Building Alliances in China
Britco, a British steel building fabricator and contractor, signed a contract to provide a
7000 square meter factory in northern China for an American client. Unable to obtain a
construction license under the Chinese regulations, Britco recommended a stateowned
Shanghai construction company with which it was allied, MC, to undertake the
installation work. Britco assured the client that it would supervise the Chinese company
and make sure that the installation work was up to international standards. With a view
to undertaking more projects in China for the same client, Britco persuaded MC to cut its
prices from the market standard of 8 dollars per square meter to 5 dollars.
Problems, started, however, soon after the project began. The construction team that
MC sent to the site did not belong to the company. A village team, it consisted of parttime
farmers from the countryside outside of Shanghai. MC, like many other Chinese
constructions companies, often subcontracts projects to such village teams. The village
team, however, did not have a construction license. The solution to this problem was
that MC allowed the village team leader to print a name card claiming he was a middle
manager of MC and was undertaking the work as part of MC.
The village team was, however, much smaller in number than stated on the contract,
while the installation equipment the team brought with it was hardly adequate in quality
and quantity to install the building. Some of the equipment, such as scaffolding material
and workers’ safety goggles, did not meet the safety standards insisted upon by the
American client. In addition, the construction team constantly demanded that Britco pay
for equipment, such as power generators and lighting for night shifts, clearly stated in
the contract as the responsibility of MC.
These conflicts escalated when winter came. The site, being in north China, was cold
and windy, which further delayed the pace of installation. Britco was under great
pressure from the American client to finish installation on time, while the village team
was working slower and demanding that Britco pay for more equipment.
A consultant was brought in to advise on resolving the dispute. Talks with MC
managers, requesting them to provide more manpower and resources, secured only
verbal assurances. A chance conversation with one of the workers, however, revealed
the core of the trouble. MC was upset about the lower prices of the contract and felt hurt
by the unreasonableness of Britco, with whom they had worked on a number of previous
occasions. Nevertheless, they signed the contract believing that once the contract was
secured, they could demand concessions and turn the deal into a favourable one.
