ADDITIONAL READING

SANLU

• Fonterra linked to milk powder scandal

• Chinese Milk Powder Linked to Deaths

• Possible Cover Up

• Fonterra says Sorry

• Bankruptcy

• Two Sentenced to Death

SANLU CASE

• Sanlu Dairy Corporation (a Chinese company that produced Baby Formula) learned that its product (the baby formula) contained a chemical deadly to humans. Sanlu received its milk from a New Zealand company Fonterra. Concerned about its own liability and New Zealand’s health and safety laws, Fonterra immediately insisted that Sanlu remove the milk from the shelves.

• Initially the board of directors at Sanlu agreed, concerned that children might die if the product was not recalled. However, Sanlu was located in the city of Shijiazhuang, in the Hebei province. 2008 was the time of the Beijing Olympics, and many government officials were concerned about presenting the best appearance to the many foreigners currently focused on China. Shijiazhuang’s officials were no different.

SANLU CONT.

• The problem was that these officials decided to place more importance upon their reputation than they did on children’s lives. They insisted that Sanlu cover up the problem, at least until after the games.

• Children died, and the situation became very bad. When the Beijing government officials learned about what had happened, the chairman of Sanlu’s board of directors went to prison for life. The city mayor and lower officials were fired. Beijing replaced the Party officials within the city.

TROUBLE IN THE MIDDLE

• Sanlu is an example of “Trouble in the Middle” – problems where two cultures, authorities, or rules clash in business.

• In the Sanlu Case, the problem arose when the two companies were caught between their moral responsibility to the children, New Zealand’s safety laws, China’s Safety laws, and the commands of the local government officials. Basically, they got caught in the middle between a lot of competing forces telling them what to do.

WHAT’S THE PROBLEM?• International companies working together are often caught in the

middle between the two countries’ laws and cultures. Since these businesses usually meet on equal grounds, it is frequently unclear who is the ultimate authority, what law or culture should control their interactions?

• EXAMPLES:• An American Lumber/Wood Company wants to sell wood to a

Chinese Furniture Company. America’s business culture and laws are different from China’s. Which law or culture should the companies use as the rule?• In the Sanlu Case, the New Zealand company had no reason to

listen to the local Chinese officials. Conversely, Sanlu had no reason to care about New Zealand’s health and safety laws.

CULTURAL MIDDLE

•This middle ground, where the foreign cultures and laws clash is known as the “cultural middle.” This is “the emotional and intellectual space between two cultures, where negotiation, compromise, miscommunication, and conflict take place.” (page 6).

MIDDLE-MEN

•Within this middle ground work the “middle-men” – third parties who go inbetween the American Business and the Chinese Business. They are the negotiators, mediators, translators, go-betweens, secretaries, advisers, arbitrators. A lot of you will work in this middle ground! Your strengths lie in the fact that you have American Degrees, but Chinese Business knowledge. You can help companies meet in the middle.

MIDDLE-MAN• The middle-man is responsible for making sure the

foreign cultures understand one another, or at least can work together. • The concept is that no one country’s culture will come

first. However, this usually means that the companies are kept apart by the middle-man. The middle-man works behind the scenes to ensure that everything works out regardless of cultural rules. A common method of resolving the cultural differences is for the middle-man to buy the products from one company based on a certain set of rules, and the re-sell it to another company based on their own set of rules.

• EXAMPLE:• America has very strictly enforced laws against bribery,

but the Chinese company must bribe import officials to get the product into the country. So the middle-man comes along, and buys the product cleanly from the American Company, who consider their part of the contract finished. The middle-man then sells it to the Chinese company who goes on to bribe the officials, and the whole thing is done. The American company can pretend that its hands are clean of bribery and the Chinese company can still pay off the officials. Supposedly, everyone is happy.

•Basically, “The middleman is a moral broker of sorts who enables two business cultures with incompatible ethical and legal commitments and constraints to do business together.” (Page 8).

TRUST BASED BUSINESS

• There are two kinds of businesses that are based on trust— page 9• “large, autonomous organizations based on society-wide,

generalized trust—US”• Bigger• Capable of complex divisions of labor

• “family-dominated organizations, limited in size because trust is limited to family members.”• Smaller• Flexible

DEVELOPING TRUST

• The key to developing trust between people or companies is “shared values.” (page 10). How much the people or companies have in common will impact how well or how easily they work together. •Generalized Trust: Generalized Trust is where most of the local society trusts the company.

TRUST RELATIONSHIPS

•high trust relationships and low trust relationships

HIGH TRUST:

• self-controlled, self-disciplined, and self-evaluated• bosses lay out the rules they expect employees to follow, the employees more or less supervise their own work based on a known set of consequences for bad behavior• Strong Employee Unity•more flexible. . . more adaptive, innovative, and accepting of change

LOW TRUST• strictly controlled--Common words are “control,”

“monitor,” “hover over,” and “check-up.• employees are competitors for job positions• emphasis on ranking and external performance

evaluation• a very strong owner or controller (for example state-run

companies), lot of rules, regulations, procedures. The rules are very strict – do your job and nothing else. • entrepreneurial, hard-working, easy to set up and take

down, flexible, and highly adaptive to changing circumstances• difficult to maintain and manage, since this level of

control require massive numbers of people, time, and money

DIFFERENCES IN CULTURE

• America grew out of Greco-Western Societies and Culture, which focused on the individual identity, freedoms, and personal or individual agency. China comes from a long tradition of focusing on social harmony and defining yourself in terms of others.

• America deals in Agency Theory – “The Individual is an autonomous actor and liable to conflicting interests with other actors.” (Page 13). In other words, what is good for me may not be good for you; I am more likely to care about what is good for me than what is good for you. The Chinese seem to think in terms of people as part of society – am I or my company useful our community?

• The Chinese are a little more sensitive to the complexities in a situation – they are very sensitive to the many different things contributing to any given situation (relationships, liability, competing interests. Americans focus on their own goals, ignoring a lot of the complexities of the situation. The Chinese are more aware to the potential dangers because they are aware of what is going on around them, the Americans are more directed and controlled because they are focused.

•Americans are more abstract (what might we accomplish, what kind of dreams do we have--). The Chinese are more Concrete (what will actually happen, what is the real world like?)

• The Chinese do not differentiate between what is true and what is good. Americans make a big deal out of the difference between objectivity and judgments based on values. Americans emphasize the fact that what is true may not be what is good. (Example, it doesn’t matter if reality shows that most businesses bribe each other. That doesn’t mean it is good). The Chinese business people are more concerned with what is reasonable than what is precisely right. “The Chinese tend to favor typicality, plausibility, and desirability over logical analysis.”

• The Chinese, focusing on society as a whole, tend to emphasize the individual’s duties to the group rather than Americans who focus on the individual’s rights. The Chinese tend to believe that “rights” are a concept belonging to the community, so they emphasize moral virtues or individual’s behavior that is good for society.

• Americans have very strict principles, wrong is ALWAYS wrong. For example, it is NEVER right to lie. Chinese are very context-oriented. Wrong depends on the situation. As part of this, Americans apply their moral rule very generally – it is not alright to lie to anyone. As opposed to the Chinese who are more concerned with being honest within their own society than with being honest to foreigners. An example is that Americans will not raise the price on an item when foreigners come to town. The Chinese will often charge foreigners a much higher unfair price. The problem is that what Americans see as dishonesty, the Chinese see as giving locals or friends a better price – something any good friend would do.

• Americans tend to think in terms of “universal principles of justice” – winners and losers. (page 15). We don’t think in terms of compromise when it comes to right and wrong. The Chinese on the other hand, upholding the ideas of practicality and making things work for society, are very interested in hostility reduction or compromise. They value peace and harmony over individual rights or abstract principles. This is where that middle-man comes in. He supposedly allows the Americans to uphold their high morals while the Chinese can find a practical compromise that lets things work.

•Americans don’t do “case-by-case” basis. Fairness or equality is very important to them. They prefer standards and rules. The Chinese think of this as rigid and inflexible, remembering that no situation is ever exactly the same.

CONCLUSION

•When two different business cultures attempt to work together they need something to agree upon, something that brings them together. Without it, the relationship will be difficult to maintain. America and China are drastically different, they even think about life a little differently. This means that is sometimes very hard to bring them together.

WHAT KIND OF COMPANIES DOES SOCIETY TRUST?