A Rare Success in China - the Celanese Joint Venture

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Disclaimer: It is against the The Negotiation Experts' principles to offer its services to the tobacco industry. The Celanese case study has been reproduced for the purposes of study only, and is in no way a condonement of the damage the tobacco is causing. Overview

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 had 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 was a China hand, 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 fifty 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...
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