Module 4 – Background

| September 26, 2015





It probably goes without saying that litigation is likely the more expensive and the most time consuming. Lawyers have a knack for tying up a case in a tangle of legal knots for years. The outcome is often uncertain and the resulting benefits can be nebulous at best.


Arbitration, as it turns out, may not be that much more productive than litigation, as this dispute resolution process can also be costly and time consuming for the participants. However, the effect and influence of arbitrators can vary quite significantly between countries and cultures. In some countries, arbitrators may be inclined to impose a settlement on the parties in dispute, and in other countries they may be inclined to facilitate a more amicable agreement. Arbitration may be a more proactive venue than litigation. One thing is clear about a dispute in a joint venture partnership though: there is little hope that the relationship between the partners will likely survive either process.


Often, many companies will resort to either litigation or arbitration first. This may be a mistake.


This brings us to mediation. Mediation is the least-used process to resolve disputes. So, what are the similarities and the differences? First, a mediator is chosen by both parties, and will bring their own applicable expertise to the dispute process, as well as an understanding of the basis of the dispute. More importantly, mediators are both neutral and objective. The mediator will use the resources of both parties to help both parties resolve their conflict. In other words, a mediator, more than anyone else, can help mend a contractual dispute and save a relationship. Let’s look at an example.


In Italy, a company called Nuovo Pignone, which manufactured heavy equipment, was being sued by an insurance company to recoup a claim they paid out to one of NP’s customers. The customer had lost business when some of the equipment it had purchased from NP failed in a contract job. NP suggested they use a mediator. Both the insurance company and the customer who had sustained the loss agreed. A retired Italian judge was called in to mediate. The judge focused on settlement as his objective in the dispute.


By taking this approach, the parties were able to more realistically gauge each other’s strengths and weaknesses. The customer was persuaded to put pressure on the insurance company as he was still a valued customer of both parties despite his dispute with NP. As a result, the insurance company was persuaded to settle for a reasonable and acceptable amount of money. In the end, all parties were satisfied through the mediator’s efforts and the business relationship between the parties was successfully maintained.


A mediator can more readily help the parties shape or restructure their agreements and is thereby more likely to also preserve a profitable ongoing relationship than would have been achieved through either litigation or arbitration. When faced with a dispute, consider the available mediation services before resorting to litigation.


Source:,  Retrieved November 27, 2012.




Overcome problems before they occur with your foreign partner so that both parties succeed in their business objectives.


Any solid relationship should begin with a period of introduction or courtship. It’s the same when we enter into the initial stages of a global negotiation venture with a prospective foreign nation business partner. We need to know something about their culture, and the company’s background, structure, and goals. Likewise, they will want to know the same about us. If we do not have the expertise to investigate a prospective partner, it might be wise to hire an experienced consultant or professional third party to investigate and initiate introductions.


The time and money spent before the negotiation courtship even begins is well spent. We need to prepare the groundwork to lessen the possibility of unnecessary expenses being incurred later on.


Here are 6 tips to effectively enhance pre-negotiation time and help you think ahead about what will transpire during the negotiation and what might happen after the contract is signed.


1) The negotiation never really ends


Never stop conversing, even after the contract is signed. There are very few seers who can accurately predict the future while gazing into their crystal ball. Nothing remains static –everything is constantly in a state of change. Prices rise and fall, and governments with different ideologies come and go on an almost weekly basis, like a game of global dominoes. Let’s not even try to guess what the weather is going to do tomorrow.


If we’re naive enough to think we can toss the contract into the filing cabinet, put our feet up and allow ourselves a nice little snooze, think again. Put the coffee back on and stay vigilant. Be prepared to renegotiate on a whole host of potential problems. Most of them will be small, annoying problems that will spring up here and there along the way throughout the life of the partnership. Don’t ignore them. Deal with them immediately, or risk the dire consequences of putting the negotiated relationship on rocky footing.


Because there is so much instability and uncertainty out there, it would be prudent to make certain that one of the key clauses in the contract specifically ensures that both parties revisit it periodically. By controlling the process in the early stages, we can prevent our arrangement from spinning wildly out of control later on. Keep the dialogue rolling and prevent needless problems from festering due to lack of attention.


2) What do we do when we still can’t agree?


As in many relationships, sometimes the only thing that people can agree on is the fact that they disagree. It’s like being snookered or getting caught behind the eight ball. Neither position is particularly desirable, and if not addressed early on, both sides can end up feeling dissatisfied. We may not necessarily be thinking objectively, and if both parties become ensnared in the mesh of their own self-serving interests, their problem-solving is not likely to be very productive.


To guide us through what may otherwise be an unseen minefield of potential disasters, we might be well-advised to use the expertise of third parties to mediate our disputes. There are several possibilities to choose from. Our own senior management could negotiate the minor disputes at an operational level, or we could use the professional services of legal advisers, specialized consultants, or a neutral third-party mediator to help resolve the issue.


A detailed dispute mechanism must be visibly in place if we want our operations to run smoothly. If the operation shuts down because we didn’t bother to put an effective dispute resolution in the contract, and the CEO roars, ‘Heads will roll for this!’, you can guess whose neck is going to be on the block.


3) Keep talking


Before we sign on the dotted line, we need to give thought to what a successful and durable relationship really entails. It means that the lines of communication have to be kept open. This does not mean just picking up the phone or sending an occasional email. A relationship means that we have to sit down in the same room and talk face-to-face, perhaps ‘breaking bread’ together. Communication at many different levels is the only way to keep the relationship both productive and vibrant. By agreeing to meet regularly to keep the lines of communication open, we can prevent many hurdles from tripping us up in the future.


4) Do it the right way


Anyone who has participated in a joint relationship based on negotiation will tell you that we always need to go back to basics. Whether our agreement is in the domestic market or the international marketplace, we need to go beyond the simple scope of our limitations and understand the real motivating factors that support our positions. Remember, the main question we must try to answer is not ‘What do they want?’ but ‘Why do they want it?’.


Now, you’re probably asking why. The reason is simple but not necessarily obvious. We might be able to reach an agreement based on our relative positions, only to find out later that the other party’s real goals and, as a consequence, our own, are actually in direct conflict with each other.


5) Who are they – really?


Each company has its own unique structure and way of doing things. It’s common for many small companies to be family owned, but many medium- and large-sized companies also exist. Each company has its own individual subculture, and depending on the business philosophy of the owners, this can present a wide range of possible business outlooks and differing organizational perspectives. One company can be very informal, while another might be very structured or even bureaucratic and formal in how it conducts business or interacts with its personnel.


It would be very helpful to understand your prospective partner’s approach to business and how they function internally. Similarly, it’s equally sensible to let them know how your own company works. For example, a larger corporation may have to make a decision by going through several layers of management and departments, while their medium-sized overseas partner might simply have to refer the matter to the company president, who has the ability to make a decision on the spot. We can alleviate a lot of frustration and potential misunderstanding by knowing how our partner operates.


6) Understand how the deal will be put in place


Every partnership will require numerous and demanding decisions to be made on both sides of the international equation on an ongoing basis, despite all the exhaustive efforts that initially went into drawing up the contract. Remember that the contract is only a part of the process, and our interaction goes far beyond the contractual bonds. A contract cannot foresee all eventualities and possibilities; so, if an issue that is not covered in the contract arises as the parties work out the minor technical clauses, both parties should agree on how they will deal with this. It all boils down to building a solid base to keep the communication lines open.




The explosion in international business ventures dramatically illustrates the challenges we face as a result of our many differences. It is imperative that we learn how to do things the right way, as our international partners are just as eager as we are to make our respective businesses grow. Language, however, is not the only barrier we need to overcome. We must also learn the many other facets that lie behind the complex social and cultural fibres of our prospective international business partners. Preparation is vital in laying a solid business foundation. We would not want a contractor to skimp on a house they are building for us, nor must we do so when constructing an international business agreement. Always be thinking further down the line.


Source: Jeswald W. Salacuse, ‘The Global Negotiator’, Palgrave MacMillan (2003). Retrieved from Trident library.


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Module 4 – Case




Assignment Overview




A Rare Success in China – The Celanese Joint Venture


The present case study focuses on the topic of international negotiations, but please note that mediation plays a role in the creation of the joint venture in question.  One of the most closely studied Chinese joint ventures is that involving Celanese Corporation of the United States, a producer of value-added industrial chemicals, and China National Tobacco Corporation (CNTC). The venture produces tow, the fluffy synthetic fiber in cigarette filters.


In 1982, when CNTC decided to increase its production of filter cigarettes, it was on the lookout for international suppliers. Since all tow providers refused to sell their technology to China, CNTC approached Celanese, a highly regarded tow producer, with a view to setting up a joint venture. Celanese declined the offer after two years of arm’s-length, long-distance discussions through its Chinese agent, London Export Company (LEC), which was well regarded in China. Celanese believed that the joint venture would destabilize the international market and adversely affect its cash flow.


In early 1984, LEC reviewed the negotiations and found there might be greater mutual benefit than had at first appeared. A senior LEC executive asked Celanese for permission to continue mediating the joint-venture proposal and, by mid-year, he had persuaded both parties of the potential joint-venture benefits. As a result, CNTC promptly made Celanese the preferred supplier of tow, even before the joint-venture plant was finished; classified the output of the new plant as import substitution, so that foreign exchange would be conserved and CNTC would not need to buy tow abroad; and would share top management decisions fifty-fifty.


First Steps


Next came face-to-face negotiations, discussions, and communications between the parties. Differences in formal communication almost stalled these discussions before they got off the ground, with suspicion arising over the language used and the legal requirements put forward. Some of the main issues were:


  • The Chinese insisted on a holistic approach, asking the U.S. team to agree to a macro-concept for the new venture, with details to be agreed to later. Meanwhile, the U.S. party insisted that they would only regard the overall venture as generally agreed to after agreement on each component of the new venture had been reached.
  • The Chinese insisted on the prior development of friendship and harmony, while the U.S. negotiators were blunt in their demands for openness and frankness about differences.
  • The Chinese opposed the U.S. Company’s proposal that lawyers be brought into the discussions.


LEC, which was respected by both parties and brought expertise about China helped resolve the problems and develop an atmosphere of trust, so that basic agreement was eventually reached.


Stage Two


The second stage, comprehensive planning, cost $1 million, took two years to complete, and involved the translation of the basic agreement into a new plant and business organization.


It had been agreed in early talks that Chinese regulations on technology transfers, feasibility studies, and joint ventures were not well suited to the new enterprise, so much time was spent anticipating problems related to the design and construction of the plant, its general management, human resources policies and practices, purchasing, finance, and accounting. As a result, specific plans were drawn up by U.S. and Chinese teams, with some 50 experts involved at any one time.


Cultural problems were not lacking, and included the difficulty the Chinese encountered when their Celanese colleagues argued with them or expressed differences of opinion. As one senior Chinese manager said: “I had to learn that someone could argue with me and still be my friend.” Cross-culturally sophisticated LEC personnel mediated for both sides on a number of troublesome issues.


Stage Three


The third stage involved construction of the plant, in the city of Nantong, Jiangsu province. New cultural difficulties arose daily, as Chinese practices collided with Western performance imperatives. Celanese employees noted:


  • Crews of Chinese subcontractors would disappear for days at a time, leaving work unfinished.
  • In work units supervised by foreigners, the Chinese observed workloads; but in those supervised by Chinese, the workloads were usually reduced and additional employees hired.
  • Many employees appeared indifferent to the satisfactory completion of the project.
  • The Celanese habit of flagging errors or shortcomings was taken by many Chinese as a personal affront—compounded by the indignity of seemingly being “talked down to.”


The Nantong factory was completed in 1989, when the joint venture went into operation, with a mixture of Chinese and U.S. managers and staff. Most of the Chinese managers appointed to the new enterprise saw themselves as loyal to CNTC, and their allegiance to the new venture was initially fragile. The Chinese managers discussed problems with their seniors at CNTC, rather than with their U.S. venture colleagues. Neither side could identify with the new entity at first.  Also, managers held meetings in their native tongue, which upset those on the other side.


But overall, a long-term perspective was taken regarding the factory, where training was provided to enable employees to carry out prescribed operations.


At the same time, Celanese managers, believing that the performance of local suppliers had to be upgraded, spent much of their time helping suppliers improve deliveries. William Newman (1992, 72) points out: “Chinese plants … are accustomed to loose standards. Erratic delivery times are common with last-minute flurries of action to meet emergencies.”  (though things have changed in past decades)


By 1992, the Nantong plant was meeting corporate goals and becoming profitable, and so it was expanded; and in 1994, the production of acetate flake (the raw material for tow) was added. Then two additional manufacturing sites for acetate tow, each a separate joint venture with CNTC, were built and started up in 1995—one in Zhuhai, Guangdong province, and one in Kunming, Yunnan province.


Efforts Bear Results


Looking back, Celanese says its joint-venture agreements reflect the learning and the changes that occurred in the wake of the original Nantong joint venture. In 2002, the flake facility in Nantong was expanded to provide flake to Zhuhai and Kunming. A senior Celanese manager said that the performance of the Celanese joint ventures in China had exceeded original investment expectations.


There are few joint ventures in China that have been as successful and learned so much from their own experiences. At the same time, the Chinese laws and regulations affecting joint ventures have seen tremendous changes since 1989, making it easier to do business in China.


In May 2001, after ten years of increasingly successful operations, the two partners announced they had “formed joint work teams to complete a feasibility study on an expansion of their joint venture to produce diacetate tow cigarette filters in China” (Chemical Market Reporter, May 21, 2001).


This coincided with the Celanese plan to phase out its Rock Hill, South Carolina, plant by the end of the first quarter of 2002. It is to be assumed that Celanese and CNTC will be more professional this time around in planning their joint venture, particularly since China is a growing contributor to the bottom line.


Celanese is now firmly established as a profitable corporate citizen in China, but cross-cultural learning and problems remain part of joint-venture life. A senior Celanese manager commented:


“My wife and I lived in Nantong from June 1997 until March 2000. We found the Chinese people, regardless of their personal circumstances or status, to be extremely friendly and supportive. One very unexpected aspect of life in China is the way we felt completely safe and secure, more so than in any place we have lived, including in the United States.


Close friendships are developed between expatriates and people in every walk of life, including government officials. The only observation I would make here is that it probably takes longer and more effort to cultivate friendships at higher levels, and this usually requires a peer relationship.


As I expected, I saw that there was a big variation in how well expatriates respected and adjusted to the culture. Those who tried to have things work the way they did back home became frustrated, and the Chinese quietly resented their attitudes. Likewise, some Chinese had no desire or ability to learn and adopt modern business and management ideas, and they became frustrated and were resented by the expatriates.”


In such cases, the performance of the venture was affected, so the Chinese and Celanese directors ended up looking for ways to resolve the issues, which usually meant moving someone out of the joint venture. Over time, this has made the directors much more careful in the management selection process.”




This case illustrates how vital it is that a very long-term view be taken when planning one’s objectives, to ensure that every debatable issue—often resting on widely divergent cultural values and practices—is thrashed out among the parties concerned. We believe that the Celanese approach could not have been bettered. Both parties handled problems as they arose, choosing not to adopt stereotypical formats. Meanwhile, LEC’s role as long-term mediator easily qualifies as the No. 1 point to note and mull over in this case.


Source: Dr. Bob March’s book The Chinese Negotiator.


Assignment Instructions


Turn in a 3-page paper (page count does not include cover or reference list) addressing the following questions:


1.    In 1982, why did CNTC approach Celanese and start the negotiation? What was the reaction of Celanese at that time?


2.    Discuss the importance of mediation attempts on the part of LEC with respect to contributing to the success of this joint venture?


3.    What were the key culture-shocks during the negotiation?


4.    Can you list more based on your experience with eastern (or other foreign) cultures?


5.    In your opinion, how should we deal with cultural conflicts in international negotiation?


Assignment Expectations


1.    Answer questions with clarity.


2.    Show depth and breadth to enhance the quality of your paper.


3.    Search in our library to find some papers/articles to support your argument and show them in the reference list.


Turn in your at least two page answers by the module due date.

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Category: Government

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