LANG 306(2) Meetings and Negotiations
Meeting Simulation 1: Solving a pollution problem
Context
Huarong is a Hong-Kong based company which manufactures
refrigerators and freezers. Huarong has two factories in China:
refrigerators are manufactured at a factory in Tianshui, a small town
in a remote mountain area of Guangdong and freezers are produced
at a factory in Dongguan.
HUARONG
Huarong is a sub-contractor for FREDDO, a US-based white-goods company. FREDDO
has an excellent image and is the market leader in the US for white-goods. FREDDO is
also widely recognised in Asia as a quality brand name. In addition to Huarong,
FREDDO uses sub-contractors in Indonesia and Thailand.
The Tianshui Factory
The Tianshui factory was built about 13 years ago. It employs approximately 2,500 of the
50,000 people that live in Tianshui. This makes it the largest employer in the town, and a
major contributor to the local economy. Huarong pays higher wages than any other
employer in Tianshui. For this reason, although the work is hard and conditions are not
great at the Huarong factory, most of the people of Tianshui are keen to work there. With
a recent rise in demand in the market, more workers are now required for an increase in
production.
The Issue
It is common knowledge in the factory (and Tianshui) that chemical waste from the
refrigerator manufacturing process drains into a stream that runs through the factory site
and into the Tianshui river. Everyone knows that this has been happening as long as the
factory has been there.
Over the years, the pollution caused has been low-level, but recently the damaging
effects on the river and its animal and plant life seem to have become significantly
worse. No complaints have been made about this, but a journalist from Hong Kong
recently asked management about visiting the factory as part of a report that his paper is
preparing on manufacturing in China.
FREDDO knows very little about the pollution problem at Tianshui. Fortunately for
Huarong, FREDDO’s policy has for many years been to not interfere in its
subcontractors’ affairs as long as business is good. However, Huarong knows that
FREDDO is extremely sensitive about the issue of pollution following the scandal that
resulted from a recent industrial accident in Indonesia.
The Political Situation (local)
Mr. Wong, the owner of Huarong, is a native of Tianshui. He, therefore, has close links
with the community. Many of the citizens of Tianshui believe that the opening of the
Huarong factory 13 years ago ‘saved’ Tianshui, which was at the time in a ‘slump’. Local
authorities have enjoyed Mr. Wong’s ‘hospitality’ for the past 13 years. For this reason
and because they fear the factory closing down and the impact this would have on the
local economy, they have taken no action regarding the polluting of the river. Also
because nobody has eaten fish from the Tianshui River for over 20 years, the factory
poses no obvious or direct threat to the health of the town’s people.
The Political Situation (national)
FREDDO’s Environmental Auditor, has found the following statements in documents
concerned with China’s policies regarding the environment:
Each year more than 30 billion tons of untreated wastewater and sewage are discharged
into China's lakes, rivers, and reservoirs, or into the sea. In 1996, only 5 percent of
municipal sewage and 17 percent of industrial discharge received any treatment.
To strengthen environmental law enforcement, the government has revised its criminal
code to punish violations against the environment and resources. Polluters can be put in
jail for environmental crimes or fined for causing pollution. More than 60,000 small,
heavily polluting enterprises have been shut down in the past two years because they
failed to meet the government's environmental requirements.
An International Scandal
FREDDO was recently embroiled in an international scandal after an accident at the factory of
one of its sub-contractors in Indonesia.
This accident resulted in hundreds of tons of lethal acid waste being washed into a river near the
small town of Kata on the island of Lombok. For fear of reprisal, the owners of the factory tried to
keep details of the accident from local people and FREDDO. The tragic result was the death of
more than 50 children and elderly people from the small town and widespread chronic illness.
Once news of the tragedy reached America, there were protests outside FREDDO’s
headquarters in Seattle. People blamed FREDDO for not taking a more active role in overseeing
manufacturing processes at the factories of its subcontractors. The protesters urged consumers
to boycott FREDDO’s products.
Fortunately, FREDDO was able to salvage its reputation by instigating an investigation into the
accident at Kata, directing a massive clean-up operation and donating thousands of dollars in aid
to the town. FREDDO has since dissolved its contract with the Kata factory and has employed an
environmental auditor to monitor production at the factories of its other sub-contractors.
Technical Aspects of the Problem
About 25 tons of acid waste drains into the stream at Tianshui every year. This waste is
an inevitable part of the refrigerator manufacturing process.
At the Dongguan factory the same problem exists, but the factory is forced to adhere to
national environmental standards, so instead of allowing the waste to escape into the
surrounding environment, the acid is boiled away, a process which adds about 10% to
production costs. During the boiling process, a slightly toxic gas is released into the air,
but nobody seems to notice, probably because the factory is in a very industrial part of
Dongguan.
If this boiling process were to be used in Tianshui, however, the costs would be greater.
Because the factory in Tianshui is in a residential area, the gas released into the air
would have to be filtered, adding a further 5% to production costs.
The Financial Situation
The Tianshui factory is much less profitable than the Dongguan one. Productivity is 16%
higher in Dongguan than in Tianshui, largely because the factory is more modern.
However, some other costs are also higher in Tianshui:
1. Transport costs are higher because the factory is in such a remote area. In contrast,
Dongguan is close to major transportation networks.
2. Salaries, in general, are lower in Dongguan because the factory employs mostly
migrant workers. In addition, the Tianshui factory has to offer ‘inflated’ salaries to
attract specialised staff such as managers and engineers, who are reluctant to move
to such a small remote town.
The Meeting
The meeting involves two parties:
Party 1 comprises:

Mr Wong, owner of Huarong (group leader)

Plant Production Manager from Tianshui

Huarong’s Financial Controller

A local official from the County Government
Party 2 comprises:

Director of Marketing for FREDDO (group leader and Chair of meeting)

Assistant to the Director of Marketing

Environmental Auditor

Member of FREDDO’s Finance Department
Focus for discussion and decisions to be made:


how serious the problem really is (does it matter?)
what, if any action should be taken
Your teacher will give you guidelines to assist your team in planning for the meeting.
For the success of the meeting, you are advised not to show these guidelines to
members of the other team.
Remember to use the planning form in the book (p.29) to help you formulate your
ideas for the meeting.