GSBS6009 Cross Cultural Management Final Negotiation

Schedule

Time Groups

16:00 – 16:45 Group 8 will negotiate Group 10

17:00 – 17:45 Group 4 will negotiate Group 6

18:00 – 18:45 Group 3 will negotiate Group 5

19:00 – 19:45 Group 2 will negotiate Group 7

20:00 – 20:45 Group 1 will negotiate Group 9

Your Topic and Instructions:

Joint Venture in China

Common Knowledge

The year is 2012. China’s continued industrialisation has led to an insatiable demand for coal for electricity production. Coal prices have been soaring and have kept a large amount of small unsafe coal mines in operation. 80% of the 7000 fatalities recorded last year occurred in these small mines. The Chinese Federal Government wants to close the small mines down, however local communities and regional governments have protected the mines as they offer valuable employment and income to the local economy. In 2009 Australia and China signed a bilateral trade agreement that has opened the way for increased collaboration in the mining sector. The bilateral agreement has also emphasised the development of safer mining technology and practice.. One of the worlds biggest coal mining companies, Fernet Brio has, over the last 15 years developed a long term relationship with Zijan Mining, one of the largest mining groups in China. They have been collaborating on trade of minerals, and lately in joint investments in Australia. As part of Fernet Brios Research and Development, it has funded development of a safer coal mining technology at the University of Newcastle. Zijan Mining is keen to apply this technology in its mines in China.

Fernet Brio and Zijan Mining are developing a joint venture (JV) proposal whereby they will establish large-scale surface coal mines in an existing coal field. Zijan Mining has enjoyed a close relationship with the Provincial Government which has contributed to the Zijan Mining’s success in the region. Currently 40 small underground mines operate in the area, employing around 4000 workers. Production from the region is expected to increase from 0.5 to 10 million tonnes/year, but this will require major investments in the mines and in the railway system. Current coal prices are very good and are forecast to remain high. Profits are expected to be in the order of 50million AUD/yr once the mines are fully operational. The intention is that profits be shared 50:50, however the final split will be dependant on the financing arrangements and the risk exposures.

The Provincial Government is expecting from its side that there will be minimal job losses and that the mining companies in addition to establishing a dedicated track for coal transport, contribute to the upgrade of the existing railway track.

These pressures have created tension between the JV partners. The meeting today is the last chance for Zijan Mining and Fernet Brio to agree on how to proceed.

The meeting agenda lists the following points for discussion and agreement. Strategy for the closure of small mines Commitment to scholarships for training in mining safety Railway track upgrade Division of profit

For Zijan Minings Management eyes only

The Zijan Mining company has a stronghold in the province. The company needs to accommodate the Provincial Governments requests in order to maintain important Guanxi and also be seen as a company that will benefit the region. The biggest problem will be the loss of jobs in the small mines. Although these mines are very unsafe, they offer the only employment in the region. If Zijan Mining and Fernet Brio don’t succeed in finding a solution to the loss of jobs the Joint Venture will be met with resistance by the administration and the local population.

Further, Zijan Mining are keen to capture the safer mining technology that Fernet Brio has developed. Zijan would like to have the maximum amount of engineers and educated in this technology in order to replicate this in other mining regions of China and abroad.

Zijan Mining has during previous Joint Ventures with Fernet Brio always had a 50-50 split of the profits based on equal investment capital and risk-sharing. In the current Joint Venture, both companies will invest the same amount and thus have an equal financial risk, however, Zijan Mining have over the years developed Guanxi and close working relationships with the Provincial Government. This will be at stake if the project both leads to substantial job losses and they obtain less profits to reinvest in industrial projects in the region. Obtaining less than 50% of the profits will also feel like losing face and becoming a less valued partner in the Joint Venture.

Last the financing of the upgrading of the existing rail track is something that would benefit the region. This would create goodwill with the Provincial Government, increase trade opportunities and lead to economic development in the region and over time create new jobs.

Confidential success table for Zijan Mining

Closing of mines and reduced jobs

20 mines closed – 500 jobs reduced - 30 points 25 mines closed – 1000 jobs reduced - 20 points 30 mines closed – 2000 jobs reduced - 10 points 40 mines closed - 3000 jobs reduced - 0 points

Training of Chinese engineers

150 Engineers trained in Safe Mining Technology - 20 points 100 Engineers trained in Safe Mining Technology - 10 points 75 Engineers trained in Safe Mining Technology - 5 points 20 Engineers trained in Safe Mining Technology - 0 points

Financing of upgrade of the existing railway

15 million AUD - 20 points 10 million AUD - 10 points 5 million AUD - 5 points 0 million AUD - 0 points

Splitting of profit

Fernet Brio 50% - Zijan Mining 50% - 50 points Fernet Brio 55% - Zijan Mining 45% - 30 points Fernet Brio 60% - Zijan Mining 40% - 10 points Fernet Brio 65% - Zijan Mining 35% - 0 points

Remove 10 points for every 10% Zijan Mining gets less than 35% of profit.