One Billion Customers - James McGregor [48]
What This Means for You
We’ve just watched a promising marriage between Wall Street royalty and the Chinese Communist aristocracy turn into one of the most dysfunctional, troubled, and controversial joint ventures in the history of modern China. And, by dint of its monopoly, one of the most financially successful.
CICC’s troubles were the result of clashing cultures. Neither side understood the other and neither side made much of an attempt to solve that problem. Had Austin Koenen lived, perhaps things would have turned out differently. But what happened to CICC is all too common among joint ventures between outsiders and the Chinese.
The partners made every textbook mistake. From the first day, they had dramatically different visions for CICC. Jack Wadsworth saw Morgan Stanley sitting in the catbird seat of a booming Chinese economy, capturing deals right and left and making millions of dollars in fees. He was firmly convinced that Morgan Stanley had a very good chance of making CICC a subsidiary. Wang Qishan dreamed of building CICC into a Chinese investment bank with global offices, one that could compete with the best in the business, including Morgan Stanley. Such ludicrously divergent visions are a common malady among joint ventures between the Chinese and foreigners. An ancient Chinese proverb captures it perfectly: Tong Chuang Yi Meng. It means, “Two people sleeping in the same bed but having different dreams.”
As this story illustrates, the partners in joint ventures—especially when the Chinese partner is a government entity—all too often exhaust themselves in internal politics instead of focusing on the business. Jack Wadsworth confronted that when putting together CICC. He also felt huge competitive pressures as the world’s major investment banks came sniffing around China looking for market entry. Wadsworth told me the contract that took so long to negotiate was put in a drawer almost as soon as it was signed and never referred to again. That is common, too. China is not the legalistic society that typifies the West. If the Chinese want to do something, they find a way to skirt rules or laws. Still, Morgan Stanley didn’t pay enough attention to the day-to-day trivialities that could have smoothed the joint venture’s way. Only when Elaine La Roche became CEO did she try to remedy the lack of such simple provisions as an organizational structure, risk management systems, internal controls, and training programs. Granted, it would have been a lot to ask of Wadsworth amid the fever to be the first investment bank into China, but anyone who doesn’t pay attention to such seeming trivialities when negotiating a joint venture in China today may as well stay home and give the money to charity.
Working out those details can help create relationships and establish a problem-solving mind-set among the partners. That is the purpose of contract negotiations in China. It is the relationships that develop between the negotiators that ultimately hold the venture together. Let your lawyers be the bad guys, raising the possibilities of what can go wrong and drafting legal protections in the contract. The exercise will raise points of contention, forcing both sides to work through methods to solve disagreements and problems. The resulting contract clause probably won’t save your business in China, but the problem-solving practices and personal relationships that come out of the negotiations may give you a base on which to build your business relationship. Had Jack Wadsworth and Wang Qishan been the direct managers of the joint venture they might have worked out a better relationship.
Clearly there was a clash of personalities. Wadsworth is a typical high-powered American executive, confident, candid, and vocal. That works in boardrooms and executive suites throughout the United States, but it doesn’t work in China, where