Red Star in China• Among Asia’s largest shipbrokers• Headquartered in Singapore• Provided ship brokerage services for petroleum, chemicals, vegetable oils and dry cargo.• Had long-term business relationships including 1000 ship owners and charters• Red Star China had been established in 1995• Became one of the largest liquid chemical products shipping service providers in China• Intends to maximize its benefits from China’s booming economy.
Nanjing ZP Chemical Company(NCC)• Formed in 1998• 50-50 joint venture between Germany’s ZP corporation and China United Chemical Limited• Begin China operations in 2005• Would be the largest producer of liquid chemical products in China• Would require the services of a shipping company to handle its exports : SSK Shipping company or Red Star China would be the option
Chinese Culture : Guanxi• Reciprocal flow of transactions and benefits between two parties• Building guanxi was a time consuming and long term investment of emotion, energy and financial resources• Insiders : family members, classmates, fellow villagers faithful• Outsiders : “meat and potatoes” relationships not so faithful
Howard’s Guanxi• The master of building Guanxi• Believes in transforming an outsider into an insider• Acc to him, it was not connection but a special kind of relationship based on : trust, reciprocity, common interests, mutual obligations.• Had developed guanxi with about 70 domestic ship owners and 35 charters over the years
Why Red Star needs NCC contract• To ensure Red Star China’s long–term success• To strengthen their position in Jiangsu province’s liquid chemical transportation market• If SSK takes the contract, the customers of Red Star would be attracted to SSK due to their success• If Howard failed, he would lose face among his colleagues and customers
Timeline of Howard’s activites• Took three months of careful investigation to identify the key person in NCC• Pan Weidong, NCC’s logistics director was the one• He belonged from South China and was a Communist Party member• Spent most of his time on his thesis called ‘Chemical logistics in China’
• Howard first met Pan at Pan’s executiuve MBA reunion party through a common friend.• Met Mr. Zhang;one of Pan’s subordinates-to gain inside information about Pan• Tried to establish guanxi with Pan on several occassions-attended his conferences, hosted his wife Lin etc• Faced a dilemma of whether or not to give Pan a “big gift”• In a twist of events Pan suddenly got transferred to one of NCC’s smaller factories outside Nanjing• New German expatriate from ZP,Hans Hol appointed as the new logistics director
Howard’s choices• To stick with Pan-continue investing in building guanxi with him• To build guanxi with Hans Hol,the new logistics director• To find another Chinese official for building guanxi
Option1• Not sure whether Pan will return or not• Risky• All the expense and effort on Pan will be wasted if he does not return ?• Maintain the relationship with Pan at a lower note – might be helpful if in case he returns.
Option 2• Germans believe in “business is business”• Less likely to trade friendship for business• The guanxi might get misinterpreted• Try impressing and getting in touch with Hans
Option 3• Since it took one year to impress Pan, it may also take another year to find another Chinese official• Higher Official (above Hans in hierarchy)if found, would be better : to minimize transfer case• Zhang’s support may help in finding the same. And also extra time would not be spent in finding a contact at NCC (Zhang already present)