Kuwaiti/Chinese Business Partnership - Term Paper Example

? Kuwaiti/Chinese Business Partnership I. Executive Summary This case talks about a proposed business venture between the Chinese conglomerate CITIC and the Kuwaiti conglomerate Al-Ghurair. The deal was being headed by Mr. Essa Al-Ghurair from the Kuwaiti end and by Mr. Sun and Mr. Wu from the Chinese end. The dilemma arose when Mr. Essa Al-Ghurair’s brother was implicated in a stock market scandal where he was accused of lying to his investors and was facing criminal charges. Due to the criminal involvement implications caused by these charges, Mr. Sun and Mr. Wu were shocked and became a little hesitant to go ahead with the deal. There was too much at stake in this situation; their respective careers, CITIC’s business image in Kuwait and global and political pressures and implications. Mr. Essa Al-Ghurair tried to make amends so that the deal would still go through. He wrote a letter of explanation to CITIC and assured them that he was not personally responsible for his younger brother’s mistakes and neither was his organization. He claimed not to have any knowledge of the situation before it became public and requested CITIC to trust him and not let this incident taint his reputation or that of his organization. Mr. Sun and Mr. Wu were reassured to some degree but still faced some decisional conflict due to the fact that the Al-Ghurair brothers were very close to each other and it seemed unlikely that Mr. Essa Al-Ghurair would not have knowledge of his younger brother’s dealings on the stock market. Due the huge, political and economic implications of this project, Mr. Sun and Mr. Wu did not want to be hasty about the final decision on their side, because they would be to blame if anything went south. Weighing all the variables involved in this situation, it seems that the best course of action would be to go ahead with the partnership project between CITIC and Al-Ghurair, with minor amendments in the original agreement that favored CITIC if Mr. Essa Al-Ghurair was not able to fulfill his commitment through the duration of this project. However, all major stakeholders on the Chinese end must be fully notified of the possible implications of Mr. Essa Al-Ghurair’s younger brother’s stock market scandal and what they might mean for CITIC, politically and financially. It seems at the point of this decision however, that this project has huge potential to be a success and is too big an opportunity to just be let go of, thus, Mr. Sun and Mr. Wu should take this little risk in their stride in order to reap its immense benefits in the future. II. Statement of the Problem The proceedings for the real estate deal between Al-Ghurair and CITIC was going smoothly until Mr. Heshan Al-Ghurair’s stock market scandal became public knowledge. From CITIC’s end, Mr. Sun and Mr. who were once very enthusiastic for this deal to go through, became a little hesitant because it might end up blowing up in CITIC’s face and having severely negative repercussions both financially and politically. The basic problem faced by Mr. Sun and Mr. Wu was whether to go on with the agreement or to come to a halt in light of Mr. Heshan Al-Ghurair’s scandal and recent criminal charges. This was a big decision for them to make, laden with risk because this deal would be a milestone in the political history of Kuwait and China and financially as well, for both the parties. If they made the wrong move, a lot of people would be faced with unfavorable consequences, starting with their own selves in terms of career advancement. There was also the issue of the possibility of Mr. Essa Al-Ghurair being directly involved in the scandal or the chance of him being the main man behind the whole operation. This could be very detrimental for CITIC’s image and reputation in the market for signing a deal with a person or organization associated with or involved in a stock market scandal involving fraud and misrepresentation. Since CITIC is owned by the Chinese government, this would directly implicate them for dealings with a fraudulent individual or organization. The problems did not just exist if they went ahead with the deal, they would still have to face problems albeit different ones if they decided to reject the proposal and refused to go ahead with it. This would turn into a huge, history making opportunity missed from the Chinese side that needed Arab resources and investment to strengthen their economy which was relatively new to open trade. This deal with Kuwait was also functioning as a doorway to the Middle Eastern market for China and if this deal with Kuwait did not go through, they would be denied this advantage in the future. Some other opportunity, might come along in the future that would grant them this access, but still, refusing this particular deal would mean letting go of a monumental opportunity. Thirdly, Mr. Sun and Mr. Wu were under a lot of political pressure given the situation and their decision would not be based purely in their or CITIC’s interests but would be influenced by the political pressure that they were facing from both sides. The problems faced by Mr. Sun and Mr. Wu can be differentiated into ones that will take effect in the short run and ones that will take effect in the long run. The most important problems faced by them in this scenario are long run problems. For example, the future expansion in the Middle East and how this would be affected if this current deal was botched up, CITIC’s image as a business organization and how it would be affected over the years and how the shareholder’s attitude and preference for it would change, that is if it changed at all. There was also the issue of the political relations between the two countries as a result of this deal; both government’s were involved because the deal was a large scale investment and was a sign of good faith between the two countries if it proceeded smoothly, conversely, if it fell through it would turn into bad faith among the two countries. China and Kuwait both have immense economic potential and a partnership between them would be very beneficial on both ends of the continuum in the long run. In the short run however, there is the immediate danger to the respective careers of Mr. Sun and Mr. Wu, there is the danger of risking CITIC’s image in front of its shareholders, political tension and dropping share prices for CITIC. Thus they had to find a way to take the decision that appeased the political and financial stakeholders in the proceedings while keeping their own interest and CITIC’s business reputation and well being in mind. III. Causes of the Problem The problem was caused initially due to the stock market scandal involving one of the Al-Ghurair brothers that created some bad faith between CTIIC and Al-Ghurair and made Mr. Sun and Mr. Wu a little hesitant to proceed with the dealings. There was also the issue of the conflict between dealing with the individual; that is Mr. Al-Ghurair as opposed to dealing with the collective; that is the Al-Ghurair conglomerate. Therefore, the causes of the problems faced by Mr. Sun and Mr. Wu can be explained by the theories of individualism and collectivism and how they affect organizations, their internal culture, management and dealings with external entities. The theories define what the advantages and disadvantages are of each theory and thus help clarify the reasons why a certain path might be taken in the given situation. A research paper about collectivism and its effects on the organization it is implemented in, talks about how three main collectivist attitudes, namely companionship, familism and patriotism affect an organization’s culture. The collectivist traits also depends on certain cultures, some cultures are more collectivist while others are less and almost not collectivist at all. (Vadi, Allik and Realo, 2002). The Chinese culture, has overall exhibited more tendencies to be an overall collectivist culture. People in China who are employed in organizations like CITIC think of themselves as part of the organization that they work in and not as separate entities from their organization of employment. Thus, Mr. Sun and Mr. Wu were more naturally conditioned to opt for the choice that was more collectivist in nature. They thought of themselves as a part of their organization, CITIC and not as separate entities from it and thus would pick the method of choice that put forward CITIC’s best interests because according to collectivist theory, that is where their personal interest lay as well. Collectivism also has effects on cross cultural management of organizations, which is an issue very pertinent to this case. Ethnicity is directly related to culture. (Fink, 2001). Managers dealing with cross cultural project and/or organizations thus should know what factors of a particular culture affect its business organizations. This understanding makes it easier to reach effective decisions when faced with a situation like that faced by Mr. Sun and Mr. Wu in the case. Another study looks at how individualism varies across a selection of countries. (Green, Deschamps, Paez, 2005). This study also found that China was one of the economies that ranked high on the use of interdependence within and among organizations. A further study still, studies the validity of the theories of collectivism and individualism in the context of business organizations. This research also studied different countries all over the world and the results found indicated that the Chinese Republic was a culture and economy that was largely and strongly collectivist. European Americans were according to this study, the most individualistic of them all and preferred to bank on their own personal efforts rather than the group’s effort when working on a project/in an organization. This picture was completely different in China, where people are more comfortable and effective working in groups.(Oysermen, Coon and Kemmelmeier, 2002). Another perspective on the same angle is provided by a study on that looks at the responses of different cultures to the dynamics of working individually or in a group. This study says that collectivism and individualism can be directly linked to specifisc variables in a specific culture, for example the social behavior of people in a certain culture. This study also looks at certain influencing factors such as “self-reliance, achievement and competition” and how these show certain trends and patterns across and among specific cultures across the world. (Tirandis, Bontempo, Villareal, 1988). IV. Decision Criteria and Alternative Solutions The criteria that influenced the final course of action taken depended on numerous factors the reasons for which are mentioned below. Firstly, the chosen option needed to cause minimal time lag before the proceedings began so that the project did not stay stagnant for long. Secondly, the chosen option had to be one that minimized the cost of change in the original project as to inflict the least amount of monetary loss to the stakeholders. Thirdly, it needed to be an option that was not too volatile in terms of financial risk or political reaction so that it might not cause unrest among interested parties and be easily acceptable by the management of both CITIC and Al-Ghurair. Both parties were eager to go ahead with this plan in order to reap its benefits and thus the ultimate solutions would be one that appeased both parties while still safeguarding CITIC’s interests in face of the risks stemming from the stock market scandal. A route of action could have been to let things be as they were and take Mr. Essa Al-Ghurair’s word for his assurance completely, but that would have been very naive and would mean that CITIC management had no hindsight or seasoned business sense. On the upside, if Mr. Essa came through with his commitment, there were large chances that CITIC would profit from the deal. However, there were a lot of ifs in this situation and also, there was the issue of the shareholders’ and political connections’ reaction which would not be resolved through this course of action. An alternative solution could have been to call off the deal, but that would have had immense disadvantages. Possibly much more, than CITIC would have incurred had things went south due to the scandal, after the deal was made. This would taint the friendly political relations between China and Kuwait and pose hurdles when one of them wanted access to each other’s market any time in the future. Furthermore, this would incur heavy losses for both companies, each of which had invested 50% in the project. The project would remain stagnant and the resources would go to waste. However, this process would be lengthy, time consuming and very costly for both parties. V. Recommended Solution, Implementation and Justification The recommended solution in this case would be that Mr. Sun and Mr. Wu go ahead with the deal on behalf of CITIC with a few amendments in favor of CITIC in the original agreement. These amendments should be such that CITIC’s interests be safeguarded in case Al-Ghurair was unable to meet the promised commitment. Although Mr. Essa Al-Ghurair’s assurance was an influencing factor, it would be naive for Mr. Sun and Mr. Wu to rely completely on his word and not make formal legal arrangements. Mr. Essa is in effect and individual and cannot be personally held liable for a conglomerate which is a public limited company with a board of directors and shareholder. What Mr. Sun and Mr. Wu were dealing with was the collective organization of Al-Ghurair, even though it was headed by an individual; Mr. Essa Al-Ghurair. Thus the decision they had to make needed to be one that would reap the benefits of foreign investment in China, while maintaining friendly political relations with the Middle East and minimizing risk of a loss for CITIC. VI. External Sourcing 1. Vadi, M., Allik, J. and Realo, A. (2002). Collectivism and its Consequences for Organizational Culture. Retrieved from: http://www.mtk.ut.ee/doc/febawb12.pdf 2. Fink, G., Mayrhofer, W. (2001). Intercultural Issues in Management and Business: The Interdisciplinary Challenge. In Cooper, Cartwright, & Early (Eds), The International Handbook of Organizational Culture and Climate. Wiley & Sons, Ltd., pp. 471- 486. 3. Green, G. T. E., Deschamps, J. C. and Paez, D. (2005). Variation of individualism and Collectivism within and between 20 Countries. Retrieved from: http://www.ehu.es/pswparod/pdf/articulos/greenetal2005_JCCP.pdf 4. Oyserman, D., Coon, H. M. and Kemmelmeier, M. (2002). Rethinking Individualism and Collectivism: Evaluation of Theoretical Assumptions and Meta-Analyses. Retrieved from: http://www.morgankinney.com/wp-content/uploads/2012/08/Rethinking-Individualism-and-Collectivism.pdf 5. Triandis, H. C., Bontempo, R. and Villareal, M. J. (1988). Individualism and Collectivism: Cross Cultural Perspectives on Self In-Group Relations. Retrieved from: http://www.radford.edu/~jaspelme/_private/gradsoc_articles/individualism_collectivism/individualism_collectivism_1988.pdf Read More