This case describes potential problems a firm has when selling to a developing market, as exampled by China. BP has moved in, signed up distributors, provided steel tanks for free, in hopes of quickly penetrating the marketplace. After two years bottled sales were down and plant capacity was 60% of capacity. Managers met for a strategy session and now they must decide how to proceed with their Chinese distributor partners.
1. BP had been successful in Malaysia. Should the same system work in China? Why or why not?
From the facts presented in the case, the same plant and management system was replicated in China. This does not mean that BP reproduced the same sales and partnership structure, even though BP may have approached the marketplace with the same expectations. Any such internal attitude would have been naïve. That is, BP should have conducted research on the Chinese market to insure they understood both the similarities and differences. Malaysia, a former British colony, has laws and business traditions in place that are familar to British Petroleum (BP). However, as a developing nation, with roots growing out of 50 years of communist controlled rule, there would be many different ideas about capitalism. Add the Chinese concept of “guanxi” or doing business through friends and we can easily conclude that BP should not expect the same marketing and sales arrangement to work in China. It does appear that BP had specific criteria for selecting partners, but in the heat of battle, failed to follow their own requirements.
2. How wise was it to provide bottles in order to expand quickly?
In retrospect, BP probably feels this decision should have been made more deliberately, since a significant number of partners are using the free bottles filled with local gas to sell to their customers. BP was in a hurry to penetrate the marketplace and finding local partners with certificates from the government was necessary. Setting up partners to sell for you in another culture is fraught with potential downfalls. For example, if we look at Selecting Partners on pages 148-50, the third point is to select partners that possess similar goals and values. In reflection, BP appears to have made a serious mistake in this regard. As discussed in the case, an unscrupulous dealer could under-fill the tank, avoid taxes, and use locally produced, but lower quality gas to make 50% more profit on a tank of LPG! Profit appears to be the major goal for the local partners rather than expanding BP’s distribution and local image.
3. BP managers saw the Chinese actions as being dishonest; what explanation might the Chinese dealers offer in defense?
The Chinese partners might respond that they joined forces with BP, purchased LPG at higher rates than could be obtained locally, and found that they could not succeed in the marketplace. That is, they worked to expand BP’s product in the local marketplace, but due to having to offer credit, pay bribes and give gifts, the system was not working forthem. The bottles given to the distributors may be viewed as pay for the unsuccessful effort made on behalf of BP. In reality, in many developing markets, this type of behavior is common. BP, as a large MNC with world-wide business experience, should have expected potential problems and in concert with experienced sales managers, should have monitored the progress of the partnership more closely. However, the BP managers may not have spoken Chinese and, as a result, may have put their fate into the hands of their Chinese partners.
4. What would happen if BP were to dump the existing distributor dealers?
Putting a distribution system in place is one of the most difficult and time-consuming aspects of marketing products. To set up a partnership in another culture further complicates the process. As discussed in the case, it appears that most BP partners have de facto dumped BP, so there is little downside in seeking new partners. Rather than publicize that the dealers are being dumped, it may be in BP’s best interests to look for a local partner who has an existing distribution system and who either owns or controls the system. It is very unlikely that BP can open their own distribution locations because of their limited knowledge of the local marketplace and China’s constantly changing regulations MNCs must follow to conduct business there.
5. What other alternatives does BP have? What should BP do?
BP can withdraw from the market, but this is really not an option. BP could file suit against their partners in Chinese court. Given the negative publicity and the unlikelihood of prevailing in court, this action would not be a wise one. BP can try to meet with selected “partners” and see what changes it would take to bring their actions into agreement with desired BP control. Regarding the meeting with current partners, this would be time consuming, but less so than finding new partners. One may ask why BP has waited so long to act, why there was not continual monitoring and meetings with their partners, and how BP attempted to make this a “win-win” relationship? There is little doubt that BP has the manufacturing expertise to set up a profitably run facility. It is extremely obvious that the actions alluded to in this case raises serious questions about their expertise in identifying, selecting, motivating, and retaining partners for their supply chain.
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