Success story: E-S Pacific Corporation
Not all business relations with China were unsuccessful. One example of a success story is the E-S Pacific Corporation, a company that scored major accomplishments in securing joint-venture arrangements with China to construct large hotels in key cities, specifically Beijing and Shanghai. This joint venture illustrates experience with negotiating, the terms of the agreement, and the factors responsible for their mutual success.
Because of the lack of hotels and other facilities, China had to reject 75% of tourist s applications in 1980; in 1979, only 960,000 tourists visited. The China International Travel Service s (CITS) goal was to receive two million tourists by 1985. In order to do so, the country needed ways to accommodate the influx of visitors. E-S Pacific Corporation, a subsidiary of the Cyrus Eaton Group of Companies was not a large hotel chain, yet had large successes in securing joint-venture arrangements with China. The E-S Pacific Corporation engaged in joint-venture hotels by keeping in mind the five principles, because it is non-resource depleting, non-polluting, creates jobs, has low energy requirements, and most importantly, there was a positive hard currency cash flow immediately upon opening. It also gives the Chinese the important perspective of foreign knowledge and expertise and brings in foreign capital.
In the construction of the 1000 room luxury hotel, the design and construction management was brought in from California, while the actual builders were locally hired from Beijing. The Corporation avoided classic compensation, known as the twin tower approach, which is when a foreign partner comes in and constructs and pays for two towers, one of which is run by China and the other by the foreign investing firm. The difficulty is they are managing the towers separately. In E-S Pacific s joint venture, there is joint managing, constructing and operating of the facility. In effect, they both receive mutual benefits and have the ability to transfer management expertise that one side brings to the other.
Overall, John Eaton, treasurer of E-S Pacific Corporation in August 1980 thought that they were good partners, pragmatic, conscientious, eager to learn and straightforward, yet at times, disappointedly slow by American standards, (Tung, 106). E-S Pacific signed a letter of intent that was neither binding nor exclusive. The Corporation undertook the responsibility for providing the financing, design, construction management and foreign procurement for the project. The CITS provided the site, all the necessary approvals by China, certain materials and all the labor for construction and operation of the hotel. Also, to protect themselves against unforeseen exploitation, the CITS put a cap on the number of years the venture lasts. At the end of the ten years time, their 49% is handed over to CITS and their role is over.
There are several reasons why E-S Pacific was considered over more well-known national chains like the Hilton. First, the workers were paid the normal wage rate, with an added 30% for tax deductions and 10% extra as a worker s incentive. Second, because of Cyrus Eaton, Senior s pioneering efforts. Even though he never went to China, he was a major proponent of China s admission into the US. His groundwork earned the necessary guanxi, or goodwill and trust. E-S Pacific also had the experience of dealing with socialist countries in Eastern Europe making them aware of issues, concepts, and problems dealing with socialism. Upon printing of the related article in 1982, ground had not been broken for the construction of the hotel, yet optimistic plans were underway to also build other hotels in Shanghai. Because E-S Pacific Corporation was diligent in maintaining the five principles in their negotiations, success was achieved over other major contenders in China.
Such success stories are also evident in the development of an economic relationship with Japan.
The Developments of Economic Relationships with Japan
There are many trade conflicts that have taken formation through out the 1980 s and 1990 s. The United States had successfully demanded that Japan lift import restraint on beef, citrus fruit, lumber products, and other goods. The United States had asked Japan to deregulate its financial markets. The United States had demanded certain changes in the market trade under a threat o