The China Venture

and the other one in China. The company organised its Asian activities through sales offices
in China, Hong Kong, Indonesia, Japan, Singapore, Taiwan and Thailand.
LGC started the process of building up its joint venture in China already in the mid 1980s. By
doing so it could draw on the 25 years long experience of its Hong Kong office. 50 per cent of
the joint venture was owned by LGC, the rest by two Chinese partners, one of them a
government agency.
The company encountered little problems in starting up production and it also managed to
achieve its goal to stimulate the development of a local fashion industry that would use some
of LGC's core products as raw materials. There were no quality problems with the products as
export goals could be easily met.
However, internal sales did not develop according to plan. The partner company did not meet
LGC's expectations as far as distribution and logistics was concerned. Also, the partner did
not offer the expected network of contacts to relevant business partners. Managerial problems
were caused by a lack of co-operation between the foreign and local partners. Managers
appointed by the Chinese side tried to short cut decision making by LGC's general manager.
This resulted in bad business decisions, among which was the hiring of inappropriate staff.
Internal problems of the company were further worsened by a market which initially proved
smaller than forecast, by problems in exporting to other regions, and by a quickly emerging
competitive environment. Competitors soon managed to offer similar products, albeit at lower
quality, at much cheaper prices.
These trends did not escape the attention of the managers at LGC's headquarters. For a long
time they tried to mend the problems within the existing organisational structure but had
finally realised that a complete re-evaluation and repositioning of the company's activities in
China was necessary.
For this purpose, the management formed a team of specialist at the European headquarters.
This group could draw on information from within China, within the region, most notably
from its regional office in Hong Kong, as well as from outside sources. LGC attributed
enough attention to this repositioning process to invite professional, as well as semi-
professional consultants to join their efforts to reposition the company's strategies. 143
143 One of these groups of outside advisors was headed by the author together with a fellow
researcher, Reza Rahimi. The team also included nine graduate students of the University of St.
Gallen, Switzerland.
143