Reference no: EM133257712

Bad blood:

Read the case study below about joint venture between a Saudi Arabian and a German company, then answer the questions

Our group, the Venture Group- a mother company in India, with as branch head, Mr. Soota- received an offer to invest $2 million in a joint venture between Brigitte Zankyl GmbH in Munich and DXB-AI Fayed Corporation in Saudi Arabia. The proposed project was to build a plant in a small town near Riyadh to make blood transfusion tubes to sell in the Middle East. The German company had the technical expertise; the knowledge, capital and funding required was to be provided by our company. At this point, Venture was in the process of negotiating the contract.

DXB-AI Fayed was a partner in the business because it had managed to negotiate and win a favourable contract with the government for the purchase of the plastic tubes. The Saudi Arabian company was in a very comfortable position: it had no financial stake in the project and was a 35 percent partner in the business by virtue of its good contacts with the Saudi government and its in-depth knowledge of the local market.

A few senior managers from our company were asked to go to Riyadh to explore the viability of the investment. Two weeks later, after our managers had returned, the company was more convinced than ever that this was going to be a wonderful project. We only had to wait for another three weeks since the German negotiating party was going to negotiate and conclude the contract after having received the necessarily approval from us.

A large delegation of nine people, including lawyers from Germany prepared themselves for the negotiation. On the first evening, after negotiations had started, we heard by phone from the German side that things were looking good.

The next day, however, we received a call from the Saudi party. They informed us that they were not willing to sign any contract with the German party and, if possible, we should try instead to team up with them. Mr. Habib commented on the phone: 'I am sure that we can work with you, but Mr. Zankyl and Mr. Kirchdorfer are people we do not trust! We get the feeling that they are trying to use and swindle us. They are trying to pretend they are doing us a big favour; they think they are lords, but Allah is there watching us all. We have tried to work with Westerners before and they always try to be difficult. The only solution I can see is that we contract with you: you run the project. We don't care if you outsource the technology and expertise from Brigitte Zankyl, but our only condition is that they do not become a partner in our business!'

Mr. Soota was becoming concerned and, to try and diffuse the situation, asked Mr. Habib to calm down. 'Mr. Habib', he said, 'I apologize on behalf of my business partners in case there has been any misunderstanding. I am sure we can resolve the matter. Would you like me to fly down there early tomorrow morning so that we can resume discussions using a clean slate?

Mr. Habib appreciated Mr. Soota's remarks, adding: 'I wish the German side could understand us as much as we understand each other. They do not care about what we think! All that matters to them is dollars, dollars and more dollars. Our esteemed minister Mr. Sherrif gave us his word and promised us that, Insha'Allah, the government would sign the purchase contract next month, but the German lawyers told us that they would only like to see contracts in black and white and said that our word was not enough. Do they want to imply that, I, Shekh Habib, am a liar? If they don't trust us, then I have to be honest and admit that we do not even trust them since business should be for mutual benefit and not dictated. I am sorry, but please do not expect me to respect somebody who thinks that we are dishonest and unprofessional in our approach. Mr. Kirchdorfer said that our small family business needs to gear up and act more professionally to manage the new project! But we know how to run our business- we don't need the Germans for that!

Question 1: Why do you think Mr. Habib did not want to do business with Brigitte Zankyl GmbH?

Question 2: What do you think is the most likely issue that happened?

Question 3: What would have been the most appropriate attitude for the Germans to adopt?

Question 4: What would you do next if you were in Mr. Soota's position? Explain why?