Trouble in Paradise (HBR Case Study)

Life in Shanghai has been more than comfortable for Mike Graves, the general manager of a U.S. apparel company's 50/50 joint venture with a Chinese manufacturer. His children go to the best school, he lives in a beautiful expat neighborhood, and his company pays for a chauffeur and a nanny. Mike has made the joint venture into a big success, at least in the eyes of its Chinese executives and local officials. Zhong-Lian Knitting has turned around three money-losing businesses and has increased its payroll from 400 to 2,300 employees. But Mike's boss, the CEO of the U.S. company, Heartland Spindle, doesn't share the rosy view. "A 4% ROI is pathetic," he says. "The numbers should be better by now." He's looking for a 20% ROI, which he says will require laying off 1,200 Chinese workers. He also wants to aim at the high end of the clothing market, meaning the JV will have to meet much tougher standards of quality than it has been able to do so far. To make matters worse, the Chinese executives now want to make a fourth acquisition, which they hope will position the venture to start its own brand of apparel--a move that could eat into profits for years. Can Mike keep the joint venture from unraveling? Four commentators offer expert advice in this fictional case study: Eric Jugier, the chairman of Michelin (China) Investment in Shanghai; Dieter Turowski, a managing director in Mergers & Acquisitions at Morgan Stanley in London; David Xu, a principal at McKinsey in Shanghai; and Paul W. Beamish, the director of the Asian Management Institute at the University of Western Ontario's Richard Ivey School of Business in Canada.