Reference no: EM131038214

CASE QUESTIONS
THE ROLE OF GUANXI IN CHINESE BUYING NEGOTIATIONS
In Chinese-based economies guanxi plays a critical role in developing interpersonal relationships that underpin negotiations within business. It is defined as being ‘a concept of drawing on connections in order to secure favours in personal relations. It is an intricate and pervasive relational network which Chinese cultivate energetically, subtly, and imaginatively. It contains implicit mutual obligation, assurance and understanding, and governs Chinese attitudes toward long-term social and business relationships' (Luo, 1997).

¦ Tight, close-knit networks (Yeung and Tung, 1996: 54);
¦ Interpersonal connections (Xin and Pearce, 1996: 1641);
¦ Provision of a ‘gate or pass' entry (Yeung and Tung, 1996: 54).

Guanxi occurs between people who share a group status or are related to a common person. It is also apparent among the frequent contacts between people as well as contacts between persons with little direct interaction (Dunfee and Warren, 2001). It involves ‘factions in Chinese politics . . . groups aggregated by chains of ties in which members of the groups are bound by a combination of group ideology, institutional interests, loyalty toward charismatic leaders based on the traditional principle of rectification of names and the leaders' personal ties.' ... ‘Although networking and building relationships are important to political or business success everywhere in the world, the Chinese have much more intensive preoccupation with relationship building and deem it one of the most important principles of success than elsewhere' (Guo, 2001: 1-2).

There are four major dimensions of guanxi which complement and reinforce one another, namely:

¦ Instrumental, i.e. involving self-interested motivation, based on the desire for abundant repayment and achieving personal advantage.
¦ Etiquette, i.e. using social rituals to establish and maintain harmonious human relations with one's acquaintances such as co-workers, colleagues, superiors or subordinates.
¦ Moral, i.e. rules that follow a traditional system of ethics that obligates oneself to those within one's guanxi network.
¦ Emotional i.e. whereby friendship plays a central role in regulating interpersonal relationships.

They coexist harmoniously, but they undermine and weaken one another when they coexist in tension. Consider the situation where two salesmen are negotiating with a buyer regarding the purchase of paper supplies for the office. The first salesperson represents a major multinational corporation (MNC) but has not previously sold to the potential buyer. The second salesperson works for a local Chinese business. The former, while Chinese, has built up few or no links with the potential buyer: the latter, living in the local community and having been to school with the buyer, has considerable guanxi over the negotiation situation. The pull, or obligation, to repay earlier family agreements, together with the moral and ethical elements involved, will encourage the buyer to place the order with the local Chinese business no matter what other benefits may be offered by the MNC's salesperson. Lower prices, quicker delivery and higher quality may be attractive but the power of guanxi is likely to override economic logic.

APPLE COMPUTER: FROM MAC TO IMAC AND IPOD

In 1998 Steve Jobs rejoined Apple Computer at a nominal salary of $1 per annum to try to rescue the company which he had created. Twenty years earlier Jobs with his buddy, Steve Wozniak, conceived the Apple I, which many believe was the world's first personal computer (PC). The Apple II followed and Apple went public as a result of sharply increased sales. Growth took off in 1984 with the launch of the Macintosh which was considered to be the most easy to use and best loved computer ever designed. The ‘Mac', as it is affectionately known by enthusiasts, was launched with much publicity which has been considered to be the greatest advertising ever made. The best feature of the Mac was its ease of use and, ten years later, 13m Macs had been shipped. However, Apple itself was in trouble. In 1995 the company experienced declining share and profitability and seemed puny against the giant Microsoft Corporation. Where did Apple go wrong? Has it managed to claw its way back since?

Apple took Microsoft through the US court system and right to the Supreme Court over the claim that Microsoft Windows illegally copied parts of the Macintosh user interface (anon., 1995). At the same time major anti-trust actions were being taken against Microsoft. However, Apple lost its copyright action against Microsoft in 1992. The legal action is itself taken as symptomatic of a fundamental mistake which some analysts believe Apple made in the early 1980s, in that it did not allow others to license its operating system. This was when the then mighty IBM launched its (much inferior) PC which quickly entrenched itself in the corporate market where ‘Big Blue' had an unrivalled reputation. By comparison with IBM Apple was considered to be a renegade company by the men in suits. The attractiveness of the PC and its relatively cumbersome operating system Windows designed by Bill Gates of Microsoft increased. In the late 1980s IBM's share of the PC market slipped as clone manufacturers gained a greater hold of the market, offering very competitive prices and good-quality products (Day-Copeland, 1988). By comparison, Apple discouraged clones and sought to protect its operating system (anon., 1997). For IBM the PC was a sideline, a diversion from its core business of churning out larger, more powerful mainframe computers.

But it sold in millions. Unfortunately, IBM failed to secure exclusive rights to either Intel's chip or Microsoft's operating software, which led to hundreds of ‘clones' of its new PC coming on to the market. All were based on the same Intel chips and Microsoft operating software, which together rapidly became the industry standard. The clones sold in even more millions than IBM's original. IBM's share of what was to become by far the largest sector of the computer industry collapsed: from close to 100 per cent in the early 1980s to well below 10 per cent in the late 1990s. The revolution introduced by the PC was both swift and brutal. From a standing start in the early 1980s, sales of PCs soared to around 50m a year globally. This market is worth $74bn (£41bn) annually, according to Dataquest, a market research company based in San Jose, California, and compares with global sales of 35m passenger cars and 100m colour television sets. As PCs became more popular so software developers began to focus more on providing material for the mainstream PC-Windows market first and later for the Mac. This led to users who prized the user-friendliness of the Mac becoming more disillusioned with Apple, as they witnessed the growing prestige and available pool of software applications for the PC. Apple was perceived as being second best.

In 1997 Steve Jobs went back to Apple after a thirteen-year exile. Jobs had been banished from Apple by John Sculley, who had been brought in from Pepsi to strengthen Apple's marketing as market share and profits fell. Sculley was himself dismissed in 1993 after a period that saw Apple's market share drop from 20 per cent to 8 per cent. His replacement Michael Spindler lasted until 1996 when market share had fallen to 5 per cent and, with losses mounting, it was feared that Apple would go into liquidation. Even diehard Apple loyalists who had held on to their beloved Mac's against the steady advance of the PC began to defect. Spindler was in turn replaced by Dr Gil Amelio, who wrote about his traumatic 500 days when Apple's market share declined further to 4 per cent. Amelio invited Jobs back, but was then subsequently deposed by Jobs.

Once again in command, Jobs set about the task of inspiring Apple employees to develop a series of new products. Informing this was a simple vision: ‘There's a very strong DNA within Apple, and that's about taking state-of-the-art technology and making it easy for people.' Apple is in the business of making complex technology accessible to those who lead busy lives and who don't want to spend their days reading manuals. Jobs disputes the conventional wisdom that suggests that the television set and the computer are going to merge so that emailing and Internet surfing can be done in the living room when not watching television, or with the television occupying only a part of the screen. His belief is that when people surf the Net they do so in active mode with their brains switched on; when they go to a television set they are passive and go to turn their brain off.

In 1998 the first of the new products off the line, the iMac, was launched, a product which prompted Keegan (1998:2) to gush that it was: Sleekly designed in translucent blue tones, and much easier to operate, it makes most other computers - almost statutorily beige in colour - look like something from a science museum. It is the nearest thing to Jobs's vision of ‘the computer for the rest of us.' Sales of iMac exceeded expectations at 278,000 units in the first six weeks making it what Fortune magazine described as ‘one of the hottest computer launches ever'. The iMac was the embodiment of Jobs's dream of a well designed eye-catching computer that was simple to operate. Then came the EMAC and then the powerful up-market G5 which appealed to professionals. In 2004 the iMac and G5 were married in a startling new format, the Imac G5, which integrated the processing hard drive into the screen assembly. Alongside these developments in the computer field came a product that would have been inconceivable before schoolboy Shawn Fanning developed Napster to challenge the global music industry. Apple quickly identified an opportunity, launching IPOD in 2001 to capitalize on the Napster phenomenon. In 2001 this allowed the consumer to bypass the rather tiresome task of visiting a store and buying an overpriced CD by simply searching for the music they wanted on a central website and then downloading the mp3 files direct to disc. What Apple did was to provide a virtually unlimited space for consumers to store not only music that could be played on the equivalent of a Walkman, but also photos and indeed anything that could be stored digitally.

CASE QUESTIONS
1. Why did Apple consistently lose market share despite the Mac being the most user friendly computer ever made?
2. What alternative strategies might Apple have followed?
3. In your view will the iMac be successful? Why?
4. Do you think that Steve Jobs is right when he says that the activities of watching television and using a computer are fundamentally incompatible?
5. Identify some current opportunities and threats that Jobs should be aware of.