoming more plausible for the Chinese market. China is no longer very strict and Chinese businesses are opening up to Western businesses. A reason behind this is that Chinese and other Asian manufacturers are looking for outlets, attempting to move down their value chain to get closer to both Chinese and Western customers. This would not have been possible in the old system because of the fact that manufacturers took a more passive role before. Entrepreneurial Chinese companies of today are looking for partners who can help them with marketing and distribution and general industry know-how (Ambler, Xi and Witzel 2008).
As such, another reason is that Chinese companies are seeking Western partners in order to learn about the markets of America and Europe, consumer demand, ways of doing business and culture. Ambler, Xi and Witzel (2008, p. 252) maintain that learning joint ventures are Chinese’s way of acquiring knowledge, competence and expertise, offering real opportunities for Western companies an advantage to penetrate the Chinese markets. Managers should also take note of the fact that when dealing with Chinese passivity and politeness in communication should be prioritized to get the message across clearly and comprehensibly. In addition to this, treatment of information of Chinese whom are very particular with data and statistics must be also well-understood (O’Keefe and O’Keefe 1997). The authors warned, however, that working with Chinese companies in this way requires change of thinking. An argument for this is that giving away trade secrets to Chinese companies means partnering for today and competing for tomorrow. Chinese companies tend to threaten Western companies in terms of acquiring operational and technical know-how.
Doing business in Saudi Arabia
While the Hanbali branch of Sharia law is the most permissive of all the branches when it comes to the regulation of business practices, such permissiveness allowed doing business in the Kingdom with a free-for-all feel to Westerners who are not used to Saudi business practices. Wells contend (2003, p. 206) that Westerners have long complained about corruption, bribery and influence peddling are endemic in the Saudi business world. Though these complaints may be true, it only manifests that Saudis have a very different way of doing business which could add up negatively to Westerners perceptions of the corporate world. A key to understanding the business approach of Arabs is personal relationship. Saudis do not draw a line between business and personal relations instead all relationships are regarded as personal and personal affection and trust are essential to any business relationship. The personal nature of doing business in the Kingdom makes knowing the right people is even more important here than in any other places.
To wit, doing business in Saudi depends almost completely on who you know wherein an outsider like a Westerner seeking business partnership should have visit the country as a matter initially of knowing someone. Minus the need for a visa, a Saudi sponsor should be determined who will take responsibility of one’s behavior while inside a Kingdom be it a Westerner or not. Sponsors could be an individual or a company (Wells 2003, p. 207). For a joint venture to flourish, further, a foreigner who wants to run a business inside Saudi Arabia must have a Saudi partner. The Saudi partner might do no more than give official cover to the business, but this partner might also act as the foreigner’s sponsor or as an agent who has access to influential Saudis. Having a good product would not help if the foreigner does not have a good relationship with the right person but establishing the right relationship will help sell products. Having a Saudi partner, managers should bear in mind that negotiating and bargaining are common and is a part of Saudi negotiation style that is both competitive and collaborative (Leung et al, 2009).
Betriebswirt (2007, p. 40) states that the business behavior in Saudi take notes of being aware on different style of meetings, negotiations, relationships and communications among others. Managers should pay attention to differences in thinking and decision-making processes which will be immediately obvious from the first meeting which is generally regarded as an acquaintance period. Within the Arabian community, the concept and importance of personal relationships are very important. Individuals strongly consider a culturally accepted hierarchy in order to determine what kind of people they prefer to do business with. First, Arabs consider members of their own families that they know they can rely on and have very strong ties to. Friends who are usually fellow Muslims with a similar culture and behavior and whom they can expect mutual trust is the second choices. Only after these sources are exhausted will Arabs consider doing business with a foreign partner. Foreign business people have to be very patient and invest a lot of personal time and perseverance to establish and maintain good personal relationships with Arabic business people. Only after a good personal relationship is established will an Arab be ready to start doing business with that person.
Arab business operators measure venturing in other business on the basis of standards of dignity thus courtesy, respect, patience and honor are very important in business. In addition to this, the atmosphere of a conversation can be spoiled by what local custom regards as bad manners. As Shoult (2006, p. 332) puts it, Arabs are more tactile than most of their Western counterparts though there are certain restrictions when one is dealing across gender. Doing business with Arabs is not done in a haphazard way Arabs tend to believe that there are plenty of hours for everything. This is also the reason why conversations begin slowly and with courtesies that are important and fairly lengthy. Pleasantries are apparent at the start of conversations and throughout the conversations. Silence is also considered a part of conversation since this signals contemplation and seriousness. Conducting business therefore, as opposed to Westerners rush to structure and linear way which tries to follow agendas, follows a circular pattern that is not always centered on the business itself. Managers must understand how emotionally expressive Arabs are, and this could be observed in kinesics behaviors including posture, gestures, facial expressions and eye contact and proxemics or space/distance connection.
Further, timing is of more importance although time is also important. Shoult (2006, p. 333) assert that in cultures where time is critical, such a culture is generally characterized as being task-driven. As a collective culture, the Arab business culture invests on the ability to do business that is influenced by network and individual skills. Arab business operators also put emphasis on the value of face and whatever the business partner do this should not cause Arab counterpart to lose face. Direct and confrontational style of doing business is frowned upon especially for the first time or where the counterpart is senior to you in either position or age. Entrepreneurial Arabs tend to be differential when it comes to power, age, position or background. Thus, using titles assertively would be noticed in Arab functions and meetings. Personal appearance and grooming also counts when it comes to negotiating with an Arab. Definitely, managers must also understand the nature and dynamic of socialization in the business as the norm.
Cultural Intelligence
Cultural intelligence or cultural quotient (CQ) refers to a new domain of intelligence, implicating the increasing relevance of global and diverse workplace. With this new joint venture, considerably, culture shock could be experienced of the expatriate managers. Based on the behavioral differences noted above, this report claims that there is a wide disparity between the culture of the West, particularly United Kingdom that is generally individualistic, rational and secular, and of China and Saudi Arabia hence are extremes. Nonetheless, the globalization of workforce is perceived to be a pivotal element in the success of offshore joint ventures. Expatriate preparation would be the most plausible step for Five Towns relating to sending off managers to participate in the joint venture.
Firstly, we must understand that there are four stages of culture shock namely euphoric or honeymoon – initial reaction pertaining to being enchanted, enthusiastic and other superficial experiences; irritation and hostility or disillusionment – initial differences set in leading to crisis which could eventually lead to experiences of anxiety, homesickness and depression; and gradual adjustment or acceptance/biculturalism – recovery mechanisms starting to blend in and adapt some culture characteristics (Padilla 1980). Acculturation and orientation (Sculion and Collings 2006, pp. 18-23) could initially prepare the expatriate managers. Through acculturation, ability to determine whether an individual can adapt patterns of surrounding culture could be determined. Orientation, on the other hand, could measure the multinationality of the managers whether this is ethnocentric, polycentric, geocentric and regiocentric to evaluate home country, host country, boundary or location orientation of the managers.
Secondly, training and preparations must center on the consequences of expatriation aside from the expatriation itself. This would be important to minimize the risk of failure of the expatriation specifically due to the risk for culture shock. Cross-cultural preparedness must be a priority in preparing the expatriate managers (Lancaster and Reynolds 2002, p. 233). Familiarization process specifically on language, customs and culture are emphasized in the training. In here, various cultural variables that may affect the international assignment but which could be adopted should be also discussed at the preparation stage. Expatriation packages must be prepared and should compensate the managers by means of home and family visit plan or sponsorships. The package should also include services of equalization of standard of living and compensations for inconvenience and qualitative losses.
Ali, Azim and Krishnan (1995) added that external effort of investigating should be also conducted. Third is to determine the managerial value systems and decision styles and preferences with respect to the degree of participation of the expatriate managers. At this stage, the preparation of host country workforce could be performed so as to tap on the coming changes, cultivating a harmonious working relationship as possible. Reality trainings should be covered for both host country workforce and expatriate managers. Through this, work site rules clarification and local consultations as part of the civil protection of the expatriates could be covered (Furnham and Bochner 1986, p. 126).
Fourthly, aside from making expatriates aware of their civil rights, legal and financial protections must be also discussed. Hakimian and Nugent (2003, p. 224) made mention that such protections usually consider tax equalization protection, international payment plans, income, mortgage and pension protections, investment and insurance, employer-provided healthcare and the right to join a union.
Conclusion
Our company, Five Towns Optical Limited, received a proposal to venture with either with Adius Optical Company Limited in China or Magrabi Optical Company in Saudi Arabia. China’s business practices are still embedded on the philosophy of Confucianism including guanxi, xiushen, qijia, zhiguo and pingtianxia. Whereas, in Saudi Arabia, personal relationship, negotiation styles, kinesics behaviors and proxemics, lenience to hierarchy and standards of dignity generally influence the business conduct. Because the business cultures considered are extremes, there is the necessity to train and prepare the expatriate managers. Four phases identified are: determining the levels of culture shock the managers could experience, familiarization processes which include inpatriation activities, preparing the host country workforce and evaluating civil, legal and financial rights of the expatriates.
Reference
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