HBR CASE STUDY
by Katherine Xin and Vladimir Pucik
The Zhong-Llan Knitting Company joint venture in China is one of the region's shining success stories. So why is generai manager Mike Gravesthinking about pulling the plug on it?
ROM Mike Graves's tall windows, which were draped in red veivet, the view of Shanghai was spectacular: the stately old Western-style buildings, the riot of modem skyscrapers, the familiar needle of the TV tower. But today Mike barely noticed it. Clenching a copy of his Chinese partner's proposal for another acquisition - it would be the company's fourth - he paced the floor and replayed in his mind that morning's unsettling phone call.
He had called his boss. Bill Windier, at headquarters in Ohio, hoping to get a nice quote to inject into the brief remarks he was to make at that day's banquet celebrating the joint venture's tenth anniversary. But as he gave Windier a quick rundown of what he intended to say - mostly about the joint venture's progress toward "world-class quality"Mike could sense his boss's growing frustration. Aboutfiveminutes into the call. Windier cut Mike off in midsentence.
saying,"Don't throw your shoulder out patting yourself on the back." Windier reminded Mike about the margins he was looking for across all of Heartland Spindle's businesses. "A 4% ROI is pathetic," Windier said. "We've been in there ten years, Mike. The numbers shouid look better by now." He said he was looking for a 20% ROI, adding that such a number could surely be achieved through greater efficiency and more automation. And in Windler's view, the company had at least 1,200 employees too many. "That needs to be fixed, fast," he said. Mike knew his boss wouldn't take no for an answer, but he had also learned that his Chinese partners would never agree to drastic moves such as the layoffs suggested by Windier. It was beginning to look as though the five good years he had spent here as general manager might be destined to come to a pairrful end. Mike couldn't help but
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wonder if those harsh v^ords from Ohio were a warning that his contract might not be renewed in six months. Then, to top things off, just as Mike had extricated himself from the phone conversation, this latest acquisition proposal had arrived from deputy general manager Qinlin Li. The top executive on the Chinese side of the joint venture, Qinlin had been with the JV since its inception. As before, there would be almost irresistible pressure to go along with the deal. The Chinese side would make it clear yet again that the delicate partnership depended on Mike's support for continuous expansion and protection of jobs. The timing couldn't have been worse: The last thing Windier would want was more growth initiatives eating into the profits. A knock on the heavy teak door snapped him out of his musings. Feng Chen, Mike's assistant and translator, informed him that his car was waiting.
nior executives, Qinlln's immediate subordinates, stood up and nodded their greetings. There was a burst of excited applause, and cameras flashed. Qinlin was accompanying three important government officials into the room. They approached Mike's table and politely bickered for several minutes over who should enjoy the most prominent seat at the table, as required by Chinese custom. At last, the eldest and most highly placed official accepted the seat of honor. Qinlin stepped up to the podium, above which hung a huge Chinese knot of red silk, the symbol of cooperation. There was an expectant hush as he tapped the microphone. "Ladies and gentlemen" Qinlin began,"thank you for joining me to celebrate the tenth anniversary of Zhong-Lian Knitting Company Limited. Those who were vwith the company at the beginning remember the hardships...
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