Winter 1997 - Volume 2, No. 3
Negotiating with the Chinese: The Experience of Jensen's Incorporated
Jensen's Incorporated, located in Shelbyville since 1954, manufactures colored and graphite pencil cores (commonly referred to as pencil "lead," though the cores actually contain no lead), refill cartridges and ink for pens, and several cosmetic products It currently employs between 90 and 100 workers. Jensen's exports of pen and pencil components have largely been limited to Central and South America.
In the fall of 1987, Jensen's was contacted by a New York based trading company proposing a meeting with a group from Tianjin, China regarding a joint venture or a transfer of writing ink technology. The trading company sent a delegation consisting of Chinese government officials, technicians, and interpreters to Shelbyville to meet with the company. The delegation. After a year of consideration, the delegation decided to pursue a contract with Jensen's. It took an additional year for the contract to be negotiated and signed. The terms of the final contract were for the purchase of ink formulations, and the associated technology, production and testing equipment, production information, and raw material acquisition information, along with everything that would be needed to produce these inks in China for domestic use only.
A second Chinese delegation then came to Shelbyville to receive training. At that time, the first hint of future problems emerged. The visiting delegation, composed of technical people, professed to speak no English. However, one night, the delegation decided to go out for pizza and beer. While the Chinese enjoyed the pizza, they really liked the beer and, after dowing about seven pitchers, some of the delegation began speaking English and very well.
On the American side, Leroy Keele, vice president of the Pen and Ink Division of Jensen's Incorporated, twice went to the Tianjin Ball Point Factory twice in 1989 to set up the equipment and the production process. Pilot batches were manufactured and tested to ensure the production process was producing ink that was in compliance with the specifications of the contract.
It's Not Over Til It's Over
Up to this point, the Chinese group had paid 90% of the contract price. The other 10% was to be paid following a formal acceptance by the management group of the Tianjin Ball Point Factory. However, getting this acceptance proved to be difficult. First, the management group began asking for additional things not specified in the contract (such as daylight florescent highlighters and design software). Initially, Mr. Keele tried to accomodate some of these requests. But as the requests continued, he explained that these additional requests were beyond the terms of the original contract, which had been met.
During this period, two tactics were used by the management group to try and secure additional items not specified in the contract. The first involved toasting. Many of the discussions to secure additional items were convened around a meal, and at each of these meals there were several rounds of toasts. The consumption of gin during these meals was high. After meeting with the management group for these eight to ten hour conferences, Mr. Keele would return to his hotel room and perform math exercises that would indicate his reasoning state during these discussions. Then, the next morning, he would check these figures to make sure his reasoning abilities had not been impaired by the gin!
The second tactic was intimidation, in the form of shouting, ridiculing, and stalling, during the long meetings. Over a period of weeks, this intimidation began to take its toll on Mr. Keele, and he began to doubt that Jensen's would ever receive the final 10% payment.
Finally, he told the management group that he was returning to the U.S. with or without a signed acceptance and the final payment. When the group realized they would not be able to secure any more additional items, they arranged a date for the signing ceremony. Many dignitaries from Beijing were invited to the ceremony and it was to be a very festive occassion.
Lost in the Translation
When the time came to the formal signing, Mr. Keele discovered that the document was written only in Chinese and he refused to sign. He stated that he would sign the document only if it was translated and typed into English, and proved to be acceptable. The only way this could be done quickly enough was for two translators to work their way through the document while Mr. Keele wrote it out by hand. It turned out that the resulting document included all the additional requests that had been made in the weeks preceding the signing ceremony! Mr. Keele thus refused to sign.
Calling off the ceremony would be a major humiliation to the management group. To avoid this, they asked Mr. Keele if there was anything that could be added to the contract that would make it acceptable enough for him to sign, allowing the ceremony to go forward. After thinking it over, Mr. Keele said if he could add one paragraph he would sign. It read: "All of the above is subject to the approval of the Board of Directors of Jensen's Incorporated." The trading company's people convinced the Chinese officials this was a standard paragraph in Western contracts, and everyone finally signed.
Almost Before the Ink Dried
The story ends with a whimper. After Mr. Keele left Tianjin, the plant continued to manufacture product from the original store of raw materials. Yet only four months later, after the raw materials were exhausted and the managers were unable to secure more, the manufacturing compound apparently shut down. There was to be no long term relationship. Jensen's had made a good contract, and had profited in the deal, but in the process they had learned that international business negotiations are tough, time-consuming, and not for the overly trusting or ill-prepared.
Project International Case Studies
Project International, the internationalization of the MTSU College of Business programs and activities, has produced and compiled a series of case-studies on the experiences of Tennessee's businesses as they "go global." The cases, authored by professors in the College of Business, provide MTSU students the opportunity to learn from real-life Tennessee examples and to gain a more practical understanding of global business. In this issue we present an adbridged version of Professor Jon Woodruff's examination of Jensen Incorporated's experience negotiating a joint venture with Chinese business people. Given that many discussions of the growing Chinese market focus upon joint ventures opportunities, Professor Woodruff's case usefully highlights both the benefits and problems of forming such agreements with the Chinese.
Project International is supported by a grant from the U.S. Department of Education
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