Please read and answer the questions below.

John Higginson sat uncomfortably onboard a Boeing 777 as it taxied down the runway en route to Los Angeles. Just two hours earlier, John had been the picture of serenity as he had arrived at the Hong Kong airport. For two weeks he had traipsed across China visiting potential new suppliersand sleeping on very hard Chinese beds. As he sat at the gate before boarding the plane, he reflected on the fact that as much as he loved China, he was ready to return home. And then his cell phone rang.

A Good Relationship Gone Bad

As the plane took flight, John couldnt help but wish the call had come 30 minutes laterafter he had boarded the plane and turned his cell phone off. Indeed, as he had glanced at the number and realized it was someone calling from headquarters in Salt Lake City, he had been tempted not to answer. After all, it was Friday, and more than anything, John wanted to sleep through the flight. Having been gone two weeks, he wanted to be as well rested as possible so he could help around the house and play with his kids when he arrived home.

Yet, his sense of duty (and maybe a little guilt) carried the day, compelling him to answer. No sooner had he done so than he wished he hadnt. Tim Tree, the leather buyer at O.C. Tanner, was on the line. Immediately after saying hello, Tim blurted out, I just got off the phone with Wilson. He said he wont sell to us anymore. John, Wilson just fired us as a customer!

John responded calmly, Why?

Tims answer surprised John: He hates us!

John found Tims comment odd and out of character. Wilson Wong, owner of Gimpex Industrial, didn't hate anybody. Wilson was one of the good guys. He produced good product and performed to promise. John had selected Gimpex as a supplier, and in almost a year of working with Wilson, he had never had a problem. Thus, he queried hesitantly, Why?

Tims response was even more baffling, I dont know. John, you built this relationdo something!

The Power of Guanxi

A cascade of thoughts had filled Johns mind as he promised Tim that he would do something.As he hung up the phone, John immediately thought back on his relationship with Wilson and on O.C. Tanners relationship with Gimpex. John knew that guanxi (the Chinese word for relationships or social networks) would be critical to resolving this apparent disaster. Fortunately, John decided that he felt really good about his friendship with Wilson.

Undeniably, one of the keys to Johns success as O.C. Tanners China liaison had been his ability to build good relationships. His style matched the Chinese way of doing business. Simply put, he made friends easily. Of course, the fact that he spoke Mandarin with ease and a high degree of fluency pleasantly surprised many of his Chinese counterparts, making it easier for him to earn their trust. His understanding of Chinese culture and his constant efforts to never put a supplier in the position of losing face cemented these positive relationships.

Likewise, O.C. Tanners approach to business had helped forge strong relationships with Chinese suppliers. Indeed, many Chinese managers felt that their U.S. and European customers often viewed them as dispensable business partners. By contrast, John had always found it easy to sell three particular aspects of O.C. Tanners business philosophy to potential suppliers:

1. O.C. Tanner always performed to promise. John was always pleased that he worked for a company that actually does what it says it is going to do.

2. O.C Tanner paid its bills on time. Surprisingly, this was a big deal for Chinese suppliers. John had heard many horror stories from supplier representatives who complained that U.S. and European companies made it a practice to pay lateif at all. Having been burned a lot, Chinese suppliers went out of their way to keep O.C. Tanner happy because they knew O.C. Tanner would pay its invoices on time.

3. O.C Tanner took pride in treating suppliers fairly. Although O.C. Tanner had to carefully manage its costs to stay competitive, O.C Tanner was not in China to beat up suppliers. Quality had always been more important than price, and O.C. Tanner was willing to pay a little more to secure the highest quality. John had always been amazed that most Chinese suppliers did not understand this concept. They felt that everybody doing business in China was there to cut costs as deeply as possible.

Johns quick review of the history behind the relationship had assured him that he had developed enough guanxi to call Wilson immediately.

Even though he had had only a few minutes to talk, he had started the conversation with Wilson by asking about his family. After verifying that life was treating Wilson well, John asked, Whats wrong? Why wont you sell to O.C. Tanner anymore?

For the second time in 15 minutes, John had been surprised by an answer. Wilson had simply said, They havent paid me. Ive emailed the buyer, but there is no response. They are two months behind on payment.

Johns response had been equally direct: I dont understand. We always pay our bills. Over the year that we worked together, didnt we always pay on time?

Wilson cheerfully conceded that fact, but reiterated, They arent paying me now.

With the boarding process almost complete, John had done the only thing he could have done. He had turned the situation into a matter of personal trust, saying, Im in Hong Kong now, but my flight back to the States leaves in a few minutes. Ill be in the office on Monday and will find out what has happened. Ill make sure you get paid first thing next week. And Ill make sure this does not happen again. Will that work for you?

John had smiled at Wilsons response: For you, John, I will sell to O.C. Tanner.

Looking ahead to Monday

As the 777 leveled off at 33,000 feet, John began to relax a little. He was confident that he could fulfill the first part of his promise to Wilsonto arrange for payment on Monday morning. Defining and resolving the underlying problem would be a bigger challenge.

Given O.C. Tanners payment philosophy and systems, a payment problem never should have happened. After all, the payment process was simplethe buyer receives the invoice, approves it, and sends it to accounts payable. Funds are then electronically transferred to the supplier. John was a little miffed. What could go wrongespecially for eight weeks?

Worse, the timing of this debacle was troubling. After a tumultuous start, O.C. Tanners global sourcing strategy had gained traction. On many products that had been deemed to fit an outsourcing model, O.C. Tanner was obtaining cost reductions of 80 percent or more vis--vis U.S. domestic suppliers. Nobody could deny that O.C. Tanners growing China supply base had been performing above expectations.

This fact had transformed Johns role at O.C. Tanner. Originally hired to help get the China sourcing strategy off the ground, John had spent the past 18 months as a member of the Product Realization team. The teams responsibility was to figure out how to take new product ideas from concept to market. John liked to define his job as getting the ball rolling and handing it off to the category buyer. This is exactly what happened with the large leather zip padfolio that O.C. Tanner sourced from Gimpex (see Figure 3.18). John had worked with Wilson to develop not just a highly successful product but also a strong relationship before handing the product and the relationship off to Tim.

Importantly, John really enjoyed his role on the Product Realization team. Who wouldnt? He still had his dream job of working closely with O.C. Tanners China strategy, but now he had the added chance to be part of the vibrant new-product development process. Dead tired, John closed his eyes, wondering what had gone wrong. Was this fiasco emblematic of a deeper issue regarding the task design of the Product Realization team? Might it affect O.C. Tanners China sourcing strategy?

Questions

1. What should John do when he arrives at the office on Monday morning? Be specific.

2. What do you think caused the payment failure? What role did each of the following play in creating the problem?

   1. The design of the purchasing process

   2. The product-realization task design

   3. Human nature

3. Discuss the nature of guanxi. How important is guanxi outside of China? What can you do to develop it? Did guanxiplay a role in causing the payment failure?