CASELET: FIRESTONE COMPENSATION TRADE 1. Name: Firestone Tire and Rubber 2. Size of Project: US$ 30 million per Technology Transfer 3. Project Type: Technology Transfer, Compensation Trade (see diagrams attached) 4. Location: ideilly, throughout China 5. Background: Firestone wanted to sell its slightly dated radial tire technology to China. [The technology was not the most current in the US or Japan, but was current and appropriate technology for China and for Southeast Asia and Africa.] Its concept was to sell the same technology several times in China, to each of the major tire manufacturers. The Chinese party Was asked to pay US$30 million cash at the outset of each Tech Transfer. As an inducement, Firestone was -willing to agree to buy back each year a certain volume of tires that met international standard, so as to provide the Chinese party with a market and a source of hard currency to recover the initial US$30 million outlay. Firestone organized a team of only two individuals who were sent to China for 12 months to complete these sales. One was a senior VP of technology, who knew the radial tire technology very well. The other was a senior VP of marketing, who was experienced at selling and contract negotiations. You have been hired as a highly paid consultant to Firestone. You will meet the Firestone principals in their Hong Kong hotel room tonight.
Principal Questions (your answers should be specific and detailed, taking up at least 30% of your study or presentation time.) 1. Buyer Profile. Name at least 6 key attributes (characteristics) of the Chinese buyer e.g., large or small, technically advanced (3 years behind current Western technology) or technically deficient (30 years behind), State-Owned Enterprise (SOE) or privately owned, etc.). Explain your reasoning to Firestone.
- The Firestone team is flying to China from Hong Kong tomorrow morning. Which city Should they fly to first and whom should they call on there first? Explain why to Firestone.
- Given that a single Ministry — the Ministry of Chemical Industry or MOCI — is responsible for all rubber products in China, was Firestone likely to be successful in selling the same technology more than once to “China, Inc.”?
- A principal concern of Firestone is protecting the confidentiality of the technology. What provisions can Firestone add to the sales contract or buyback contract that might help to ensure the confidentiality of the technology? (Think beyond a confidentiality provision.)
- Firestone arranged U.S Eximbank financing to support this U.S. export. What differences would Firestone have encountered in the financing structure for a sale to, for example, (i) a Province, (ii) a Municipality with provincial-level status, such as Shanghai municipality, and (iii) a smaller Municipality?
- Please refer to the diagrams of compensation trade transactions in China. As Firestone, would you prefer the sale and the buyback to be in one contract, or two? Describe the likely nature of your buyback agreement: Would you prefer to be a buyer from or a sales agent of the Chinese technology purchaser? Please give reasons.
- What does Firestone’s experience suggest about the market in China? * * * •
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