Extraction and Distribution of Rare Minerals - Term Paper Example

? New Market Expansion inserts his/her s American Minerals LLC, founded by John Brighton, is a U.S based company in the manufacturing sector involved in the exploration, extraction and distribution of rare minerals. The company currently operates only in the American market with a setup in U.S and Canada. The company hires approximately 50000 workers and has a clear organizational structure with the Sales and Finance Director reporting directly to the Vice President and CEO John Brighton. American Minerals has been functional since 10 years now and is an established player in this industry. The company holds approximately 40,000 acres of rare-earth elements in various parts of the U.S including Colorado and Montana. The rare-earth minerals have been an important resource used in most advanced technologies, particularly clean-energy technology such as that used in energy-efficient cars as well as hi-tech products such as mobile phones, hard disk drives, digital music devices as well as the telecommunication sector including fiber-optic technology (U.S. Rare Earths, Inc., 2013). Additionally, these minerals have been used as in water purification treatments as well as radar devices and global navigation (U.S. Rare Earths, Inc., 2013). Therefore, this industry is highly valuable in terms of the usage of these minerals, and therefore, is highly rewarding as well. As noted by researchers, China is currently the single source that is enriched with these minerals and supplies 90% of the world’s supply of rare earths (Bloomberg News, 2013). As per China’s policy, exports of rare earths have been decreased with government plans to hoard up critical minerals. The Government of China seems to be taking active interest in this booming industry with the intention of developing particular types of “permanent magnets (Zhang, 2011)”. This can be a lucrative opportunity for our company as we have one of the best in-house research and development team in the world as far as the Rare Earth sector is concerned. We believe it is a great time for international expansion (in China) as the economic outlook is also positive. The industry is forecasted to have a CAGR of 13.06% in the period 2012-2016 with changing technological environment including demand from Wind Energy sector (Market Watch: The Wall Street Journal, 2013) . On the other hand, China’s recent move to cut exports critical to Western technologies seems to signal the government’s intention to give priority to the locals. This could threaten our ability to secure contract with the Chinese firm Xinhua which has been established for over 15 years in the field. Nevertheless, this industry provides the opportunity for lucrative profits as international prices of rare earth minerals are expected to rise (Market Watch: The Wall Street Journal, 2013). These prices are expected to increase for another two years or so. This demonstrates strong economic activity boosted by technological advancements and industrial demand. Owing to the critical political significance of this sector, the Chinese government is taking active interest in this industry by dictating policies for the exploitation of these rare minerals. The mounting political significance of this sector has led the government to maintain a great deal of ‘secrecy’ regarding recent developments in this sector and, therefore, gaining the trust of the government as well as Xinhua will be a challenge. Despite various challenges, there is strong basis for entering into the Chinese market. In light of this, a joint venture arrangement shall be held with a local Chinese Rare Earth firm Xinhua. Considering that the company is dominantly Western in nature, this expansion shall mark a dramatic cultural shift in terms of the work practices and management style. For this purpose, it is useful to analyze the Chinese culture using the “high context” and “low context” classification. High context cultures have been typically defined as those whereby individuals use non-verbal cues for communicating resulting in inferential meaning obtained by reading between the lines (Edfelt, 2010). Additionally, the use of signs, gestures and symbols presume great importance in the way these individuals communicate. This is precisely the case with Chinese as their culture has been defined as high-context. This implies that the Chinese discourage direct eye-to-eye contact during communication (Edfelt, 2010). American Minerals’ culture is dominantly Western in nature which is classified as low context. We are aware of the fact that communication in our culture is based mostly verbal in nature with non-verbal gestures being unimportant. The management of low context cultures, therefore, can be overpowered with the need to achieve dramatic and rapid results, leading to assertiveness in terms of tight deadlines and planned schedules. The Chinese, on the other hand, have a much longer orientation as far as time is concerned. It would, therefore, be not surprising for our management to encounter situations whereby questions are replied with significant delay and/or facial gestures. In such cases, it is imperative for our management to give our Chinese counterparts the required time for taking decisions and not pushing them too hard into meeting deadlines. We must plan our work schedules by keeping margin for such delays as the Chinese can take months to take a major decision. Furthermore, we will require an interpreter whose native language is Chinese and who has had extensive experience of working with Chinese professionals in the past. The interpreter’s task will be to interpret those points that may be overlooked by our management during communication. Another way of analyzing the Chinese business culture would be to use Hofstede’s cultural dimensions including uncertainty avoidance, individualism vs. collectivism, masculinity, power distance and long term orientation (Northouse, 2013). The Chinese and Western cultures seem to be lying to opposite ends of the continuum with the Chinese society being characterized by high power distance, collectivism and long term orientation (Northouse, 2013). Thus, for the Chinese, satisfaction is derived not from personal achievements but the collective societal gains (Northouse, 2013). This has its roots in the Confucian philosophy whereby harmony and unity were valued and conflicts or disagreements were seen as destroying societal peace. This contrasts with the Western culture (currently adopted by the company) which is characterized by low power-distance and low collectivism (Northouse, 2013). The Chinese business culture is deeply rooted in the Confucian philosophy whereby great importance is attached to rituals contrary to religion, dogma or law. The high power distance explains that hierarchy and order are considered as essential elements of the society. It is not surprising, therefore, to witness “deference to authority” in organizations characterized by hierarchical authority. This is explained by the “wun lun” principle which is described as a child submitting to his parent, a student submitting to his teacher and an employee submitting to his boss (Edfelt, 2010).Considering that our company deals in the manufacturing sector with relatively little product development and a tall organizational structure, this shall allow Chinese workers to adapt easily to our culture. The highly structured nature of work requires relatively less discretionary power to be assigned to workers, thereby making adjustment to Corporate Culture easier as far as this aspect of Chinese culture is concerned. Furthermore, considering that American Minerals’ Research and Development department will remain in New York and that only the manufacturing operations shall be conducted in China, the chances of cultural shock will be reduced. A salient feature of the Chinese culture is that it is characterized by high levels of collectivism leading to high group orientation (Adler, 2008). This contrasts with the culture of the American Minerals’ as Western individuals are considered as highly individualistic (Northouse, 2013). The Chinese business community largely thrives on interpersonal relationships and trust manifested in kinship ties. This feature is referred to as “Guanxi” and is described as the web of personal connections that is necessary to get the Chinese to perform their work tasks (Li, Tsui, & Weldon, 2000). Guanxi is basically defined as an inherent reciprocal relationship that two or more people share based on the premise that any favor done by one will be returned by the other in future in some way. These personal ties assume greater importance compared to written, legal contracts. This has great implications for our company’s decision to enter into Joint Venture agreement with the Chinese firm Xinhua. Our management must bear in mind that getting legal contracts signed may not be sufficient to ensure a binding contract between us and Xinhua. We must make a move now if we intend to enter into a Joint Venture with Xinhua two years from now. We must understand that, unlike the Western culture which values short-term, result-driven relationships, the Chinese value long-term relationships. It would be wrong to expect immediate results from the Chinese and we must develop strong, informal ‘friendship’ with Xinhua’s management as every year invested in maintaining these ties will be an investment into our future. The older and stronger the friendship, the better our chances of securing a JV contract with Xinhua. The above may sound simpler in words than in practice since Guanxi is not easy to develop. The Chinese would expect our management to spend long hours on entertainment and informal gatherings at night. Our managers must demonstrate their ties with the Chinese by actively participating in their events which consists of expensive dining in restaurants followed by a drink in a bar (Li, Tsui, & Weldon, 2000). Not doing so can put up a bad impression of our management and back fire our efforts to develop long-term ties with the Chinese management. These night gatherings and discussions may not pertain at all to our business; in fact, most of such conversation may be highly personal and non-business in nature. We must not insist on discussing the terms of the joint venture from the beginning as the Chinese may consider this as impolite. Nevertheless, it is necessary to focus on results and achieve high profits as part of our corporate strategy. This is where the role of the Chinese negotiator would come as this native Chinese negotiator (hired by us) shall act as a bridge between American Minerals and Xinhua’s management. It is common to find the Chinese discussion being centered to getting to know about the personal lives of their guests/visitors including family related information (Deresky, 2010). In order to build their trust, the Chinese must be handed over with significant, specifically financial, responsibilities of the joint venture. This is because the Chinese are vary of foreigners/outsiders and may take significant time to share financial responsibilities. To this end, we will take back profit to our home country; however, a portion of this profit (approximately 40%) will be shared with Xinhua. Although this is a sizeable portion, it shall avoid any friction between the two parties as well as ensure we are able to secure maximum number of contracts from the government through Xinhua. As part of this process to build lasting relationships, expensive gifts may need to be exchanged. This can be considered unethical as part of our company’s policy of not exchanging gifts or bribes for any business purpose. Here we may have to make a trade-off between our ethical policy and the practice of customary gifts in the Chinese culture. The above practice of gift-giving to secure relationships may become clearly unethical and, even, illegal as per our law when it extends to the practice of under-the-table dealings and bribery rampant in the Chinese culture. These corruptive practices are aplenty in the Chinese Rare Earth Industry with the involvement of gangsters and other non-political groups such as smugglers (Foster, 2011). Our company will have to deal with this issue as we must understand that government regulation is lacking, particularly in this sector. The lack of laws and a weak legal system constrains fair practices and fair dealings from taking place. Despite these aspects of the Chinese culture, we must stringently implement our ethical policy and ensure that no such dealings bring a bad name to our company. We can ensure sustainable extraction of such minerals to reduce negative response from Chinese pressure groups and tribes. As discussed earlier, the Chinese culture tends to be high context in nature which means that meaning is often hidden in gestures. Smiling is a frequent gesture amongst the Chinese culture and equates with pleasure. It must not be interpreted as a sign of conformity. For instance, there have been cases where prolonged smiling by the Chinese management was considered as an “OK” sign by Westerners (Edfelt, 2010). The dealings, to the surprise of the Westerners, ended with a refusal of the joint venture contract by the Chinese. We must, therefore, prepare ourselves for both acceptance and refusal and must not consider smiling gesture as a sign that everything is going well. Another aspect of the same is that smiling is viewed as a natural response to adverse situations such as embarrassment in order to ‘save face’ (Pye, 1982). The Chinese may not say a blatant ‘no’ when it comes to business dealings. Therefore, our management must be wary of situations where we would require their consent and will require a Native Chinese interpreter for understanding what decision has been made by the Chinese. This third-party intervention can help the Chinese ‘save face’ during times of negative responses and also reduce any misunderstandings between our management and them. Finally, it is important to understand that Chinese management does not engage in formal planning; therefore, it is typical to see revision and re-revision of plans. Information is often withheld and with lack of clarity of managerial intent (Edfelt, 2010). Since satisfaction is derived from collective results rather than competition, there is little incentive to mitigate risks and enhance long term performance. To this end, we must ensure sufficient team-based rewards as part of our HR policy to ensure a motivated workforce in China. Also, our management will have to spend significant time in deciding which individuals to take on board as part of our management team in China. Ideally, individuals who possess prior experience of having worked abroad (in Eastern cultures) must be selected for this task. While the orientation training may not be sufficient, continuous training may have to be conducted electronically to ensure that our management deeply understands the ‘ins’ and ‘outs’ of the Chinese culture. On the other hand, it would be a part of our contract terms with Xinhua to take on board only those Chinese managers who are foreign qualified and/or have had international work experience (preferably in America). This is to ensure that the individuals on both sides do not run into a cultural shock and can adapt flexibly to the demands of the Chinese culture as well as our corporate strategy. To conclude, it is in the best interests of American Minerals to take advantage of the bright economic prospects and government support in the Rare Earth Industry in China. This is expected to give our company, a sales boost of 30% within the first five years of our expansion. Furthermore, the low labor costs in China, combined with the high market value of these rare minerals, can enable us increase our margin by 20%. At the same time, however, our management will have to undergo turbulence as far as the cultural climate of China is concerned, with our managers devoting significant time to building relationships and harnessing business ties by ensuring long –term collaboration with Xinhua. The role of an interpreter and a negotiator shall be quintessential throughout this process. Considering that Xinhua may take considerable time before reaching a decision, we must make a move now to ensure that the deal is, hopefully, finalized within the next two years as planned. References Adler, N. J. (2008). International Dimensions of Organizational Behavior. Mason: Cengage. Bloomberg News. (2013, September 4). China Rare Earth Stocks Rise on Crackdown Report: Shanghai Mover. Retrieved from Bloomberg: http://www.bloomberg.com/news/2013-09-04/china-to-inspect-1-594-rare-earth-companies-info-daily-reports.html Deresky, H. (2010). International Management: Managing Across Borders and Cultures. New Jersey: Prentice Hall. Edfelt, R. B. (2010). Global Comparative Management: A Functional Approach . California: Sage Publications. Foster, P. (2011, March 19). Rare earths: why China is cutting exports crucial to Western technologies. Retrieved from The Telegraph: http://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-to-Western-technologies.html Li, J., Tsui, A. S., & Weldon, E. (2000). Management and Organizations in the Chinese context. New York: Macmillan. Market Watch: The Wall Street Journal. (2013, April 16). China Rare Earth Industry Report, 2012-2015. Retrieved from Market Watch: The Wall Street Journal: http://www.marketwatch.com/story/china-rare-earth-industry-report-2012-2015-2013-04-16 Northouse, P. G. (2013). Leadership Theory and practice. California: SAGE Publications. Pye, L. (1982). Chinese commercial negotiating style. California: RAND Corporation. U.S. Rare Earths, Inc. (2013). U.S. Rare Earths, Inc. Retrieved from U.S. Rare Earths, Inc.: http://www.usrareearths.com/ Zhang, Y. (2011, August 3). Rare-Earth Limits Reviewed. Retrieved from The Wall Street Journal: http://online.wsj.com/news/articles/SB30001424053111903341404576483483557043362 Read More