Moral Decision-Making in Business

Abstract

When the joint venture (JV) between PepsiCo and its local partner in Sichuan broke down, many observers compared their relationship to an ill-fated marriage passing through various stages toward an inevitable failure. Initially described as a marriage of convenience or an arranged marriage, it brought together two most unlikely partners—with apparently asymmetrical ambitions. One was a major symbol of American capitalism and globalization, the beverage giant Pepsi-Cola. The other was the Sichuan Administration of Film, Radio and Television (SAFRT), a division of the provincial government that had previously sought to protect its local beverage industry against foreign competition.

Unlikely as the partners were, the more remarkable was the venture’s early commercial success: soon after the marriage was consummated, it must have seemed like an ideal match, a marriage made in heaven. Nevertheless, a mere 8 years after its founding, the JV had become a burden that allegedly hindered both partners’ businesses. By 2001, Pepsi China felt it had been “trapped in a painful marriage with its local partner in Sichuan” (Liu 2006). The Sichuan partner, in turn, criticized Pepsi for its polygamous attitude evident, it seems, in Pepsi’s intent to treat the JV as merely one more addition to its list of more than 30 others all over China. In the course of their increasingly bitter dispute, both parties appealed to the local government not so much to counsel but more often to coerce the other side. Once it became clear that the government would refuse to take sides against its Chinese partner, Pepsi decided that it stood to lose more from being tied up in a dysfunctional marriage than from obtaining a divorce, which it eventually did through the international arbitration tribunal in Stockholm.

As we shall see, the ultimate collapse of Pepsi Sichuan was not a direct result of poor economic performance, but increasing frustration on both sides with their partners’ unrealistic expectations and indifference, if not contempt, toward each party’s perceived grievances. In what follows, our focus must be on what can be learned to avoid such an unhappy outcome. Could this marriage have been saved with a little more forethought based on a greater commitment to common standards of business ethics? In the 1990s and even today, many joint ventures in China have faced unexpected frustrations and challenges: what distinguishes the still successful JVs from those where the foreign party has long left China is not necessarily a better initial business plan but a better way of dealing with conflict once it erupts, as it almost inevitably will.

“If you analyze facts from different angles, you will discover the benefits of fair play.” (Stephan Rothlin, Eighteen Rules for Becoming a Top Notch Player, 2004)