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China has become a corporate centre for all the businesses of entire world. Many international companies are now operating their businesses in China, by getting into joint ventures with Chinese firms. Although there are enough opportunities, yet companies faced many challenges while operating in china. Cultural challenges are on top of all. Some of the cultural and organizational challenges which Rex faced in china are:
Trust level in relationships.
Emotional restraints in decision making.
Importance of Social compulsions.
Greetings and traditions of local population.
Finding best possible Chinese partner.
Difficulty in getting license
Exploitation by local government
These were the major challenges which were faced by Rex, and made venture unsuccessful.
b.) Explain why Rex faces these cultural and organizational challenges when operating in China?
Rex faced these challenges for certain reasons. Firstly, there exists a communication gap between the partners. Rex didn't conduct the proper research on the market. The local partner was not being selected via following some procedure. Secondly, all the dealing was based on the simple letter of intent and there was no legal contract within the partners. This was the major deficiency of the joint venture. In the case study, there is no such thing like investment percentage between the partners. Major capital was from Rex's part. Another thing is lack of managerial control, as all the operations were being carried out by Tsang and Rex wasn't present in China. He totally trusted Tsang, while in business this is not a healthy practice. If Rex had worked on these issues in start, he would not be facing the challenges.
c).What are your views of the strategic alliance and its future prospects in the Chinese market?
In normal circumstances, the strategic alliances are beneficial for both enterprises. The main purpose of the alliance is that both of the companies can use their resources together to get maximum benefit which cannot be attainable individually. The current case is not good example of strategic alliance in China. This alliance has many deficiencies in it. The whole venture was based on the trust factor which is not professional. In the alliance, due to lack of diligence, the results were very disappointing, stolen inventory and capital theft.
China has become a hot spot for the joint ventures from entire world. The key factors to this are high emphasis of Chinese government on incremental growth in GDP, foreign investment. In addition to these elements, still there is ambiguity in determining the future prospects of strategic alliances in China. One cannot say that foreign firms are always successful in strategic alliances with Chinese firms. The primary factors to this are lack of legal obligations; commitment is restricted to relations, and existence of opportunistic behaviour in business. These issues are gaining importance in corporate world and this will result in decline in strategic alliances and joint ventures in China. Even opportunities like low tax rates, open investment policies, cheap labour and low overall production cost will not attract the foreign investors in China. To retain their importance in corporate world, Chinese people have to go for modifications in their business culture, behaviour and attitudes. On foreign investor's part, they have to be extremely cautious in dealings and should consider every aspect or clause of a contract before signing it to avoid future losses and ultimately failure of strategic alliance.
d) Analyze and evaluate Red Dragon Enterprise's strengths and weaknesses after their strategic alliance.
The strengths and weaknesses are the parts of swot analysis dependent on internal stimuli. These are the competencies and limitations of the firm. They come from firm's internal environment. Every strategic alliance and joint venture owes certain strength and weaknesses to it. Red Dragon enterprise was the alliance in two partners come together to get maximum output from the combined competencies of both and eliminate the individual weaknesses. Some major strengths and weaknesses of Red Dragon after alliance are:
Some of the basic strengths of the Red Dragon Enterprise after alliance are as under:
The one of the major advantages of this alliance was availability of more funds to invest in business. The funds of Batrionics and Red Dragon Entrepise were available into a common business. Joint venture makes it easier to obtain capital, technology, as well as a new target market.
The joint venture comes up with the availability of more human capital, as knowledge of both individual firms is now being gathered into a common business. Chinese partner will provide the local techniques of production and Australian counterpart will bring international skills and technology to the business.
Low Production Cost:
The ultimate goal of the alliance is to get maximum level of productivity at minimum cost. Due to cheap labour, low taxation policies, Rex will be producing batteries at cost far lower than if he produce them in West. The low production cost will lead to maximum profits.
It is more complex for foreign firm to set up a wholly owned business in China, as they have to start business from scratch. The one strength of alliance is that it will not start its operations from scratch. This will be beneficial for both firms, as Chinese partner will be doing business internationally and foreign firm will reap more profits as a result of low production cost. Another benefit is that strategic alliance will make it easy to get government licence and legal contract.
In addition to strengths, every joint venture carries some limitations or weaknesses with it. Some weaknesses of Red Dragon Enterprise are:
No Legal Contract:
Whole alliance is based on a simple letter without any legal binding. The only thing was a trust factor which is not a professional approach to do business. The substantial amount of money was being invested without any formal agreement. This is so he wasn't able to pursue legal action against Tsang.
In a joint venture or alliance, both partners are involved in the management issues. In Red Dragon's case, Rex was not even in China, to deal with management issues. This was end up in the form of stolen inventory and absence of funds or capital in venture's account. The core reason was Rex did no check and balance and was out of China.
The one weakness of this alliance is the short cut approach which Rex adopted in order to expedite the process of getting licence from the government department. Instead of doing appropriate measures of improvement, Rex did minor jobs and paid all the expense himself.
These are some of the weaknesses which the Red Dragon Enterprises posses after alliance.
e) Critically evaluate the corporate governance issues of Red Dragon Enterprises
Corporate Governance is broadly defined as a set of rules, procedure, or regulations by which firms are operated, synchronized and controlled. The ultimate goal of corporate governance is to use resources efficiently and get maximum benefits out of it. The current study is a case of poor corporate governance. There are many issues which are being overlooked in this study. The whole operations of Red Dragon enterprises were under the supervision of Tsang and Rex was totally out of it. As it was mentioned, Rex was not even in China. The other partner took advantage of this and as a result capital from firm's account and inventories were stolen.
Another example of the bad governance is absence of legal contract in the business. Whole joint venture was standing on a simple contract having no or very little legal value. Other issue was the exploitation of foreign client by Chinese government. This produces loop holes in the business. As local entrepreneurs gets advantage of it and foreign counterparts suffer from this. Another other issue is the Chinese culture. Chinese people are non serious in their commitment, they are not fair in dealings with business clients. These are some issues of governance which were faced by Red Dragon enterprises. One can overcome these factors to make their venture a good example of the governance.
f).Identify and critically evaluate the ethical issues that Red Dragon Enterprises currently face in China?
This strategic alliance carries with it several issues regarding ethics. Some major ethical concerns regarding Red Dragon are:
Labour Accountability Law:
The law for labour accountability is either lenient or nonexistent in China. The example of this in a case is theft of inventories and missing capital from account. When Rex inquired from Tsang, his reply was that those employees were simply fired. That is a vague answer. Legal action should be taken against them, but Rex couldn't do it. This was unethical.
Illegal Strategic Alliance:
The Red Dragon Enterprise was not following the legal way of doing business in China. As there was no legal contract and proper licence from the governmental commission, he venture could be stopped by government at any stage. This might result in business closure or punishment to the owners.
Lack of Commitment:
In Chinese culture, commitment is something to be retained only in relations. Businesses are not bounded by any legalized agreement. This is what done in Red Dragon Enterprises. Tsang didn't sign any formal contract. As a result he hired persons of his choice and this ended up in stock theft. To go in a venture without any legal contract is purely unethical in terms of global business ethics.
g.).If you were Rex, how could you overcome these issues? Explain what type of control mechanism you could develop to implement Red Dragon Enterprise's corporate strategies and plans.
If I will be standing at the place of Rex, and I have to come up with the solution of these problems, then my strategy will be a formalized and according to the law and order. I will start the business from scratch. The money which was being invested previously is almost lost. To secure my future investment, I will work on several issues.
Firstly, I will do the market research regarding the local Chinese partner. This research will include the study of foreign firms currently operating in china under alliances or ventures. I will find their mode of action.
Once, done with selecting local partner, the next step will be development of a formal, legal agreement, covering all the points regarding investments, managerial roles, and profit/loss aspects. The next stage will be approval from the governmental commission. Once the venture will be officially approved by government, it becomes safe and there will be no room for the illegitimate action.
After this, the final measure will be producing products of high quality and standard. To retain check and balance, everything will be organized and in order. The emphasis will be on TQM (Total Quality Management) within the organization. Some other techniques which I will emphasize are:
Avoidance of conflict between parties.
Incorporation of Management Information System (MIS) to keep the record of inventory, sales and revenue.
These were certain issues which Rex didn't follow in the joint venture. By keeping in view these strategies I will be able to reap the profits of my investment in the strategic alliance. The other option is in case when there is no further investment. In that case, I will go back to Taiwan and wind up my business from China.