The mistakes stemmed primarily from the investor’s lack of knowledge about the business environment in the country to which he was contemplating expansion. The case is a good example of the extent to which cultural differences make international expansion a challenging task. First of all, Rex Adam and Tsang Wai were not communicating well with each other in their first meeting. They had to rely on a translator whose honesty was less than certain. Second, Rex Adams should have conducted a study of his own on the pros and cons of conducting operations in China. Instead he decided to trust Tsang Wai implicitly even though he had no reason to do so. Most probably Rex Adams did not know how Tsang Wai had been involved in clandestine operations from the very beginning. According to the case, the beginnings of Red Dragon lay in illegal home-made products that Tsang Wai made using stolen goods from the factory he worked in. Therefore, Mr. Tsang was clearly not to be trusted. Thus it was a serious mistake on Mr. Adam’s part to trust his future partner’s word over any findings of his own. Third, there was no written contract. Oral contracts were the basis of the agreement and as a result, the agreement was not legally enforceable.
The three mistakes above forced Rex Adams to reconsider the idea of expanding to China. However these mistakes may be attributable to Rex Adams’s neglecting to do any homework on the Chinese business environment and on the cultural aspects of forming a joint venture. For example, he tried to impose western values on the Chinese way of doing business and as a result, the business relationship hit a stumbling block from the very beginning. This is not to mention the fact that Rex Adams was not even aware of how to address his business partner in the proper Chinese manner. Therefore, the one serious mistake that Rex Adams made in implementing his plans to expand to China was to meet potential stakeholders without recognizing the fact that they had a completely different way of doing things which his business operations would have to accommodate.
When it comes to forming an external relationship in international business, five factors determine the extent to which it is going to be successful. These are: complementarities, compatible strategies and cultures, the extent to which key resources and competencies are going to be shared, agreements with stakeholders and the probability of host becoming a competitor (cited in Hill & Jones, 2007). In the case of Red Dragon Enterprises, all five aspects should have been taken into consideration. Yet all of them were neglected. It is not certain whether Rex Adams was unaware of these considerations in doing international business or whether he wanted to take the easy way out by gambling on Tsang Wai’s word. But the end result of the agreement is proof of the disastrous consequences of entering a foreign market before making a detailed study of the market. Rex Adams was so lured by the possibilities of cost minimization available in China that he did not stop to think of the practical implications that would have to be taken care of before implementation became successful.
Rex Adams should have familiarized himself with the legal and cultural implications of doing business in China. With that knowledge, he would have been aware of how decision-making in China is considerably affected by the quality of the relationship between the parties involved. Therefore, even when business agreements went awry, Rex Adams as the foreign investor would have little to gain from seeking legal recourse. What the owner of Batrionics should have done was to leave one or more of his trusted managers to supervise the work at Red Dragon Enterprises so that the incidences of false reporting would not occur. Leaving Tsang in complete charge was not required by the relationship of trust. In the case there is no mention of Tsang Wai demanding that he should be left in full charge of the operations at Red Dragon Enterprises. Therefore Rex Adams had an opportunity to make sure that operations at Red Dragon Enterprises were proceeding according to plan. He should have transferred Chen to Red Dragon from the very beginning.
Batrionics had already lost a significant amount of capital as a result of unscrupulous practices at Red Dragon Enterprises. Therefore, Rex Adams would have to find some way of recouping the losses. The best way to do so is to continue the business operations at Red Dragon so that Batrionics would be in a position to take advantage of the low costs of production. Of course, given Tsang Wai’s propensity for the clandestine, it would be a serious risk for Batrionics to sink even more capital into the joint venture. However, since investments had already been lost, opportunities to get some return out of them even now should be explored. Therefore, continuing with Red Dragon rather than signing up with another Chinese manufacturer would be the best strategy.
As mentioned before, Rex Adams should have studied the business environment in China extensively before signing off on expansion. If he wanted to sign up with another Chinese company now, he would have to conduct a further investigation which would entail additional investments. There is no guarantee that the new joint venture would get off to a good start either. Therefore, Batrionics should remain with Red Dragon and try to undo some of the damage that has been done. In this respect, installing an elaborate monitoring and controlling system would stop the incidences of pilferage in both inventory and finances. Regardless of Tsang Wai’s tendency to do everything on the clandestine, Batrionics needs his expertise because in international business, global strategies have to take local considerations into account (cited in Fred, 2006). Tsang Wai would provide the expertise in this regard. Rex Adams should also explore the possibilities of formalizing the business agreement so that future disruptions could be dealt with more easily. Rex Adams should also try to build a network with the local authorities so that occasional glitches requiring government intervention could be taken care of speedily. Given the losses at the moment, Rex Adams would be justified in using fair means or foul in trying to get favors from the local authorities so that the joint venture with Red Dragon Enterprises can still be a success.
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