Marketing Import and Export online midterm exam

INCOTERMS CASE STUDIES 

1.      Case of the MRI Machine with a Compound Fracture 

Shared Imaging, an Illinois company, bought an MRI machine from Neuromed, a German seller.  The terms were “CIF New York, buyer will arrange and pay for customs clearance as well as transport to [Illinois]”.    The contract also stated that the machine remained the property of seller until the complete payment had been received.  The MRI was loaded in Germany in good working order.  When it arrived, it was damaged.  Shared Imaging’s insurer, St. Paul, sued Neuromed, and argued that since Neuromed had insisted on a “retention of title” clause that they still owned the merchandise when it was delivered in its defective state and therefore should pay for the repairs.  Neuromed argued that under a CIF contract they were not responsible.  Who wins, and why? 

2.    Case of the Gummy Oil 

Empresa Estatal de Ecuador contracted to buy 140,000 barrels of unleaded gasoline from BP Oil International, on terms which were “CFR La Libertad (Ecuador)”.  The goods were to be loaded in Houston and the gasoline was required to have a gum content of no more than 3 milligrams per hundred liters, to be determined at the port of departure.  The gasoline was tested by the Saybolt inspection company, nominated by Empresa Estatal, and the test showed quality was ok.  However, when the ship arrived in Ecuador, a second test showed that now the gum content was too high, and Empresa Estatal refused to take delivery.  BP had to resell the gasoline to someone else at a loss of $2 million, and sued for damages.  Who wins, and why? 

3.      Case of the Filthy Beans 

International Commodities sold 230 metric tons of small Chinese white beans to North Pacific, under terms that were “C&F Portland, Oregon”.   The goods were loaded in 6 containers in Hong Kong with certificates of quality signed by an independent inspection agency in Hong Kong.  Upon entry to the U.S. the Food and Drug Administration tested a sample of the beans and determined that they “contained filth” and detained the shipment.  North Pacific informed IC that as a result they were rejecting the shipment, and they re-sold the goods to a South African buyer.  North Pacific now claims that it should receive a refund from IC.  Who wins, and why?

Road to Hell: The Challenge of Cross-Cultural Performance Reviews

I find that the average student tends to make a somewhat simplistic and superficial analysis of this case – limited primarily to noting that Baker is insensitive and patronizing.  A deeper analysis will try to get at the reasons for Baker’s missteps, and will also examine the mistakes made by Rennals, and will do so in the context of proposing specific steps to resolve the dispute and prevent similar disputes from occurring in the future.

One interesting aspect of Baker's approach is that he is guilty of a certain type of internationalist hubris, believing himself as an experienced traveler and executive to be immune from cultural faux pas.  I must admit that, I, too, as a teacher of cross-cultural courses, have been guilty of this hubris and have even made cultural gaffes in the context of a course on how not to make such gaffes!  So we must always be wary of the complexity of the cross-cultural context – we are always to some extent beginners in charting the vast mysteries of another person’s psychology and culture.

It is perhaps worth noting that Baker may be susceptible to a particular kind of overconfidence bred of enjoyment of colonial-era privileges and an under-appreciation of colonial resentment. 

However, we must not spare Rennals in our diagnosis.  He is not innocent, in that his experience in the UK should have alerted him further to this type of risk in a multinational firm.  Moreover, his aspirations to the higher echelons of corporate management suggest that he will one day have to traverse these cultural minefields with more skill and more aplomb.

First of all, the key Hofstede dimensions that seem to be implicated here are Power Distance, Collectivism, and to a lesser extent, Uncertainty Avoidance. 

First, on power distance, there seem to be several misunderstandings.  Baker's power distance is probably lower than Rennals', so he perceives the superior-subordinate relationship as less conflictual and tense than Rennals.

Moreover, because Baker’s culture is more Specific (in Trompenaars terminology) than Rennals', he assumes that he has the upper hand in their discourse. However, in Barracanian society Rennals' status as the son of a minister gives him a higher ranking than Baker, which creates a dynamic tension in their relationship.  Baker perceives, correctly, that he is the superior at work, but does not perceive that as soon as they go home, the positions are reversed, and Rennals has higher status.  So, he probably should have been more deferential with Rennals. 

I have been told that the same type of misunderstanding arises in some African countries when a hereditary tribal leader is employed in a corporation -- foreign executives who are unaware of the employee’s tribal status may treat him only according to corporate hierarchy, misunderstanding his traditional status, which may explain unusual interactions with other employees.

Rennals is very likely more collectivist than Baker, and so feels greater loyalty to his society, and what Baker intends as a personal comment is interpreted as an insult against the entire society, which is repugnant to Rennals. 

In addition to cultural dimensions analysis, it bears noting that there are intercultural communications issues that arise here.  So, we can apply Edward Hall’s theory of high-context vs. low context communication styles.  Baker’s Anglo-Nordic communication style is low-context, meaning that the strict verbal content is considered to the prime focus of communications; Rennals’ Afro-Caribbean communication style, like Arabic and Asian communication styles, for example, contains a good component of high-context communications, meaning that the overall manner, tone, physical context and emotionality of the communication is just as important as the verbal content. 

Whenever we are asked to enter a superior’s office there is a power-dominance context which imbues the discussion with a resonance which is absent if we meet informally in a hallway, at the cafeteria or in a restaurant, or in a conference room before or after a routine meeting.  It seems that Baker is less sensitive to this context, which is very likely due to cultural reasons, and this may explain why he fails to pick up on the non-verbal cues that Rennals is giving him that he is uncomfortable and resistant to this conversation.

From a pragmatic point of view, Baker also seems to misunderstand that his corporate authority stems only from his hierarchical position, and as a "lame duck" leader -- about to leave that position, his power status is already diminished, so his patronizing remarks about Barracania are all the more inappropriate.  Baker has simply waited too long to make this kind of critique, and at this point he probably would have been better off forgetting it.  One of the most sensitive workplace issues is that of giving constructive criticism.  Even in the best circumstances, the employee is very likely to feel offended.  In this regard, I sometimes cite the example of the Hagakure, a Japanese commentary on samurai etiquette. The samurai leader suggests that giving criticism is the leader's hardest task, and should be saved for the most appropriate, least threatening, most supportive type of circumstance.  If a samurai warrior can be exquisitely sensitive to the pain of criticism from a superior, consider how much more wounded an ordinary modern executive can be.

One technique that Baker might have considered would have been to hint obliquely at the troublesome issue.  He might have said, "You know, one problem that I have had on the job here, that I want to confess, is that it has been difficult for me to be sensitive to intercultural communication.  Sometimes I feel that I haven't been sensitive enough to the fact that we are different cultures working together here, and people may consider me to be brusque or unfriendly when that is not my intention.  Perhaps I could have gone more out of my way to anticipate these misunderstandings, and been more active to try to resolve them." This is teaching by hinting: of course, though, you don't want the hint to be too obvious. 

Finally, in terms of resolving the specific dispute at hand, one possibility would be to bring in a neutral third party as the ideal facilitator for a compromise. Rennals and his father have retreated into an antagonistic mindset as regards the company and Baker, and therefore it is possible that bilateral entreaties may fail.  Quite commonly in cases of aggravated disagreements based on cultural misunderstandings, the parties are so far apart after the conflict that they need a trusted mediator to put the discussion in a potentially-fruitful framework.  Thus, for example, if the company has access to a respected government or business leader who could act as an intermediary, this might be a diplomatic and low-risk means of offering the olive branch to Rennals and his father.  The intermediary could let them know that the company wished to make a formal apology and make amends.  Antagonists are sometimes more willing to moderate a conflictual style of discourse if they feel that in some sense the negotiation is being observed by someone they trust and/or respect.

Clearly, though, in the long term it will be necessary for the company to proactively address this issue with some kind of training.  These issues will reoccur and executives need to be alerted to various strategies for defusing the tension which is inherent in the company's multicultural context.

Eurochem Shanghai review

At first, this case seems to put the blame for problems on Paul Paus's shoulders, and on his general lack of cultural acumen, but a deeper analysis suggests that the issue is really more complex.  The Eurochem HQ did not give him any cultural training and did not seem to consider whether his task was even achievable.  Olsen, the local Managing Director, did not do a good of receiving him or integrating him into the team.  Li and Wu noticed that he was adapting poorly to Chinese business practices, but they did not alert Olsen until the situation became serious.

However, it is undeniable that Paus makes many errors.  First, he fails to take it upon himself to prepare for his expatriate assignment and study Chinese culture.  Arriving, he insults Li by showing up late to the first meeting.  Here we can introduce the concept of "loss of face," or public embarrassment, which is considered an acute and sensitive topic in many Asian cultures.  By failing to consult Li and Wu as he makes marketing changes, Paus continues to worsen the problem of loss of face.  When Paus cuts the credit period for certain customers, it is possible that they also felt a loss of face.

Next, we need to be aware of the importance of the concept of guanxi in Chinese business -- the establishment of a network of contacts to which one owes and expects reciprocal favors.  In America this is sometimes called "the favor bank," and in Arabic culture the analogue of "wasta" is sometimes cited.  In this case, it is clear that the Eurochem salespeople will lose opportunities to maintain their guanxi if they cannot see old customers.

If we consider cultural dimensions, it seems first of all the individualism/collectivism scale is important.  China is much more collectivist than Belgium, so Paus fails to understand the extent to which he needs to become a team player and subordinate his personal objectives to the harmony of the team.

The dimension of power distance is relevant, because Belgium has lower power distance than China, so Paus may not realize how much deference Li expects, or why Wu would be hesitant to approach him with feedback.

The dimension of long-term orientation is important because China is famously long-term oriented.  So when Paus seeks to tranform Eurochem's practices overnight, he may run aground of expectations that change should be worked in at a more moderate pace.

Uncertainty avoidance can also play a role, because the implementation of global operational standards is a classic sort of uncertainty-reducing device, but in some countries it may be too rigid of an approach -- and it may be necessary to take specific employees, specific customers and specific economic contexts into play in deviating slightly from standard practice.

Once we feel we have identified the source of the cultural conflict, we need to propose plausible and practical solutions -- both on the immediate level, and also on the long-term level.

Most students agree that the right place to begin is with some serious discussion between Olsen and Paus.  Olsen must be understanding but firm, and explain that he needs Paus to agree to make a commitment to adapt better to Chinese business practices.  Next, Olsen needs to have similar discussions with Li and Wu.  They need to understand that cultural adaptation is a two-way street, and that Eurochem is run by HQ and they need to take HQ objectives into serious consideration.  Then the team needs to meet and discuss the best ways to recapture the clients who are upset.  It may be necessary to relax the credit conditions for old and important customers, and it may even be necessary to apologize to Leung.  One common suggestion is to re-structure the marketing function until Paus's objectives are easier to meet, such as by putting Wu in charge of relationship management with old clients, and putting Paus in charge of leading the effort to find new customers.

Next, Eurochem needs to think about how to avoid this kind of problem in the future.  Clearly, the HR function at HQ needs to be alerted that they need to develop a strategy for training executives for expatriate assignments.  Also, HQ needs to consider whether it should adapt its global objectives to the specifics of certain important markets, like China.

In this case, we want to aim for a complete coverage of all possible issues.  You don't have to examine everything in depth, but it's important to show that you are aware of the complexity of each case, and of the different issues which could be touched upon, even if you narrow your focus to a few, key issues.

Frigaliment Case Analysis

            According to the case study, Frigaliment importing company, which is a Swiss company and the plaintiff in this case, offered to buy chicken from B.N.S International Sales Corporation, an American corporation who are the defendant in the case. The two organizations signed the contract in Germany. During their negotiations, there was a misunderstanding whereby Frigaliment used the word chicken to mean young chicken when indeed they meant young chicken suitable for broiling and frying. B.N.S on the other hand interpreted the order for chicken by Frigaliment as encompassing all types of chicken. Therefore, this led the organization to shipping and delivering fowl to their clients.

            Frigaliment however regarded delivery of goods contrary to what they ordered as breach of contract and therefore sued the company. At trial, the plaintiff claimed that the defendant delivered goods that did not meet the terms of their contract. The defendant claimed that the plaintiff did not specify in the contract if they wanted broilers. Moreover, B.N.S also added that the department of agriculture grading regulations also included broilers and fowl in their definition of chicken. Although the plaintiff holds that the terms chicken only meant young chicken, after all considerations, the court held that the plaintiff did not specify their interpretation of the term chicken and the case was dismissed (Scott, 1999).

            Conclusively, from the case study, it is evident that a grave misunderstanding prevailed in the negotiations between the two organizations before they signed their contract. Therefore, individuals’ concerned should care to explain all terms and meanings or rather expectations before entering into contracts so as to identify if they can deliver according to the expectations of the client.