Please read the following case study thoroughly and answer the questions below

Morgan Stanley Establishing a Joint Venture in China

On August 1, 1995, Morgan Stanley Group, Inc. and a Chinese partner started Chinas first international investment banking firm. Morgan Stanley stated that the joint venture would give them an inside track to grow with Chinas emerging financial markets. As the only foreign investment bank with a major stake in a China- based investment banking house, Morgan Stanley would have an advantage over its competitors in winning deals involving project financing, direct investment, and equity and bond offerings at a time when China needs to finance enormous infrastructure projects.

The new joint venture, the China International Capital Corporation (CICC), has a capitalization of $100 million and is based in Beijing. Ten Morgan executives are based there, giving Morgan the largest presence in Beijing of any American investment bank. Morgan Stanley owns 35% of CICC and the Peoples Construction Bank of China, a commercial bank, has a 42.5% stake. The other shareholders, each with 7.5%, are the China National Investment & Guarantee Corporation, the Mingly Corporation (a Hong Kong holding company that has valuable connections with Chinese leaders), and the Government of Singapore Investment Corporation (GSIC). As a Chinese official stated, CICC will have a great impact on the development and globalization of Chinas capital markets, and the new venture will serve as a model in developing Chinas investment banking industry and in training Chinas international business managers.

The prolonged communications and negotiations that preceded this venture demonstrate various international and cross-cultural business communication issues and problems facing the partners and the strategies they used to cope with the problems.

Initial Moves from Outside China

Morgan Stanley explored the idea of a joint-venture investment bank in China for years. In June 1992, John S. Wadsworth Jr., chairman of Morgan Stanley Asia Ltd., suggested the idea to Wang Qishan, vice-president of the Peoples Construction Bank of China

(PCBC). With$~22 billion in assets, PCBC has long been the most important local player in financing Chinese infrastructure projects. Wadsworth spent one year cultivating Wang on the prospective venture. In June 1993, Wang was suddenly promoted to deputy chief of the central bank of China. The move was devastating to Morgan. Our major advocate was off to another project said Wadsworth. While Morgan Stanley was working on this possible project, others were taking similar initiatives. One was Payson Cha, managing director of Mingly Corp., a multibillion-dollar Hong Kong holding company. Payson Cha is the son of Hong Kong tycoon Cha Chiming, who has valuable connections with Chinese top leaders. The other one was Edwin R. Lim, an overseas Chinese economist from the Philippines, who worked at that time in the World Bank.

Over the years, Lim rose in the World Bank and opened the banks China office in 1985. These two men have known each other since 1974 when they first met in Nigeria on business. In Fall 1993, the two men bumped into each other again in Beijing, China. Cha had concluded that it was time to set up an investment bank to help China gain access to inter-national financial markets. Lim had explored the same idea with Chinese Vice-Premier Zhu Rongji, whom he had first met in 1980. Cha and Lim decided to work together to see if they could make the idea work.

Partnership Through Network

Lim had ready access to top officials and bankers, thanks to his World Bank experience. In his discussion with Chinese government officials about forming a joint-venture investment bank, the officials made it clear that they would only accept a deal that included players from several countries. So Lim brought in the Government of Singapore Investment Corp., headed by former Prime Minister Lee Guan-yew, who had close relationships with Chinese top leaders. GSIC manages a significant portion of Singapores foreign assets. Soon after, Cha and Lim met to decide which foreign investment bank to bring in. Although Salomon

Brothers Inc. and Goldman, Sachs & Co. had built reputations in China as preeminent American investment banks, Cha insisted on Morgan Stanley. He had recently worked with the firm, which had successfully placed a $ ioo million convertible bond in 1993 for Chas HKR International Ltd., an $840million Hong Kong property developer.

In the meantime, as previous discussions with PCBC on the deal were dead, Wadsworth scrambled to resurrect the deal. A former colleague of Wadsworth turned out to be a friend of Lim and suggested that Wadsworth get in touch with Lim. In October 1993, Wadsworth called Lim at his World Bank office in Washington, DC. A month later, Wadsworth and Lim met over a lunch of soft- shell crabs at Mai-son Blanch restaurant, not far from the White House. They showed each other the proposals they had sent to the Chinese government My letter and his could really have come out of the same type-writer said Wadsworth. Since Cha was already leaning toward Morgan Stanley, the team was formed. Political, Cultural, and Management Obstacles

With the overseas partners lined up, Lim in early 1994 left the World Bank to pursue the effort full time. Shuttling from Hong Kong to Beijing, Lim managed to win agreements from PCBC and the Chinese Finance Ministry; but getting approvals from the State Council, Chinas Cabinet, proved more difficult. Thus, the team asked Chas father for help. Chas father, Cha Chiming, had donated S20 million for a new science and technology foundation in China in 1994. Andon Chinese paramount leader Deng Xiao- pings birthday in 1993, the elder Cha also handed out 10 awards of $116, ooo each to Chinese scientists. These donations led Premier Li Peng of the State Council to express his thankfulness Now, to smooth the way for the bank deal, the elder Cha made the rounds in Beijing, securing the necessary approvals from the officials of the State Council. On September 20, t994, PCBC informed its partners that the deal was on. Everyone soon gathered in Hong Kong to work out the details. Cultural differences flared

between the Americans and the Chinese. For Americans, confrontation is a daily routine said Payson Cha but it will take time to transplant that idea in China Morgan Stanley, for example, wanted an agreement that management issues would be settled by a simple vote. The Chinese, however, wanted to resolve differences through discussion. Finally, both sides agreed to settle issues through discussion but set a deadline for how long these talks could last. After nearly a week of meetings in Hong Kong, Cha helped secure the final agreement. But challenges and risks remained. The toughest challenges facing the joint venture were how to merge sharply different management styles and how to cope with very different business cultures. The banks compensation for American and Chinese employees was different, with separate salary and separate bonus plans. The banks business was slower than had been expected. The legal system was still a deterrent to foreign investment in China, where personal connections often outweigh legal considerations. Moreover, if Beijing leaders suddenly opened the market to outsiders, Morgan Stanley could find itself saddled with a venture in which it had less than 100% control. Morgan Stanley, however, was betting that such a development would be at least several years away. In the meantime, it was busy conducting business the Chinese way. Questions for Analysis: Please analyze the case by answering the following questions. Your analysis and discussion should apply the relevant business and communication theories and principles learned from textbook readings, classroom lectures, and personal experience. 1. What are the partners common goals and individual objectives in forming this joint investment bank? 2. What communication strategies did each partner use at different stages and what related outcomes did each partner obtain? 3. Which strategy might cause potential problems to Morgan Stanley and its partners in the future and why?

4. What recommendations do you have for coping with the problems and how do you plan to implement your recommendations?