1 Explain Similarity-Attraction Theory and Self-Categorization Theory and apply the theories to discuss why there were problems in the case.

Q1.1 Similarity-Attraction Theory and Q1.2 Self-Categorization Theory

Q2 How did surface-level diversity and deep-level diversity factors influence the problems in the negotiations between Lee Mathews Co. and Lancy Clothing? Explain all surface-level diversity factors and deep-level diversity factors (excluding Hofstede's and Trompenaars' cultural dimensions) in the case in details and discuss the problems. (Seperate into Surface-level diversity factors and Deep-level diversity factors)

Q3 Discuss the impact of diversity problems on the team performance and the organizational-level outcomes/performance of the Lee Mathews Co. Give specific recommendations what William Johnson should have done to make his employees feel more included and to convince Mr. Liu Baoping to agree with the proposed deal.

A Failed Negotiation in China In 2020 Peter Smith, a young and energetic 30-year-old guy, worked for Lee Mathews Co., a large Australian women's wear company with eighteen retail outlets across Australia. The following story recounts his experience in a business negotiation in Beijing with Lancy Clothing. Lee Mathews Co. required a cheaper manufacturer of tailored women's wear and approached Lancy Clothing, a tailored menswear manufacturer, to provide this service. Smith and his Senior Manager William Johnson, an experienced 56-year-old businessman, travelled to Beijing with a Chinese-Australian female employee, Zhu Yi, who would act as interpreter. While Smith went as the product specialist, management thought his previous experience working in India would be valuable. Smith, however, was not confident that this provided him with the necessary skills to negotiate in China. He had worked in high-context societies but was unfamiliar with Chinese culture. He thus decided to adopt a few of the basic approaches he had used in India, namely, being patient, extremely polite, and fastidious when it came to details Johnson felt he had to finalize the negotiation in two days to achieve the goal, improving his chance of getting promoted to be Assistant Vice President. Smith tried hard to convince him that more time might be required, but Johnson only added one day to their stay, assuring Smith: "I'm good at this, just watch and learn." Fully believing only two days would be needed, Johnson also scheduled other meetings for the three-day visit. Sadly, Johnson lacked the business skills and the advanced business negotiation capability necessary to conclude deals in China. On Day One, Johnson and Smith met Mr. Liu Baoping, CEO of Lancy Clothing, Ms. Zhang Hua Ai, Senior Vice President of Marketing, and Mr. Ping Ming, Vice President of Supply Chain Management. Liu spoke reasonable English, but the other two spoke no English. They seemed to follow whatever said by Liu. The morning was spent drinking tea, with discussion focused on Lancy Clothing's capabilities. Johnson attempted to turn the conversation to Lee Mathews Co.'s requirements, but the Chinese negotiation team did not seem interested. Soon after, the Australian team was ushered to lunch, followed by a ninety-minute drive to the company's factory. After an 1impressive and thorough tour of the facilities, they were driven back to central Beijing for a 5 pm. banquet dinner. The timing seemed peculiar to Johnson and increased his frustration with the day's proceedings. Discussion began next morning. The Chinese knew a lot about Lee Mathews Co. and its competitors, which impressed Smith immensely, as he had not come across this approach in India. Smith noticed that Liu did research, planned and organized things very well in his business operations, while he was also willing to cooperate with Lee Mathews Co. although he had limited experience in doing business with Australian people. It also increased his confidence about Lancy Clothing's ability to meet their needs. The Chinese team confirmed they could meet Lee Mathews Co.'s volume and price requirements. The deal meant that Lee Mathews Co.'s landed cost for a fully tailored women's suit was $20. The retail price of $150 meant potentially high prots. However, a problem arose when Lancy Clothing identied its terms of trade. It was keen to maximize its foreign currency revenue and holdings, as this would lead to concessions from the government with regard to the control of their business. In addition, more protability would lead to better welfare for Laney Clothing's employees. For this reason, the contract was conditional on Lee Mathews Co. managing distribution of Lancy Clothing menswear in Australia. Johnson refused, but the Chinese remained firm that no deal could be negotiated otherwise. Smith, meanwhile, believed their warehouse could easily accommodate more stock. He saw an opportunity to increase sales and profits by distributing this product or, as an alternative, the opportunity to subcontract the distribution to another company and make a prot as middleman. He presented his opinion to Johnson. However, Johnson was annoyed and perceived such condition to be an unfair treatment by the Chinese party. He remained indignant and so did the Chinese. Nevertheless, Smith encouraged Johnson to consider this option and to calculate the gains of both $20 women's suits and the subcontracting of distribution, together with the option of continuing to manufacture suits in Australia. Eventually Johnson consentedias long as the cost of the suits made the venture feasible. Although Zhu Yi had said nothing on Day One, at lunch on Day Two she told Smith that she thought the negotiation was going well: \"I think they like you but I don't think they like Johnson. I tried to give him some suggestions but he never listened to me. I feel like I'm useless.\" The afternoon session became more focused on the Lancy Clothing rather than the Lee Mathews Co. contract, further infuriating Johnson, who made no attempt to disguise his feelings. Knowing that the negotiation would take three days, Smith decided to provide Laney Clothing with information on required sizes and fabric considerations for an Australian market before moving on to what Lee Mathews Co. required. The Chinese were very pleased with this. At the end of Day Two, Smith felt condent that a deal would be struck. But Johnson believed that only Lancy Clothing would benet, by gaining access to the Australian menswear market. As Johnson had another meeting on Day Three and possibly would not be able to attend the nal stage of the negotiation, he provided Smith with the required agreement conditions that included the terms for a written contract. The talks on the third day were slow. Smith was able to negotiate a price on Lancy Clothing's menswear that would allow healthy prots for Lee Mathews Co., even were it to subcontract the distribution to another company. Lee Mathews Co.'s contract was more difcult, however, not because of price or volume requirements, but because the contract was to include payment penalties applicable if certain terms were not met. The Chinese told Smith that, not being usual practice, this would be difcult to accept. They gave Smith their word that they would meet his requirements, but he told them that he was not able to negotiate a contract minus those penalty stipulations. Johnson was able to return to the negotiation, and he exploded when Smith told him that they were having a problem with the written contract. Standing up, Johnson pointed at Liu and said with heated emotion: \"Now, listen, I've been waiting three days for a yes or no answer and we keep going around the block, giving more to you as we go. I have heard that the Chinese tend to be tricky in doing business and my experience with you proves that it is true. We Australians don't do it your way. We leave tomorrow and want your commitment now. No more negotiation. If you can't do it then we'll nd someone else; there are millions of people like you here, and if you don't deliver, we'll piss you off and nd someone else. It's as simple as that. Just let us know: yes or no.\" Smith looked at the Chinese and knew the negotiation was over. Their expressions had become stern and cold; Liu left the room and the other two Chinese talked together quietly. Liu returned about twenty minutes later and said: \"We will have to consider this. We cannot make a decision now.\" The Chinese then packed up their things, said goodbye, and left the room. Smith's comment to Johnson was: \"You blew it, mate.\" A week after returning to Australia, Johnson realized the offer of Laney Clothing distribution would be a good opportunity after all and decided to contact Liu. Smith asked Johnson not to do so, saying that he would contact Liu, as he had established a good relationship with him. Johnson refused his offer, determined to salvage the situation himself. The Chinese response was: \"We are not able to do business with you at this time.\" A further approach, two months later, met with the same reply. Three months after his visit to China, Smith left Lee Mathews Co., which was then looking in South Korea for an alternative manufacturing base